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Looking for a new and better way to save money for a rainy day in 2021? The best budgeting strategy for you is the one that works best with your relationship with spending. Not all the four innovative strategies below will resonate with you, but hopefully at least one will get you thinking about changing your spending and saving habits for your New Year’s resolution.
Without a budget system or strategy, the reality is that you aren’t in complete control of your financial situation. You don’t know precisely know where you spend every penny and how to keep a lid on your outgoings. It also explains why 25% of people in the UK have no savings at all. Read on to discover whether any of the four following strategies fits with the way you think about money.
The Cash Envelope Strategy
If you are someone that has always preferred using cash from your wallet or purse, the Cash Envelope system could work for you as a means of budgeting. This strategy was coined by a man named Dave Ramsey and has become a global phenomenon. At the start of each month, you will distribute how much physical cash you need for each of your spending categories. These may be groceries, clothing or eating out.
Once the cash has gone, you do not top the wallet up again for that spending category until the start of the next month. This allows you to set aside a predetermined figure at the beginning of every month, allowing you to live safe in the knowledge that this money has already been ring-fenced. If you don’t like to pay using contactless cards or crunching numbers and receipts, the Cash Envelope system is the simplest visual way to curb unnecessary spending.
The Martingale Strategy
The Martingale system is more commonly used as a betting strategy for classic casino table games like online roulette. It is best used on even-money bets on the roulette tables like Red/Black and Odd/Even. However, it can also be applied in the world of budgeting. The Martingale system is regarded as a “negative progression” strategy. In roulette and other games, it is used to recoup losses by doubling stake sizes after losing rounds. However, if you apply the same approach to weekly saving, you will be surprised how quickly your savings will compound.
Set aside £1 for week one, then set aside £2 for week two, £3 for week three and so on. By the final week of the year, you will be setting aside £52 and will have accumulated an impressive £1,378. This system allows for next to no deviation, which is handy if you lack savings discipline. Of course, you’ll need to be setting aside approximately £202 in the final four weeks of this strategy, so it does get harder (but more rewarding) as the savings pot accumulates.
The 50/30/20 Strategy
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The 50/30/20 system has been devised as a great starting point for people looking to save for future expenses, whilst covering existing bills and having some disposable income to enjoy. The system splits your monthly income up into three chunks – 50% towards essential bills, 30% towards your disposable income and niceties and 20% towards savings and debt repayments.
First and foremost, it’s important to get to grips with your household monthly income (post-tax). You need to know this figure like the back of your hand to begin segmenting your income into 50%/30%/20% pots. It can be difficult for some people to distinguish between essential and disposable bills. For clarity, the 30% pot should cover things like monthly subscriptions, meals out and other forms of entertainment.
The Zero-Based Budget Strategy
If you are someone that prefers to know exactly what you are working with, the zero-based budgeting system could be ideal. At the start of the month, you will allocate every penny of your money to bills, savings and debt repayments. The aim is that your income, minus expenditures, totals zero at the end of the month. It’s a little like the 50/30/20 strategy in that you are giving every pound a monthly purpose.
There is a little more flexibility than the 50/30/20 system though, as you can change the weighting to each category on a month-by-month basis as per your life needs or goals. This is particularly useful if you have an irregular monthly income. It’s yet another effective way to pinpoint categories where you may easily overspend and can comfortably cut back to put towards short and long-term savings.
Controlling your monthly income with a strict budgeting strategy gives you a unique opportunity – 100% financial freedom. Hopefully one of the above systems is aligned with the way you think and behave with your money, so that you can adapt it and quickly see the fruits of your labour.
