5 Simple Budgeting Methods to Help You Live Your Best Life

According to a 2020 survey by the National Foundation for Credit Counseling, only 47% of Americans use budgeting tools to keep track of their spending. A budget, on the other hand, as the most basic instrument in the financial planning process, might make it easier to meet your financial objectives.

Not only does a budget help you keep track of where your money is going, but it also gives you more control over that process. Without a clear plan for your cash flow, you could be spending against your own best interests without even knowing it.

How a proper Budget can power your Financial Independence?

Budgeting isn’t always enjoyable, but it’s one of the most crucial steps you can do to better your financial situation. Here are a few examples of how living on a budget might help.

– It aligns your spending with your goals: You may decide how you’ll spend your money each month depending on what’s most important to you by setting and sticking to a budget.

It can improve your debt repayment strategy: If you’re trying to pay off student loans, credit cards, or other types of debt, a budget might help you set aside more money so you can get out of debt.

It can help you achieve your savings goals: A budget can help you figure out how much you’re going to save toward your goal at the beginning of the month, whether you want to save more for retirement, develop your emergency fund, or put money down for your next vacation.

5 Budgeting Methods to Consider

1. Zero- Based Budget
A zero-based budgeting strategy is straightforward: income minus expenses equals zero.

This budgeting strategy is best for persons who have a fixed monthly income or can at least anticipate their monthly income. Add your monthly spending and savings to equal your monthly income after you’ve calculated your monthly income.

It’s critical to budget for all of your spending as precisely as possible. If you go over budget in one category, you’ll have to make up the difference by taking money from another. And forgetting about a significant expense can throw your budget off.

A zero-based budget may be a better alternative for someone who has been budgeting for some time because there is less space for error. Even so, keeping additional cash in your bank account as a buffer is a wise idea. Also, keep a modest emergency money on hand in case you face a major unexpected bill.

2. Pay-yourself-first budget
Another simple budgeting strategy that focuses on savings and debt reduction is the pay-yourself-first budget.

Simply put, every time you are paid, you set away a particular amount for savings and debt payments, then spend the remainder of your money as you see fit. This allows you to prioritise your savings and debt payback goals while making do with the leftovers.

For instance, you might prioritise paying off high-interest debt first while gradually creating an emergency fund. However, once you’ve paid off your high-interest debt, you may concentrate on other savings goals.

Of course, prioritizing your necessary expenses and obligations is critical. However, because you’ve already taken care of what’s most essential to you, you don’t need to be concerned about where you spend your discretionary spending.
This budget is ideal for someone who has trouble saving each month or doesn’t want to spend too much time planning out each spending.

3. Envelope System Budget
This way of budgeting is similar to the zero-based budget, but there is one major difference: everything is done in cash. An envelope budgeting strategy is planning out how you’ll spend your money each month and using an envelope for each category of spending. Then, according to your budget, you withdraw as much cash as you need to fill each envelope.

Take your grocery envelope with you when you go grocery shopping, for example, and pay for your purchases with cash. If you run out, unless you choose to withdraw cash from other envelopes, that’s all you can spend in that area for the month. However, don’t raid other envelopes too frequently, as this might lead to a snowball effect, and you could run out of money before the end of the month.

The envelope system is endorsed by financial expert Dave Ramsey, so it’s a good alternative for folks who share his money ideals, which emphasize paying down debt rapidly and utilizing cash rather than credit cards.

However, it’s not a smart budgeting approach for someone who doesn’t like having a lot of cash on hand or prefers to use credit or debit cards.

4. 50/30/20 Budget
The 50/30/20 budgeting method is simple and requires less effort than the envelope and zero-based budgeting methods. The goal is to categorize your spending into three groups

  • Necessary expenses (50%)
  • Discretionary expenses (30%)
  • Savings and Debt Payments (20%)

    This budgeting strategy is ideal for rookie budgeters because it does not necessitate detailed spending tracking. You can stick to this budget as long as you understand what constitutes a want vs a need and allocate adequate funds to savings and debt repayment.

The biggest disadvantage is that the 50/30/20 rule may be impossible for people who have a lot of debt or want to save a lot of money because 20% isn’t a lot of money.

However, the good news is that you may tailor it to your own requirements. For example, you might wish to consider raising savings and debt repayments while minimising discretionary and necessary expenses.

