For many people, budgeting isn’t just fun, it means restrictions, shortages, and even punishments. However, if you choose the right budgeting method, you can be financially successful and budgeting doesn’t have to be such a chore. Find out how to best budget. That way you can decide how to use it.
I personally prefer the term “plan” over the term “budget.” But a budget that is somehow divided into budget categories is really important to your financial success.
I’ve heard a proverb from Benjamin Franklin. Well, if you don’t plan, you can’t win, and your budget is there to help you win.
That said, the budgeting process doesn’t have to be difficult or complicated either.
Budgeting has several advantages and disadvantages, but it is generally positive. Just create a system that suits you. And this means a proper budgeting method.
In this article you will learn everything about how to win with different types of budgets and money! But first, let’s discuss why it’s important to understand different budgeting methods.
Why it’s important to understand how to budget
There are some pretty sure reasons why you should understand and use some or one of the methods of budgeting. It teaches you to keep your spending down, track expenses, and control your money.
It is also the first step in helping you build wealth.
Having a budget will allow you to enjoy life without the stress of how to pay later. Because “later” rarely comes. By paying for the present instead of the future, you can truly enjoy yourself and live the life you want.
By building a budget and sticking to it, I was able to save $100,000 in just three years. And you can find a way to save 100,000 too! Imagine something that can be achieved with a little plan.
People often allow feelings to cloud their judgment regarding their finances.
However, looking at your money objectively to what it really is and it’s easier to plan! Once you have decided what your priorities are, the different budgeting methods you choose should reflect them.
Four different budgeting methods to consider
The way you choose is entirely up to you. The most important part is choosing a style that works for your life. Trust me, even if you currently hate budgeting and need a better budgeting system, there’s a style for you!
Not everyone processes the same information, so finding something that will help you is the most important step. You might like any of these methods or some hybrids of them. You can choose to start a weekly budget or prefer a biweekly budget or monthly budget.
The most important thing is to do it. If it doesn’t work, try different types of budgeting methods. That being said, below are four different ideas you can try.
1. Envelope or cache system
A cash-based budgeting system is simple. You subtract your expenses from your income and then put the amount of each expense in its own envelope. These envelopes are your category.
Using cash can make it easier to stick to your budget. Research shows that you spend less when using cash. However, when using the envelope system, you do not need to use cash on all invoices.
You can set up large bill money using the digital envelope system. Then track them through budget worksheets or apps. Then place small costs in the actual physical envelope or actual cash in daily transactions.
The Cash Envelope system is perfect for categories where you can use cash every day. So clothes, food, eating out, enjoyment, kids’ expenses, etc. Don’t overly complicated that.
Learn more about getting started with the Cash Envelope method. And be sure to check out our reviews of the best cash envelope wallet options.
2. Percentage breakout
Another way to look at your budget is to break down your household income into percentages. Doing this will help you organize your spending and savings accordingly.
- needs
- want
- Savings and/or debt.
Please note that the percentage of budget allocations may vary. Don’t forget that this is your budget. If necessary, you can choose to spend on certain categories, such as savings and debt repayments.
So, for example, you can choose 35/30/35 breakout, 35/35/30 breakout, or 25/25/50 breakout. The goal is to set a percentage breakout that makes sense to you.
Be aware of how much income you spend on your home alone. The rule of thumb is to keep your housing costs below 30% of your income.
Otherwise, you won’t be able to spend that much money on your other goals. Savings, investments, becoming debt free, etc.
Maintaining budget worksheets in this way is also helpful. Using one of the best budget templates or worksheets can help you see where your money is heading. It helps you create a budget easily each month.
Below is a typical percentage budget that you can try.
70-20-10 Budget
The 70-20-20 budgeting method can help you break your income as follows: Costs are 70%, savings are 20%, and debts are paid back (or charitable donations).
Your expenses include essentials such as groceries, personal care, housing costs, and more, but not essential like a wedding or a fun money gift. Second, you can save 20% towards your goals, including retirement investments. Finally, you can repay your credit card debt or personal loan and give it to others with the remaining 10%.
50-30-20 Budget
The 50-30-20 rule is pretty simple. I spend less than 50% of my income on needs and essentials (home expenses, rent payments, home repairs, transportation costs, car payments, food budgets, groceries, etc.). This includes debt repayment.
