What is it? What are the different ways?
What is a budget and what is budgeting?
In layman’s terms, a budget is a financial plan for a period of time and budgeting is the act of putting that plan into action.
This financial plan is like an overview of your income, expenses, and savings. There are different types of budgeting methods including zero-based, traditional, incremental, and activity based budgeting. More information about budgeting can be found on The Balance and more information about a budget can be found on Investopedia.
A couple of helpful tips.
- Consider everything into your budget: income, expenses, savings, investings, debt, and play money.
- Know your financial goals. If you are currently in debt, do you want to be debt-free in the next x months or years? If you are not in debt, do you want to invest or save a chunck of your money? Or do you want just to live paycheck to paycheck?
- Most importantly, have a balance in your numbers and outlook of life.
My Asian Side’s Perspective
Growing up, I did not have any knowledge on financial literacy. My parents were immigrants and their main concern was making sure we were feed, clothed, and sheltered.
It wasn’t until after college did I really buckle down and hone in on my financial literacy journey. Like most, I would listen to different podcasts, watch different YouTube videos, and attempted some books. I tried writing and re-writing my budget in different time periods of bi-weekly, monthly, and annually.
Instead of calling it a budget, I call it a Money Outline . This helped me get over the face that budgeting isn’t scary or nerve-wrecking. It actually helped me fused a couple of different strategies into making my own.
Money Outline: I fused the bi-weekly time period with the zero-based method. For a given month*, I would write down everything as mentioned above based on my 2 paychecks’ dates. I usually have at least a $3,000 buffer** in my account to let me plan a month in advance.
For an example, I got two paychecks this month. One on the 11th and the other one on the 24th.
1st paycheck on the 11th for December 2020: The money was used for phone bill, utility bill, food, debt repayment, and savings (which include money set aside for car insurance plan and food for our pets).
2nd paycheck on the 24th for January 2021: The money will be used for mortgage, car payment, debt repayment, charity, and investing.
*Depending on the month, I would get three paychecks.
**Having a buffer is like an emergency fund but not quite one. It’s just to ensure that there is money in an account without the account entering the negatives.