To put it another way, don’t get too fixated on the 50/30/20 ratio. Make the concept fit your requirements.


5. The ‘no’ budget
This unique budgeting strategy is totally based on not spending money that you don’t have, as the name implies. Rather than making a budget, you should:

Keep an eye on the balance of your bank account. To keep track of your spending, use a budgeting app or your bank’s online banking or mobile app.

Keep track of when your recurring expenses are due. Keeping a list in a spreadsheet, Microsoft Word document, or on a piece of paper is one way to do this.

Set money aside for savings and additional debt repayments. Increase your automatic monthly debt payments and use automatic transfers from checking to savings wherever possible.

Spend the remainder of your funds without being overdrawn on your account. You’ll be better equipped to determine how much money is remaining after key costs if you keep an eye on your account balance.

While the “no” budget sounds easier than the other techniques we’ve discussed, telling oneself “no” isn’t always easy. This budgeting strategy works best if you’ve shown spending restraint in the past and are confident in your ability to do so again.

Types of Debt

Understanding Debt

Loans, such as mortgages, vehicle loans, personal loans, and credit card debt, are the most common types of debt. The borrower is obligated to repay the loan balance by a particular date, usually several years in the future, according to the terms of the loan. The amount of interest that the borrower must pay annually, stated as a percentage of the loan amount, is also specified in the loan terms. Interest is used to reward the lender for taking on the risk of the loan, as well as to encourage the borrower to repay the loan fast in order to reduce their total interest expense.

Credit card debt works similarly to a loan, with the exception that the borrowed amount fluctuates over time based on the borrower’s needs—up to a predetermined limit—and has a rolling, or open-ended, repayment date. Consolidating loans, such as student loans and personal loans, is an option.

Types of Debt

1. Secured Debt
Putting yourself in the position of a lender might help you understand secured debt. When someone asks for a loan, the lender must examine whether the debt will be repaid. Creditors can limit their risk by using secured debt. Because secured debt is backed by an asset (also known as collateral), this is the case. To put it another way, the collateral acts as a “security” for the loan.

Cash or property can be used as collateral. It can also be taken if borrowers do not make timely payments. Failure to repay a secured debt might result in additional consequences. Missed payments, for example, could be reported to credit bureaus. In addition, an unpaid debt may be referred to collections.

For example, a secured credit card needs a cash deposit before it may be used to make transactions. Consider it similar to the security deposit you’d put down when renting an apartment. Secured debt includes mortgages and auto loans. With these, the collateral is usually the purchased property, such as a house or a car. However, there is a silver lining to collateral: For the borrower, a lower risk to the lender could mean more attractive lending conditions and rates. Furthermore, some lenders may be less stringent when it comes to credit score requirements.

2. Unsecured Debt
When a debt is unsecured, there is no need for collateral. Consider student debts, credit cards, and personal loans. If you don’t have any collateral, your credit will usually play a significant role in determining whether you qualify for unsecured debt—though there are some exceptions, such as school loans.

Credit reports are used by lenders to assess your credit. That is true for the majority of debts. However, loan criteria may vary. Creditors typically consider factors such as your payment history and outstanding debt. Credit scores—another instrument that lenders may employ—are calculated using similar principles.

In general, the higher your credit score, the more possibilities you have. A higher credit score, for example, could help you qualify for bigger credit limits or cheaper interest rates on an unsecured credit card. Some credit cards may provide benefits such as cash back, miles, or points. Remember that a higher credit score does not guarantee that you will be approved for unsecured credit cards or other loans. And just because a loan is “unsecured” doesn’t imply it’s okay to skip payments. If you go behind on your payments, it may harm your credit and lead to collections or a lawsuit.

3. Revolving Debt
You may already be familiar with revolving debt if you have a secured or unsecured credit card. A revolving credit account is open-ended, which means you can charge and pay off your debt as many times as you like as long as the account is in good standing. Revolving credit includes personal lines of credit and home equity lines of credit.

If you qualify for a revolving credit line, your lender will set a credit limit for you, which is the most you can charge on the account. The amount of credit you have available changes month to month based on how much you utilise it. The minimum payment amounts may also alter month to month. Any unpaid debt will be carried over to the following payment cycle, along with interest. What’s the greatest way to avoid paying interest? Each time you receive a bill, pay it in full.