Second, under 30% of your income is directed towards desire and non-essential (cable, entertainment, subscriptions, holidays, anniversaries and birthday presents, etc.).
Finally, at least 20% of your income is directed towards savings (such as retirement accounts, emergency or rainy day funds, health savings accounts, and university tuition savings).
It’s one of the easiest ways to budget. This is because it works with a variety of incomes and allows you to save and spend freely.
60-30-10 Budget
The 60-30-10 rule is a very unique method of budgeting. It works best when you have very high income, low costs, or both.
With this approach, 60% of your money is directed towards savings, debt return and investment. Next, 30% will budget for your essential costs, including mortgages, tenant insurance, property taxes, school supplies, food and more. Finally, 10% remains on anything you want to buy, such as a birthday present for a friend or dinner at a restaurant.
If you are still not able to use your 60-30-10 budget, you can always use the percentage method that will save you more. Maybe try savings of 30 or 40% and try to save more over time.
80-20 Budget
A budget of 80-20 is a simple approach that is very effective. 20% of your money is for your savings goals. The other 80% is due to your essentials and discretionary spending.
So we budget 20% of wages for emergency funds, investments and other targets. Meanwhile, you will split the rest for your expenses and other things you want or need to buy.
For example, essentials such as rent, homeowner insurance, food, life insurance, and the internet are paid from 80%, discretionary spending such as Netflix and movies, tickets to events such as concerts, or birthday gifts.
30-30-30-10 Budget
Another typical percentage is a budget of 30-30-30-10. This makes a lot of sense if you want to be aware of how much money you spend in important categories.
Using this approach, you spend 30% on housing costs. Another 30% are heading towards their savings goals, including retirement or paying off debt.
Plus, an additional 30% pays for other important expenses, such as the internet and groceries. Finally, the last 10% is due to discretionary expenditures.
This kind of budget means keep in mind that housing costs are not too expensive. This can be helpful and can save you a fair amount.
3. Reverse budgeting approach
As the name suggests, reverse budgeting is the opposite of most methods. Most budgets allow you to deduct expenses from your monthly income, but inverse budgets are different. It is also known as the “pay first” method.
This budgeting method focuses on savings and financial goals, including saving a certain amount each month, in addition to paying important bills such as mortgage payments and utility services.
After that, you can do what you want with the remaining money as long as you achieve your monthly goal and pay your bills without exceeding your income. Reverse budgeting is one of the best types of budgeting methods, as it is easy and doesn’t have to think too much about your money goals.
4. Zero-based budgeting
Another form of budgeting is an example of zero-based budgeting. Zero-based budgeting is a way of advocating what Dave Ramsey uses. Essentially, a zero-based budget is planning for every dollar within your budget.
So instead of leaving an amount of $X at the end of the month, I have $0 left (on paper anyway). If you are planning your budget, we’ll explain everything you can think about within your budget, as all dollars have a purpose.
There really isn’t a zero dollar at the end of the month, as it accounts for various savings funds within your budget. This method is effective as it creates intentionality in every dollar so that “remaining” doesn’t disappear each month.
Therefore, plan ahead of time the amount you need, from essentials like health insurance and debt payments to discretionary spending such as going to concerts or money for hobbies.
Budgeting using spreadsheets and apps: Which one is the best?
Some people love charts organized for their money. You don’t have to worry about bank security or what’s going on with your personal information. Also, using budget spreadsheets can help you get very close to numbers.
You like this approach, but are you worried about having access to it when you’re not at home? Google Drive is free and allows you to easily upload budget worksheets to make it easy to access your mobile device.
On the other hand, the app can make your budget very simple, especially if you can connect your bank account so that you can automatically track your bank account. These days, most apps have additional security.
However, sometimes there can be delays in updating transactions. Also, apps are not always intuitive when it comes to transaction classification. This means you have to spend time setting things up.
That aside, most of the time, all you really need to do once things are set is checking in frequently. It helps to ensure that transactions are tracked correctly. You can also set up alerts to maintain your budget range.
Whether you choose a budget worksheet or app, you can set your budget to reflect one of the above methods. Check out our example budget.
