Practical Budgeting Strategies to Effectively Manage Your Finances

If you’re looking to master your finances, the key is to figure out which budgeting technique works for you based on your individual circumstances.

Whether you aim to start repaying your long-term debts, build a safety net for retirement, or make up for income loss during the pandemic, we’ve rounded up a few best budgeting strategies to help you get started.

Before we dive into how to do budgeting, let’s look at this process further and why it is necessary.

A quick overview on budgeting

Budgeting is a financial habit where you create a plan to spend your money. It’s simply a process of balancing your expenses with your income to control your spending and allocate your money among wants, needs, and savings.

By creating and sticking to a budget, you will be able to enjoy the many benefits of having a budget plan, including:

• Meet your financial goals
• Prepare for emergencies
• Address your bad spending habits
• Make room for your wants and leisure, and
• Stay out of and avoid getting into debt

The Envelope Budgeting

As the name alludes, you put aside cash in envelopes dedicated to a specific purpose (spending category).

The first step would be to decide how much you’d like to spend in a particular area, such as groceries, dining out or childcare. Put the allocated cash into an envelope designated solely to this category.

In a typical month, you may put aside $600 on groceries, $200 on personal care and $300 on entertainment. The key is to ensure your spending doesn’t exceed the enveloped amount. Keep the receipts along the way so that you’re able to track your spending.

Whether you use cash or a card to pay bills, feel free to customize envelope budgeting to make it work for you. We love the “Spending” app, which makes it super easy to track spending throughout the month.

The beauty of envelope budgeting is that it forces you to stay in touch with your spending habits because once the envelope is empty, that category’s off-limits until you receive your next paycheck. This allows you to maintain the spending limits you set for yourself, and keep you from accidentally overspending.

Zero-Based Budgeting

One of the more stringent budgeting strategies out there is the zero-based method, which requires you to utilize and assign every cent of your monthly income.  

If you have big-ticket debts or long-term savings goals, this may be the right strategy for you.

To break it down, start by figuring out your total monthly income and essential expenses. Let’s say you earn $5,000 a month, and necessities come to $2,000. You can allocate the remaining $3,000 to savings, debt repayment or investment — whatever your goal may be until you’re down to $0.

If you have a massive debt to repay — such as college tuition fee loan — or you are working towards buying your first home, this budgeting technique can help you reach your goals — so long as you have the discipline to stick to it. A few years of careful spending could get you to financial freedom sooner if you’re willing to make some sacrifices.  

50/20/30 Budgeting

With the good old-fashioned 50/30/20 budget rule, you dedicate a certain percentage of your income each month to a particular area.

50% of your salary goes to the essentials such as your mortgage, rent payment, utilities, health insurance and basic groceries.

20% of your income goes to planning your future. Think investments, saving for retirement or simply creating a rainy-day fund — or paying back any debts you may owe.

As for the remaining 30%, you’re free to spend how you like. This can be anything non-essential, such as travel, entertainment, shopping or miscellaneous items.

The 50/20/30 strategy also allows a little more flexibility than the zero-based method and lets you enjoy more of your income while still staying on top of mandatory expenses and savings for your future.

Pay-Yourself-First Budgeting

This reverse budgeting strategy is a great option for those who want a fuss-free way to keep track of their spending without putting too much thought into calculating every dollar spent.  

The idea is that the moment you get your monthly salary, put aside a predetermined portion. Let’s say 30% into a savings account (or whatever works for you). The rest of your income? You get to spend however you want (yes, no restrictions).

This budgeting strategy ensures your savings are taken care of before you start spending on anything else. In essence, it keeps you from spending money that is meant to be saved, invested or repaid.

Finally, make your money work for you...

If you want to get out of debt or start saving for the future, any of the budgeting strategies outlined above could work. And while we’re on the topic of financial goals, make sure you’re not simply saving but taking proactive steps to grow your hard-earned money.  

An investment-linked insurance policy (ILP) can help you achieve just that. It builds your wealth while protecting you and your family, by offering a combination of life insurance coverage and investment components.

AXA Wealth Accelerate, for instance, is a flexible ILP designed to reward and cater to your financial goals.

The premiums you pay will be invested in well-diversified funds of your choosing (from over 90 options) that suit your risk appetite and investment objectives. You can opt to pay your premiums over 10, 15, 20, 25 or 30 years.

The benefit of ILPs lies in flexibility. You may take premium holidays (i.e. pause your payments), make partial withdrawals at no extra charge* in case of emergencies, or even top up your premium.

Additionally, AXA Wealth Accelerate boosts your wealth accumulation by rewarding you with multiple bonuses throughout your lifetime: a Start-up bonus to kick start your investment; a Power-up bonus to accelerate your investment, and a Loyalty bonus to reward you in the long run.

Get cracking on your financial goals for 2022 (and beyond) today. Learn more about AXA Wealth Accelerate here.

*Only applicable to the first five requests.

Disclaimer:

This article is for general information only and does not take into account the specific investment objectives, financial situation or needs of any particular person. The views expressed herein do not necessarily reflect the views of AXA Insurance Pte Ltd and should not be construed as the provision of advice or making of any recommendation. There is no intention to distribute, offer to sell, or solicit any offer to purchase any product. We recommend that you seek the advice of a qualified financial advisory professional before making any decision to purchase an insurance or investment product. Whilst we have taken reasonable care to ensure that all information provided was obtained from reliable sources and correct at the time of publishing, information may become outdated and opinions may change. We are not liable for any loss that may result from the access or use of the information herein provided.

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