You Need A Budget (YNAB) Personal Budget Software
Like anyone who wants to be wise about his or her spending habits, I try to keep a budget of sorts. I’ve used several personal budget software programs and personal financial software applications. However, my favorite continues to be You Need A Budget (or YNAB for short). If you are interested in a review of this software, check out our YNAB (You Need A Budget) review for a comprehensive look at one of the top programs available for budgeting right now. Even Amazon reviewers rank it much higher than they do other popular tools like Quicken and MSN Money. If you want more details and are interested in checking out this software, you can do so here.
I’ve also developed a simple way to account for every single penny I spend and to determine how much money I should allocate for certain things.
I’ve also checked out my spending history and tried to identify which items normally lead to overspending. Contrary to what I thought, it wasn’t the small luxuries and the drinks out with friends that killed my budget. It was the large, unexpected expenses that got me into trouble — such as when I had to pay for the pipe system to get fixed in my bathroom. To control my household budget, I had to plan for these unexpected financial emergencies.
How I Budget My Money and Control My Spending
Eventually, I figured out a way to make budgeting simpler for myself. I decided to divide all my spending into three categories: committed expenses, irregular expenses, and fun money. I also created a budget category for my savings.
Committed Expenses: 60% of Net Income
Committed expenses represent the basic necessities I have to pay for. This includes food and money, rent, my cell phone bills, my credit card bills, and my taxes. I decided to allot 60% of my monthly income to paying for my committed expenses. What made it difficult for me at first was the large amount that I needed to pay for monthly credit card bills. In order to aggressively get rid of my debt, I cut down on fun money and irregular expenses until after all my core expenses were paid. Once my debt is all paid, I will then redirect any disposable income back into my savings.
Irregular Expenses: 20% of Net Income
The next category, irregular expenses, includes those little emergencies I mentioned just earlier. I decided to have 20% of my paycheck direct-deposited into my high yield savings account (to earn an interest) which is hooked to a separate checking account through electronic transfer. Over the months, I use the money in my checking account to pay for repairs, vacations, presents, and other less predictable expenses.
Fun Money: 10% of Net Income
Finally, the fun money is money for shopping, going out with friends, and general entertainment. I’d like to limit my budget for this to 10% of my net income. With the fun money, anything goes, as long as the total spent doesn’t exceed 20% of my income, which is the maximum I can afford without going into debt.
Savings: 10% of Net Income
I have designated at least 10% of my net income to savings. If I so desire, I can completely cut out my fun money budget and funnel all the funds there into my savings. So in effect, I have room in my budget to adjust the percentages at will so that I have better management of my spending and saving.
How Do You Categorize Your Spending?
As soon as I categorized my spending and saving activities into the four budget categories, I’ve had an easier time figuring out how much to set aside for my given needs. You should try it as well!
A friend of mine tried to cut her budget up into these four categories, but unfortunately, she had a pretty hard time reducing her committed expenses to 60% of her monthly income. It turned out that she had one big expense in the past month that threw her budget off. After some discussion and time spent reviewing her spending history, we also realized that there was a big gap between her income and living expenses to support her lifestyle. The good news is that by going through the exercise of tracking her expenses, my friend has since vowed to cut down on her spending, has promised to pay off her debts as quickly as possible, and has worked to set a smaller budget aside for fun and recreation.
Budgeting requires some discipline and commitment, but once you get the hang of it, it can eventually become second nature. Good luck with setting up and sticking to your budget!
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