Last week, so many of you wrote back to us with your big budgeting queries. While we haven’t been able to reply to each one of you, know that we did go through every single e-mail and we appreciate all the questions you sent our way. And as a testament to the faith you’ve imposed in us, this next article covers one of the most requested topics — “Can you give me a few tips and techniques on how to go about my budgeting journey?”
Yes, we can. But before we do that, a quick recap of all the things we covered this week. On Monday we talked about the Turkish Lira, on Tuesday we did a story on tomato prices, Wednesday we discussed Visa and RuPay, Thursday, we talked about RBI’s cautious approach to banking licenses and finally on Friday we explained NFTs and film financing.
Also, in the Market’s edition this week, we have a story on Reliance Capital. You can check it out here. And with that nifty introduction out of the way, let’s get to these budget hacks, shall we?
If you’ve read Greek mythology, you’ve probably heard of Sirens. These were mythical half-bird, half-woman creatures that lured sailors with their songs. If the sailors couldn’t resist the Siren song, they’d walk right into a trap and crash their ship on the rocks soon after. But a band of Greek heroes known as the Argonauts found a workaround. On one of their expeditions, they took Orpheus, a musician, along with them. How did that help? Well, Orpheus played loud music on his lyre that drowned out the songs of the Sirens. The sailors were distracted. They weren’t tempted by the Sirens and the ship reached safe harbour.
Wait, why are we talking about Greek mythology now? Well, there’s a good reason. Think of the Siren song as the new pair of shoes you’re eyeing, or a brand new phone…all the temptation nudging you to spend your hard-earned money. To fight that temptation, you need a weapon like Orpheus did. For you, that’s a proper budget. And listen, you can’t fight it in your head. You need it written down.
But a one-size-fits-all solution to budgeting won’t work for our unique lives. While Orpheus played the lyre, another Greek musician may have played the kithara to fight the Sirens. In the same way, you just need to find the budget that suits you! Let’s look at 3 ways to do this.
- The percentage method
The 50–30–20 budget is one of the most common rules you can follow. It’s already something we’ve written about. You put aside 50% of your monthly take-home salary into an “Adulting” bucket for things like rent, groceries, and other bills. 30% goes into the “Splurge” bucket to treat yourself to the little things in life. And 20% goes to the “Future you” bucket where you save for the goals you have in life.
But you need to remember that this split isn’t for everyone. You have to find out what works for you. You may have moved back to your hometown thanks to remote work and you don’t pay rent anymore. Or you may think that spending 30% of your income at the movies or restaurants is a colossal waste of money. Maybe you have big plans for the future and you want to save up. The beauty of the percentage method is that you can split it any way that you like. You just need to identify what works for you. Maybe a 40–30–20–10 budget is what works for you. The first 40% is for the “Future You”. The next 30% is for your rent or home loan. A further 20% is for your groceries and other bills. And the final 10% is for “splurging”.
You see, you can tweak it anyway you like and get it to suit your lifestyle and goals.
2. The envelope method
Living in the digital age has enormous perks. But when it comes to money management, it can screw you over. We use cash for some transactions, we might swipe a debit card for the next, or scan a QR code and pay via UPI. And then turn to credit cards for other stuff. And sure, there are apps that try and track all of this and do the grunt work of segmenting your spending properly. But when you don’t see real “cash” going out from your pocket immediately, it’s easy to spend.
That’s why traditionalists still swear by the envelope method. A budgeting hack where cash is king. All you have to do is the moment you receive your salary, take it all out of the bank account. Take the cash and put it into different envelopes — label it Adulting, Splurging, Future You. Whenever you need money to pay for something that fits the category, dip into the envelope and use the cash that’s left in it. It’s especially useful for someone who’s starting out on their budgeting journey and is prone to impulse swiping of cards. After all, studies have shown that the pain of actual cash disappearing from your pocket will make you spend less money.
PS: You can always deposit the “Future You” envelope into a bank account for which you don’t have a debit card maybe. And then figure out where to invest the money as the next step.
3. Zero-based budget
If you’re someone who’s super-organised and really wants to drill down to every single line item this is for you. Okay, so the end objective is very simple. You tally up your income each month and then you begin listing down every single expense you can think of— treats for your pet, your subscription to Spotify, your daily coffee quota, your haircut, everything! Don’t forget to include any loans you might have, including the credit card dues.
If you’re still left with money you go allocate it elsewhere — like an emergency fund or buying a bike. The object is to get to zero at the end of the month. This way you can begin allocating your income even before you spend it. And this simple act of planning ahead can have remarkable effects on your personal finance. It can help you figure out where you’re splurging the most and help you declutter your life.
You may not know which method works best for you yet. So give it a try and you’ll figure out soon enough. Also, many of you wrote back explaining very carefully how the whole budgeting thing can seem like backbreaking work. So if you want something more chill, we have this other article for you. Do check it out also.
And if you have any more questions about what we’ve been writing so far, don’t forget to e-mail us at firstname.lastname@example.org