For those who have been alienating themselves for the past year, Tiktok is an app which allows its user to make and share short videos. As of January 2021, Tiktok has 689 million monthly active users, with almost 50% of these users being between the ages of 10 to 29. The content of the videos varies greatly – from dances to funny voice-overs, to more serious content such as career advice and financial literacy.
Videos about financial advice (or #Fintok) cover many different topics of personal finance such as investing, paying off credit card debt or even explaining financial terms such as compound interest and passive income. Recently, however, there has been an upsurge of budgeting content.
While it is interesting to have a platform that can educate a younger audience on financial topics that they might not have heard about in school or from their parents, as anything on the internet, we must listen with a certain caution. Because of the nature of the app, content creators are encouraged to get their point across using the shortest amount of time possible.
And although it is great for everyone with a short attention span – it is unlikely that a 15 second video will provide all the information the viewers need to know about a particular budgeting method or any financial concept.
Here are three budgeting methods that have been popular under the #Budgeting hashtag, with some videos getting over a million views and thousands of comments.
Cash Envelope Method
By far the most popular and shared videos concerning budgeting on the app are about the Cash Envelope Method. For those that do not know, the Cash Envelope Method consists of allocating part of your income towards different categories of spending (ie. rent, utilities, savings, etc) and labelling different envelopes with the name of the categories. The appropriate amount of cash allocated towards that category is then placed inside the labeled envelope. The intuition behind this budgeting approach is that you will be forced to spend only the amount the money you set aside, limiting overspending on things outside your budget.
Is this method everything Tiktok says it is?
This method can be great for people who tend to overspend or have a hard time keeping a budget. This method forces people to abandon their debit and credit card and have more control over how and where they are spending their income.
This method, however, can be a little unsafe and inconvenient. Most users of the app shared the concern of carrying large amounts of cash with them, since it can make them vulnerable to theft or to the possibility of losing the money. It can also be a quite a hassle to look through envelopes to make small purchases at your local convenience store.
One factor that many videos fail to mention is that the Envelope budgeting method requires a large amount of discipline. It can be easy to find yourself “borrowing” money from other categories to make impulse purchases or to sometimes use a credit card simply because it is faster and easier.
The 50/30/20 Method
Another popular budgeting method going around Tiktok is the 50/30/20 method, arguably one of the most well-known budgeting methods. It is a simple technique: 50% of the monthly income should go towards “needs” such as bills, rent and groceries and 30% should go towards “wants” such as shopping for non-necessities and or going out with friends. The remaining 20% should go out towards savings.
This simple and straightforward budgeting method was heavily criticized on Tiktok, with many of its users calling it “unrealistic.” They were quick to point that 75% of most young people’s income goes towards the “needs” category due to factors such as student loans or a lower or variable income.
Due to its simplicity- this budgeting method can work for several people who are just beginning to budget and need a base to start with. It is not time-consuming, and it allows people to budget but still have a comfortable life.
Having said this, the comments under most videos advocating this budgeting method are not all off. While the 50/30/20 method does have its advantages – it might not to be the best budgeting method for those focused on debt-payoff or for long-term goals, since only 20% of your income is allocated towards savings. It is also true that low-income individuals will need to spend more than 50% of their income for their needs, especially those who live in expensive cities. This method would not allow them to build an emergency fund and they will have to skip on their “wants” to be able to make ends meet.
The Priority Based Budgeting
Priority Based Budgeting is a less well-known budgeting method but has been somewhat popular on Tiktok, with some videos explaining this method getting over 135,000 views. This budgeting technique begins by listing all listing and ranking monthly expenses from most important to least important. The second step is to write the approximate or exact value next to each expense as well as marking any expense that can potentially be decreased.
When you receive your income, you should then make sure to first pay the items on top of the expenses list, since it is the priority. Whatever amount you have left after paying the essential expenses is then allocated to expenses further down the list. This could mean that some of the items on the list such as “fun money” or vacation funds may not receive any amount of “funding” since they are not a financial priority.
This budgeting method is flexible and is meant for those with low income or high debt, since they must make sure to prioritize expenses such as rent, debt payments and food before spending money elsewhere. This budgeting method ensures that you are prioritizing what your money needs to be doing for you right now.
Another important factor that video creaters leave out is that budgeting method could also be beneficial to those who have a hard time balancing their financial goals and enjoying their hard-earned money -even if they do not fall under the low income/high debt category.
It is important to point that most videos do not share any information that is untrue- they just leave out one of the most important factors of budgeting: that a particular method is not better or worse than any other method. There are simply budgeting methods that work for some people but do not work for others.
The way people choose how to budget their finances should reflect the current situation they are in and what their financial goals are. And this is going to look different for everyone.
So before adopting any trendy budgeting method that shows up on your social media feed, it would be wise to read and do some research about how well it would fit in with your financial goals and lifestyle.
Written by Bianca Abreu, Junior Social Media and Content Analyst at CPQi.