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FinFIRST Blogs
If you have to explain debt to a child, the best way would be to compare it to rust. Debt is like rust on your money. It erodes its value and shakes its very foundation. The more debt you have, the more you will struggle to manage your expenses. It is far wiser to build one’s savings and live stress-free lives. Thankfully, you can achieve this by following the right budgeting techniques.
Here are four useful budgeting methods to make yourself debt-free.
1. Envelope Budgeting
In envelope budgeting, you take different envelopes for different purposes and allocate money to each. These can be for rent, gas, food, etc. You can also have envelopes for non-essential wants, such as a week’s vacation, a new phone, etc. This budgeting method allows you to save money for all your needs and reduces the temptation to resort to loans.
2. Zero-based Budgeting
Zero-based budgeting is a method where your income minus expenses equal zero. In this budgeting method, you allocate all your income to expenses, savings, and debt payments. The value of all these should be the same as your salary, bringing the difference to zero.
For example, if you earn Rs 50,000 a month, your zero-based budget might look like this:
Heads |
Amount |
Essential expenses (rent, utilities, etc.) |
Rs 25,000 |
Investments |
Rs 10,000 |
Emergency fund |
Rs 5,000 |
Debt repayment |
Rs 10,000 |
Total |
Rs 50,000 |
Zero-based budgeting ensures that all your needs are met and that your debt payments are made every month without fail. It also guarantees optimal utilisation of your salary, where every rupee is accounted for.
3. 20/30/50 Budgeting
This is a simple yet practical personal finance rule. According to the 20/30/50 method,
· 50% of your income goes towards necessities
· 30% towards your lifestyle needs
· 20% towards debt, savings, and investing
When you earmark all your financial goals and allot a specific percentage of your salary to them, you ensure that all your needs are met, your savings and investments are on track, and your debt payments are made on time.
4. Pay-yourself-first Budgeting
With a pay-yourself-first budget, you set up an automatic monthly payment to your savings accounts. Each month, when you receive your income, a fixed portion is paid towards your savings account for your future financial security. You can then use the remaining balance for your monthly expenses. This ensures that you always have an emergency fund and never have to borrow in times of need.
However, when selecting this method, choose a high-interest savings account such as an IDFC FIRST Bank Savings Account, offering interest rate that is one of the bests in industry. This will help your savings grow and beat inflation.
Conclusion
Knowing how to be debt-free is essential to ensure your overall financial well-being. The four budgeting techniques outlined in this article will help you strengthen your savings and repay your debts on time, eliminating any financial hassles.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.
