Think of your income as a car and your budget as a map. Your goal is to get to your destination by the shortest possible route, and that’s where your map comes in. The better your budget-map, the less money you’ll waste and the more you’ll spend wisely. Just remember, budgeting is often very trial-and-error. Always start with an emergency fund – you’ll face budget self-sabotage if you don’t have a safety net. You may need to adjust your budget on a monthly basis until you get it right.


The 3-category budget

Most of us overspend in just a few categories, such as eating out, buying clothes, purchasing gadgets, and entertaining ourselves. Take what you’ve learned from tracking your spending, pick the three spending categories you'd like to bring under control, and recalibrate your spending in these areas. Easy to implement, the 3-category budget is a targeted approach offering potentially big savings.


The 50/30/20 plan

With this plan, 50% of your income goes toward essentials such as housing and food, 30% to lifestyle choices, and 20% to financial priorities, such as debt payments, retirement contributions, and savings. As you grow more comfortable with your monthly spending habits, this 50/30/20 ratio will change, eventually skewing toward saving more, with that 20% consistently inching higher as your income increases.


The fluctuating income budget

If you’re self-employed, have seasonal work, or rely on commissions, you can’t count on money coming in on a predictable basis. Your budget will require additional discipline and a much more substantial cash reserve in a savings account, so that lower-income months don’t jam you up. Here are three fluctuating income budgeting strategies to consider.

  • If you have had irregular income for two or three years, calculate your average net income per year, divide by 12, and use this amount to craft your current budget. If this amount falls short of your needs, consider ways to increase your income or decrease your expenses to reach a balanced budget.
  • Or, you can set up a holding account. Deposit all of your income into this account and withdraw an amount based on your monthly expenses. During high-income months, the holding account will have a larger balance. In leaner months, the account balance will decrease. However, the amount you pay yourself remains the same from month to month.
  • A third approach is to make two budgets, one for leaner months and the other for fatter ones. Beware, this can be a potentially perilous way to manage your money, because your spending patterns fluctuate along with your income. For all but the remarkably disciplined, this strategy is probably best avoided.

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