Micro budgeting vs macro budgeting: a guide
A great way to manage your finances, instilling a budget gives us a sense of control and helps us to know where our money goes each month.
For some, this is the perfect way to ensure they always have money for the things they need, unexpected or otherwise. However, for others sticking to a strict budget can often feel like more of a punishment.
So how do you make a budget that you’ll be able to stick to without it feeling like you’re trapped? This is where the terms micro and macro budgeting come into play.
We’ve put together a guide to not only to explain what these terms mean but how each one can help you make your financial decisions wisely.
Micro budgeting is what most people consider to be a traditional budget. You divide up all your outgoings into a number of categories – e.g. £400 for rent, £300 for food, £250 for gas and electric etc. – and make it your goal to stay within the amount you set yourself for each of them. Your spending is planned out right down to the nitty-gritty and every penny in your bank is accounted for.
This type of budget is a great lesson on how to be frugal with your finances, allowing you to spot where you are perhaps overspending and find ways to spend less in certain categories. This, in turn, helps you to work out what penny-pinching tactics work for your circumstances and develop spending habits that are better for your purse/wallet in the long-run.
However, it’s not without its faults. Going through everything you spend, dividing it up and deciding on your limits for each one can take up a large chunk of your time. You then have to generate one from month to month, which adds up to quite a substantial amount of time.
It’s also very much inflexible, so if an unforeseen emergency arises then your budget can be sent out of joint, leaving you feeling guilty that you couldn’t stick to your target. Things happen in life that are out with your control, and micro budgeting doesn’t really give you any leeway to handle this.
This is the other side of the coin. Instead of dividing your spending into several categories, you simply divide it into two: the things you need and the things you want. So, things such as food, rent and utilities would fall into your needs; other things such as your hobbies, takeaways and Netflix etc. would then fall into your wants.
This offers you way more flexibility with your money as you are not limited to targets like with a micro budget, making it easier to adapt should an emergency arise. It can also relieve you of the stress that comes with micro budgeting as you don’t have to spend as much time creating one.
However, it’s very easy to lose track of where your money goes with this model as wants cant often end up being mixed in with your needs. It also doesn’t account for any of your long-term needs such as preparing for retirement or buying a house.
So, which one do you pick?
It seems that the best way to budget is actually to combine both methods.
Micro budgeting allows you to get your finances in order and instil habits that become part of your everyday life. As such, as time goes on the flaws in the method become more apparent.
This then gives you the opportunity to swap to macro budgeting after a period of time. You already have good financial habits, so the need to spend a larg chunk of your time each month may no longer be necessary.
In the end, you should create a budget that fits its definition: to help you make better financial decisions and give you control over your money. Whether this is a micro or a macro budget, it should be suited to your needs.
If you are struggling with budgeting your finances or making it from one payday to the next, we can help. Use our Creditfix Budget Calculator to help give you an idea of where you stand financially, it only takes a few clicks.