Budgeting like a Boss: best ways to manage your budget

21 January 2020

image of savings

Budgeting can often be harder than it sounds. With so many guides, templates and suggestions on how best to save your money, it can take a while before you figure out which one works best for you. Fear not! Team Portify are here to help you with the process! We’ve outlined three of the most popular budgeting plans below, with a short summary, worked examples, and important points to consider before adopting the approach. Also, bear in mind that an excel spreadsheet can be used to manage any of the following options - no need for fancy resources to get you started. Without further ado, let’s get right into it!

1) The Piggy-Backing technique

How does it work?

The Piggy-backing technique involves the setting up of multiple ‘piggy-banks’ which operate like savings pots. You will need to choose the categories for your little pots. From groceries, to rent, to vacations, you pick what are your most pressing and pertinent ‘piggies’. After choosing what those pots will be, you need to regularly deposit money from your income into these pots - in essence, you need to regularly ‘feed the piggies’!

Will it work for me?

There are some great benefits to the Piggy-backing technique. This budgeting plan helps you ensure you have enough for some of your essentials, such as paying your bills. However, you will need to balance your budget and figure out how much you actually spend for each ‘piggy’. It may be particularly difficult if your income is volatile and you do not earn roughly the same amount of money each month.You also need to pick the categories for each saving pot, which can become cumbersome and tiring to keep track of if you end up having quite a few. Some people set up standing orders from their main account into their savings pots to help with this.

Worked example:

Start with a monthly income of £2,000
– Savings pot 1: Housing - £750
– Savings pot 2: Groceries - £ 200 entertainment, phone, gym, vacation fund
– Savings pot 3: Transport - £150
– Savings pot 4: Entertainment - £150
– Savings pot 5: Savings/Retirement - £400
– Savings pot 6: Phone bill - £50
– Savings pot 7: Vacation - £300

Our Verdict:

Pros:
- Great way to easily see how much you spend for specific categories of spend.
- Sets up a transparent system of financial accountability.
- Ensures essentials are always taken care of.
Cons:
- Can be tricky to manage if you do not earn the same amount of money each month.
- Administratively intensive and can take up time if you have accounts with a non-traditional bank.
- Need to be on top of your finances to ensure your current account has sufficient funds.
- Savings pots may work better with long term savings.

2) 50/30/20 Budget

How does it work?

The 50/30/20 budget works by allocating fixed percentages of your income to specific categories of expenditure. You need to allocate 50% of your budget for your essentials, 30% for extras, and 20% for debt and savings. This helps you to reduce your needs to 50% of your income - essentially, anything that would dramatically affect your life if you were to go without it.

Will it work for me?

The great thing about the 50/30/20 budget is that it allows for income flexibility. If things change and your income either increases or decreases, you can apply the same principles. However, this budget plan may not work for someone with high amounts of debt, or someone who is actively towards financial independence - particularly if you need to allocate a higher rate towards your savings.

Worked example:

Start with an income £2,000
– 50% of £2000 = £1000 for housing expenses, transportation, food.
– 30% of £2000 = £600 for entertainment, phone, gym, vacation fund.
– 20% of 2000 = £400 for savings/retirement, extra debt payments.

Verdict:

Pros:
- Offers consistency for those who have income volatility.
- Ensures a proportionate amount of money is directed towards your savings.
- Ensures essentials are always taken care of.
Cons:
- Can be tricky to stick to those percentages for those who want to save more or have high debt repayments.

3) The Zero based budget (ZZB)

How does it work?

The zero-based budget essentially means that you must budget until all of your income is accounted for. This means you make use of every penny of your income and tend to each of your commitments well in advance - for instance, savings, debts, and spends until you reach zero.

Will it work for me?

For this plan, you will need a full understanding of your income and expenses. Guessing won’t cut it for the ZZB method. You’ll need to grab your paychecks, bank and credit card statements. You will also need to track and categorise your spending and expenses. Account for things like mortgage, rent, utilities, insurance, transport, debt payments, savings, investments.

Worked example:

Start with £2,000
– £700 for housing expenses
– £160 transportation
– £200 food
– £240 entertainment
– £300 debt
– £400 savings/retirement
= £0

Verdict

Pros:
- Great way to take full charge of your finances and expenditure.
- Ensures every single penny of your income is accounted for.
- Ensures essentials are always taken care of.
Cons:
- Can be tricky to manage if you come across any unforeseen circumstances.
- Requires strong discipline and high administrative skills to account for all expenditures.

Try out the budget you think works for you this month, and see how it works out practically! Don’t forget to join our community on facebook where we talk about all things finance and financial goals!


Portify can help you with tracking your expenditure with our cashflow tools in app. Download Portify here and start taking control of your finances today.