Financial worries? “Banding budgeting” helps you manage your money your way

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Dubai: When it comes to managing money, a method involving ‘buckets’ has become increasingly popular, with some financial writers in particular popularizing the term. However, the technique itself is not entirely new.

“Banding budgeting”, sometimes referred to as “band budgeting”, is essentially a modern version of “envelope budgeting”. The main difference between the two is that with installment budgeting, instead of setting aside money in envelopes for regular expenses, you set up targeted savings accounts for various savings goals.

‘Envelop Budgeting’: A proven way to save money

It has long been common practice to put money in different envelopes to cover different expenses. For example, one envelope would be labeled “rent”, another labeled “groceries”, and another could be labeled “bills”. Any remaining money would then be set aside for a rainy day.

Although fairly basic, this age-old method of budgeting has helped many people ensure they have enough money set aside to cover the essentials without using spreadsheets and online banking.

‘Envelop Budgeting’: A proven way to save money

How does “slice budgeting” work?

The idea is to create several bank accounts called “buckets” and use each of them for specific purposes, such as bills, savings or entertainment. Once you have your buckets set up, it’s easier to see and control how you spend and save your money.

If you’re not good with money and have trouble saving, then bucketing might work for you. Many use it to reduce debt, control spending, and achieve bigger goals, like buying a home or saving for retirement.

Bundling can also help you save your money for larger but infrequent bills such as car registration, school fees, and energy bills. While each of those purchases can be a perfectly valid reason to dip into savings, it’s hard to know if you’re making the right choices with your money if it’s all in one place.

This is why bucket budgeting would require you to create sub-accounts for your savings, each with a different savings goal. With this system, you have a better idea of ​​the amount available to spend.

How do I group my expenses into categories?

Group each category of your expenses into a few themes such as regular and daily expenses, pocket money and savings, then add up the total amounts in each theme.

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The idea is to create several bank accounts called “buckets” and use each of them for specific purposes, such as bills, savings or entertainment.

These themes will become your buckets or accounts. You can have as many buckets as you want, but here’s an example of how to group them:

Bucket 1 – Regular and daily expenses

These include regular bills, rent, mortgage, debts, groceries, transportation, tuition, insurance, and vacations. This account must be linked to a debit card.

Bucket 2 – Spend Money

Use this bucket for fun money to splurge like socialize or treat yourself and others. This account must be linked to a debit card.

Bucket 3 – Money for emergencies and security

This is for large or unexpected expenses that may catch you off guard, such as home or car repairs, dental care, or debt repayment. This account should earn interest and not have a debit card, so you’re not tempted to spend.

Use it to set aside money for things like travel, a new car, or debt reduction. Ideally, it should be an interest-earning account that doesn’t have a debit card.

Budgeting and saving money step by step

You can have as many buckets as you want, but above is an example of how to group them.

How do I decide on compartment amounts?

This is a very important part of bucketing. The idea is that money from your income “flows” into each bucket in amounts you decide.

Ideally, all of your income or wages should go to the first account, and from there you transfer money into each of your buckets.

As an indication, consider these percentages of your income for each account or compartment:

Account 1 – Current and daily expenses: 60%

Account 2 – Expenses: 10%

Account 3 – Emergency and Security Fund: 10%

Account 4 – Savings: 20%

It’s also important to set up regular money transfers between your buckets now that you’ve calculated how much money is going into each of your accounts.

You can automate transfers from your first account to others, as it’s safe to set up transfers to happen on the same day each month, shortly after you get paid. This will save you from overspending on payday.

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In short, you divide your money into “buckets” (different accounts) to help you manage where your money goes and budget.

Key points to remember

Also known as account consolidation, it’s just another way to manage your money.

In short, you divide your money into “buckets” (different accounts) to help you manage where your money goes and budget. You could have a bucket for daily expenses, bills, trips, etc.

There is no one-size-fits-all approach to cash flow management and budgeting. Every situation is different and the use of online budgeting tools or a custom spreadsheet may be warranted.

The primary variable that drives a successful system is being proactive about the goals of the budgeting process.

Essentially, this budgeting system works on the principle that when all your money is in one place, it’s harder to track your spending — and easier to overspend.

But breaking your expenses down into different buckets will give you a better idea of ​​what you’re really spending on essentials and what you might be able to do.

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