4. Installment Debt
In some respects, instalment debt varies from revolving debt. This sort of loan is closed-ended, unlike revolving credit. That is, it is paid back over a set length of time. And, as the name implies, payments are usually made monthly in equal increments. Payments may be needed more regularly depending on the loan agreement.

Installment loans are available. Car loans and mortgages are examples of this. Unsecured instalment loans are also available. Student loans are an example of this. Another sort of instalment loan is a buy-now-pay-later loan, sometimes known as a BNPL.
When you pay off a loan in instalments, you’re repaying both the principal and the interest. As the debt is paid down, the amount of each payment that goes toward interest usually decreases. Amortization is the term for this procedure.




Understanding Financial Markets

What are Financial Markets?

Financial markets is a marketplace where buying and selling of securities like stocks, bonds, derivatives, commodities, currencies, etc. occur. These markets may include securities which are listed on an regulated exchanges or are traded Over-The-Counter(OTC). Financial markets basically provide a way for those who have excess money to invest and those who are in need to money to borrow.

Financial markets play an important role in creating liquidity for capitalist economies. Financial markets are transparent as they ensure that the prices set are efficient and appropriate.

Types of Financial Markets

Stock Markets

Stock markets are a place where trading of equities occur. Equity is the value of shares issued by the company. In a stock market, securities are traded via Primary Market and Secondary Market. In Primary Market, securities are issued to investors directly by the issuer. Companies raise capital by an Initial Public Offering(IPO). Primary markets are also known as New Issue Markets.

Secondary markets are where investors buy and sell securities they already own. The secondary market, also called the aftermarket and follow on public offering, is the financial market in which previously issued financial instruments are traded.

The most popular stock exchanges in India are National Stock Exchange(NSE) and Bombay Stock Exchange(BSE).

Bond Markets

The Bond Market is a marketplace where participants can issue new debt, known as primary market and buy and sell debt securities, known as secondary market. A bond is an financial instrument in which an investor loans money for a specific period of time at a pre-determined interest rate. Bonds are issues by  municipalities, states, and sovereign governments to finance projects and operations. Debt securities usually include bonds, but it may include notes, bills, and so for public and private expenditures.

Money Markets

Money Markets involves trading of securities that are highly liquid and are issued for short time period with low interest rates. Money market consists of various financial institutions and dealers, who seek to borrow or loan securities. Examples of securities traded in money markets are treasury bills, commercial papers and certificate of deposits. Money markets are considered a safe place to invest as they have high liquidity.

Money markets are Over-The-Counter(OTC) markets which means that they are not regulated and not structured. Money markets give lesser returns however they offer a variety of products.

Derivatives Market

Derivatives markets are financial markets for derivatives like futures, options, forwards, etc. Derivatives are financial instruments whose value is determined by the value of the financial instruments like bonds, commodities, currencies, interest rates, market indexes, and stocks. The four major types of derivative contracts are options, forwards, futures and swaps. Futures and Options are listed and traded on stock exchanges while forwards and swaps are not.

Forex Market

The forex (foreign exchange) market is a market where people can buy, trade, hedge, and speculate on currency pairs’ exchange rates. Because cash is the most liquid of assets, the Forex market is the most liquid in the world. The currency market conducts more than $5 trillion in daily transactions, which is higher than the combined volume of the futures and stock markets. The forex market, like the OTC markets, is decentralized and is made up of a global network of computers and brokers from all over the world. Banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors make up the forex market.

Commodities Market

Commodities markets are gathering places for producers and consumers to trade physical commodities like maize, livestock, and soybeans, as well as energy goods (oil, gas, and carbon credits), precious metals (gold, silver, and platinum), and “soft” commodities (such as cotton, coffee, and sugar). Spot commodities markets are those where tangible things are exchanged for money.

Cryptocurrency Markets

Cryptocurrencies like Bitcoin and Ethereum, which are decentralised digital assets based on blockchain technology, have been introduced and have grown in popularity over the last few years. Hundreds of cryptocurrency tokens are now accessible and traded on a patchwork of independent online crypto exchanges throughout the world. These exchanges provide traders with digital wallets via which they can exchange one cryptocurrency for another or fiat currencies like dollars or euros.