Six Tips for Successful Budgeting Methods of Your Selection
Budgeting doesn’t have to be scary and overwhelming. Doing it over makes it easier and easier to organize your finances each month. Follow these simple steps to streamline the process and help you actually stick to your budget.
1. Call it something fun
Call what you like to your budget and it motivates you to catch up with it. Who says it needs to be called the budget?
Give them a nickname and personality. Anyway, the word budget is boring!
2. Create a budget every month
Creating a budget every month means kicking off the next month with your plan and not trying to figure out what to do. After all, it’s a new goal for a new month, right?
Plan to create a budget a few days before the month begins. You will have time to lay out things and understand what your finances will look like next month.
Once you’ve got the habit of creating a budget, you can even plan your budget for several months at a time.
3. Don’t assume it will be the same every month
You need to plan each month individually. Financially, there are no two months that are exactly the same, so it’s essential to create a new, unique budget each month, as you want to prepare in advance for one-off bills, expenses, travel plans, events, etc.
Similarly, budgeting for life-changing events requires special attention and budget review. Whether it’s a new baby or you’ve paid off your debt, sometimes you need to look closely at your monthly budget and respond to those changes as needed.
4. Create a budget based on the forecast income for the month
If you are paid once a month, twice a month, or every two weeks, make sure you budget based on your budget and get a good idea of ​​your budget.
If you receive payments every two weeks, don’t forget that there are months when you receive three paychecks. Plan accordingly.
On the other hand, if you are budgeting with irregular income, you may have the right challenges at first. You have to be even more diligent in tracking your spending and estimating your income, but you can!
5. Pay the fee before you splurge
Paying expenses means paying first to your essentials, debts, goals (savings, investments).
The last thing you want is to over-snatch what you don’t need and find out there is no way to pay your bill.
But even with that being said, it’s okay to splurge and have fun money. Make sure you are building your sprays on your budget, you can make them enjoy innocent things.
6. Track transactions
Tracking transactions will help you stay within your budget and stay conscious of your spending habits. Track transactions with spending journals, spreadsheets, or automated apps or online tools.
If you’re just aware of your budgeting, we recommend tracking your transactions and checking in your budget every day. It only takes a few minutes, and it helps you stay at the pinnacle of your finances. Additionally, you will build one of the essential money habits of checking your finances frequently.
Expert Tips: Budget can change your life for the better
Budgeting may not seem like that fun, but if you find the right way, it can really help your financial health. If it seems difficult, try another method until you create a system that makes sense.
And don’t forget that you are not budgeting for no reason, because you are doing it, you can build a better future for yourself.
Budgeting allows you to pay bills, pay off debts and invest money. Remember how budgeting can help you if you want to stop and don’t give up!
What is the most common method of budgeting?
Cash envelope systems, budget percentages (such as 50/30/20), reverse budgets, and zero-based budgets are some of the most common methods of budgeting. They are all different from each other. So, you may find the right one for your lifestyle and it is important to find one that works for you.
However, if you don’t want to continue looking for another method, you can create a hybrid of different budgeting methods to create your own budget.
Which budgeting methods should I try first?
If you want to know which budgeting method to try first, try a percentage like the 50-30-20 rule. It gives you a good starting point in your finances. You can then change the percentages as needed, depending on your lifestyle and goals.
Please note that there are also a few other budgeting methods you can try. For example, reverse budget or zero-based budgeting methods.
What are the 5 budgeting methods?
The five budgeting methods that are likely to work for most people are the 50-30-20 budget, reverse budget, 70-20-10 budget, zero-based budgeting, and the envelope system. There are other types of budgeting methods, but these five may be easily implemented for the majority of your income.
There are many ways to plan your money to make the most of it. As long as you pay and use methods that allow you to save money for the future, you can’t go wrong.
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The best kind of budget is what works for you! If you enjoyed this article, check out these other great articles on how to budget.
Take advantage of these budgeting methods today!
The budgeting method you choose will help you succeed financially. Once you’ve slipped, you’ll brush yourself off and get back on track. Take the lessons you learned about budgeting since the previous month and apply them to the next month.
If you find that the method you want to use is not working, you can adjust it to your liking or try a whole new one. No matter what, try until you find the right way to budget your money and achieve your financial goals.