How To Choose The Right Budgeting System

By Amos Mzenge

The solution to avoid the angst that engulfs a person as they wait on their next pay, only to have this cycle repeat itself, lies in budgeting.

Nowadays, there are all sorts of budgeting systems available to aid one in their journey of tracking and managing their finances. However, one cannot adopt a budgeting system without actually knowing if it will ultimately help them achieve financial stability. It is important to analyse the budgeting systems available and select one tailored to a person’s wants, needs and lifestyle.

Choosing the right budgeting system is important because it directly impacts the effectiveness of financial planning and decision-making. A suitable system ensures that budget goals align with one’s life.

The most popular budgeting system is the 50/30/20 rule. This encompasses allocating 50% of one’s income to taking care of their needs, 30% to taking care of their wants and 20% to saving and paying off debt. This method is beneficial as its arithmetic nature is simple in application.  However, this method has various limitations. It can only be adopted by those who have a steady source of income, it assumes that one’s debt is light and easy to pay off given the scanty allocation of 20% to both savings and debt and it is slightly presumptuous in its allocation.

Another budgeting system involves setting a spending limit on every area of your life. For example, one can decide that their monthly household shopping will be set to 5,000 shillings every month. This therefore means that you cannot go above this spending limit. However, if you do spend a little less than anticipated, you can save the remaining amount or allocate it to another area of your life.  This method curbs over spending.  In addition to that, there is another system which involves first saving any money you initially receive, thus liberating one to spend the remaining amount in any fashion they wish. This budgeting system allows one to spend without being taunted by the idea that they may be overspending as they have already ‘paid’ themselves.

Assess Your Lifestyle

In order to choose the right budgeting system, one needs to begin by taking a panoramic view of their lifestyle and their income. In doing so, one can begin to allocate money to each area of their life according to the amount required for each sector of their life. Everyone’s expenditure is different: be it debt, school fees, rent, utility bills, entertainment or even transport. Analyse each of these sectors and allocate an amount that is appropriate to each, noting to leave funds to cater to one’s savings and investments.

Determine Your Goals

One should also choose a budgeting system that aligns with their overall goals and objectives. It is important to note that we do not all have the exact same goals and objectives so choosing a budgeting system based on this will make it easy for one to enjoy the budgeting process.

This article was originally published on Capital FM