Our expenses can get out of hand if we do not strike a fine balance between spending and saving. Image Credit: Stock photo/Pixabay

It’s a New Year and a fresh start. Is successfully living on a budget one of your top resolutions this year?

Click start to play today’s Crossword, where you can name words beginning with the letter ‘B’.

A budget is a specific plan for how you expect to use your earnings every month, and eventually reach your financial objectives. In a 2020 survey of 1,500 adults by global technology platform Intuit, 65 per cent of people said they did not know how much they spent the previous month. And Gen Z (people born between 1997 and 2012) was the least likely generation to know what they spent, followed by millennials (those born between 1981 and 1996).

If you’re looking to stick to a budget, here are a few strategies you could consider to help you get to your goal:

1. 50/30/20 rule

An increasingly popular option, this budgeting strategy suggests that you live on 50 per cent of your income, and use it for rent, transportation, utilities, and a mobile phone plan. Then, you can enjoy 30 per cent, spending it on dining out, recreation, and travel, and save and invest the remaining 20 per cent.

Benefits: Simple, easy to learn, and doesn’t stress you out with accounting for every Dirham spent.

Drawbacks: It’s a blanket rule that may not work for every scenario – for instance, a high-cost housing market may need you to spend more than 50 per cent.

2. Zero-balance budget

This is the traditional budgeting strategy that many people have been using for years: your income minus your expenses must equal zero. In this strategy, you would use your entire income each month, first putting it towards essentials, and then towards your wants and financial goals. Any leftover income at the end of the month would go into savings.

Benefits: It accounts for every Dirham spent and ensures you are never in the red.

Drawbacks: Tracking each expenditure can be tiresome and time-consuming, and unpredictable circumstances may mean you will need to overspend.

3. Pay yourself first budget

This strategy works backwards and begins with your financial goals. You would put away a set amount into savings, and then distribute the remaining amount for monthly bills and expenses.

Benefits: It prioritises your goals and allows flexibility in spending.

Drawbacks: It may cause stress because you might be left with too little to cover your monthly expenses.

4. The envelope budget

This highly organised strategy involves you putting cash into individual envelopes for each category of expenses (for instance, rent, food, entertainment and so on). Every time costs arise, you can then pull out the right envelope and pay it off. If you run out of money in an envelope, it’s a sure sign that you have overspent or need to reconsider allotting more money to that category. Any leftover cash at the end of the month can be collected and saved.

Benefits: It’s tangible and therefore, easy to understand and manage.

Drawbacks: In a digital economy, you won’t necessarily use cash for all payments, and the entire process can be time-consuming.

Which strategy works for you? Play today’s Crossword and tell us at games@gulfnews.com.