Kovar Capital: Which budget option is best for me?

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Hi Taylor: I’m looking at different options for budgeting software and keep hearing about various styles of budgeting. I always thought the options were to save money or spend it, but I guess there’s more to it? - Diego

Hi Diego: Budgeting can be as simple or as complicated as you choose to make it. It’s almost always difficult for people whose finances aren’t in great shape, but the approach you take to getting organized usually comes down to personal preference.

1. The different systems. Not sure which names you’ve heard, but I most commonly see the traditional “50/30/20” budget, zero-based budgeting, and what some people call the “pay yourself first” method. The traditional is a simplified system of putting 50% of your earnings toward your needs, 30% toward the stuff you want, and 20% into savings. I push most clients toward a 70/10/10/10 (needs, wants, investments, charity), but it follows the same philosophy. Zero-based budgeting is great for people trying to overcome bad habits or who just love meticulous planning. Every time you get paid, you assign every dollar a job; everything is categorized from rent to clothing to travel to insurance, so you have to know exactly what your necessary spending is each month before you move on to the fun stuff. With the pay yourself first model, you put as much into savings as possible and then try to spend very frugally on everything else.

2. What works for you? If anyone tells you their budgeting approach is the best and will work for anyone who tries it, that is actually not the case. A friend of mine who works for a budgeting company (YNAB) often tells potential customers that the YNAB system isn’t right for everyone. It comes down to how your brain works and what’s going to help you make the best financial decisions. If that means labeling a bunch of envelopes and filling them with $5 bills, so be it.

3. The bottom line. Whatever style you choose, the most important thing is setting rules and sticking to them. It’s very easy to overspend and blame it on your circumstances, so you need to find a system that helps you hold yourself accountable. Some months you might not have money to put toward charity or savings, but you should at least find a method that helps you improve your situation instead of making it worse. I recommend trying the different apps with free trial periods to see what you feel comfortable with.

It’s essential to budget thoughtfully, so asking questions is a great place to start. Try out different things until you find what works for you, then enjoy the financial rewards. Best of luck!

Disclosure: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.

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