Ah, budgeting – the topic many of us love to hate. You know, that thing people say we should do to make sure we’re not scraping pennies by the end of the month? Yep, that’s the one.
NerdWallet found that most Americans (about 75%) have a monthly budget, but a large majority (84%) have gone over their budget at least once.
I used to be in the “budgeting is not for me” camp. It felt like trying to solve a puzzle without all the pieces – confusing, frustrating, and ultimately, I just ended up giving up for a while.
But here’s the deal: after hitting rock bottom with my finances – drowning in debt, spending more than I earned, and owing almost everyone I knew – I had to get serious about budgeting.
So, with determination and desperation, I set out to figure it out. The problem? I had no clue which budgeting method was right for me. Seriously, there are tons of them out there, each claiming to be the best way to manage your money. It was overwhelming, to say the least.
I tried everything – from buying budget binders to scouring through countless articles. But most of the time, it felt like they were just skimming the surface of what budgeting really means.
So, I did some more digging, tried out a few budgeting methods, and finally found one that felt right for me. But even with my new budgeting approach, I still found myself slipping up.
I was a bit more organized, but those impulsive shopping habits? They were still there. Turns out, changing old habits takes time.
I had to dig deeper.
I took a good hard look at why I couldn’t seem to get my budgeting act together, even with what seemed like the perfect budgeting method. Here are some reasons I uncovered – maybe you can relate to a few of these:
Emotional spending: I realized I was using shopping as a way to cope with stress or boredom, which led to impulse purchases I didn’t really need.
Social pressure: I often felt the need to keep up with others or meet certain societal expectations, which sometimes meant spending beyond my means. (I once used my entire paycheck to buy an iPhone because everyone I knew owned one.)
Lack of financial awareness: I wasn’t fully aware of where my money was going each month or how much I was actually spending, which made it difficult to stick to a budget.
Low-income background: Coming from a lower-middle-class background meant that I didn’t always get the things I wanted when I was younger, so as an adult, I tried to overcompensate for that.
Recognizing these challenges was the first step toward overcoming them and getting my budgeting game on track. Once I understood what was holding me back, budgeting didn’t seem so daunting anymore.
I felt more determined than ever not to let my financial struggles dictate my life. And you know what? It paid off!
Budgeting isn’t a one-size-fits-all solution, and it’s certainly not just about numbers on a spreadsheet. You have to first identify the financial barriers that are preventing you from budgeting effectively and then address them with the right budgeting method.
Most importantly, it’s a habit that you have to develop over time to see real improvement in your finances.
So why am I sharing all this with you? Well, I’m not here to give you another snooze-worthy article filled with budgeting methods and send you on your way. No sir! I want my journey to light a spark in you, to inspire you, and hopefully, to give you a boost on your own budgeting journey.
Why Do You Want to Budget?
Budgeting is ESSENTIAL to financial stability and freedom. No question about it.
Budgeting is a powerful tool that can transform your financial life in more ways than one. But first, you need to determine what your budgeting goals are.
Here are some common reasons why you might want to start a budget:
- Reduce stress and anxiety related to money.
- Build wealth and secure financial future.
- Break bad spending habits.
- Prepare for emergencies.
- Live within your means.
- Track financial progress.
- Avoid debt and overspending.
- Plan for retirement.
- Save for big purchases or milestones (e.g., buying a home, starting a family).
- Improve relationships by reducing financial stress.
- Adapt to changes in income or expenses.
- Build discipline and self-control in managing money.
- Increase confidence in managing personal finances.
Now that you know why you want to start a budget, check out the budgeting methods below and choose the one that suits your financial situation.
5 Best Budgeting Methods
Zero-Based Budgeting Method
Let’s kick things off with the classic zero-based budgeting method. This approach revolves around the concept that every dollar you earn has a designated purpose.
Here’s the drill: you allocate your entire income to various categories such as bills, groceries, savings, and entertainment until your income minus expenses equals zero. It’s all about giving each dollar a job and ensuring that no money slips through the cracks.
Is the Zero-Based Budgeting Method right for you? Let’s break it down:
Budgeting Newbies: If you’re just starting your budgeting journey, zero-based budgeting is a great place to begin. It’s simple and ensures every dollar you earn has a purpose, making budgeting less intimidating.
Detail-Oriented Types: If you like to keep a close eye on your finances, zero-based budgeting might appeal to you. It requires tracking every dollar you spend, giving you a clear picture of where your money is going.
Irregular Income Earners: Zero-based budgeting can be a lifesaver for those with variable incomes, like freelancers or gig workers. It allows you to adjust your budget based on your income fluctuations, helping you stay on top of your finances.
Debt Repayers: If you’re focused on paying off debt, zero-based budgeting can be a powerful tool. By prioritizing your spending and finding areas to cut back, you can free up extra cash to put towards your debt repayment.
Goal Setters: Whether you’re saving for a big purchase or building an emergency fund, zero-based budgeting helps you allocate funds towards your goals systematically. It keeps you focused and motivated to achieve your financial objectives.
Families and Couples: Managing finances as a family can be challenging, but zero-based budgeting can simplify the process. It allows you to allocate funds towards shared expenses and individual goals, ensuring everyone’s needs are met.
If you’re looking for a practical and structured approach to managing your finances, zero-based budgeting could be the solution you’ve been searching for. Give it a try and see how it can help you take control of your money.
50/30/20 Budgeting Method
Now, let’s simplify things a bit with the 50/30/20 budgeting method. This approach divides your income into three broad categories: needs, wants, and savings/debt repayment. You allocate 50% of your income to essential needs like rent, utilities, and groceries, 30% to discretionary wants such as dining out and entertainment, and the remaining 20% to savings and debt repayment. It provides a straightforward guideline for your spending without necessitating meticulous tracking of every expense.
The 50/30/20 budgeting method can work well for a variety of individuals, especially those who prefer a straightforward approach to managing their finances. Here’s a breakdown of who might benefit from this method:
Savers and Simplifiers:
If you like to keep things simple and prefer a budgeting method that’s easy to understand and implement, the 50/30/20 rule is a great fit. It provides clear guidelines for how much of your income should be allocated to different categories without getting bogged down in complex calculations.
Young Professionals:
For individuals who are just starting their careers or have recently graduated from college, the 50/30/20 budgeting method offers a practical framework for managing their finances. It encourages them to prioritize essential expenses while still allowing for some flexibility to enjoy life and save for the future.
Individuals with Moderate Incomes:
The 50/30/20 budgeting method is ideal for those with moderate incomes who want to balance their spending between needs, wants, and savings. It allows for a comfortable lifestyle while also ensuring that a significant portion of income is allocated towards savings and financial goals.
Debt Repayers:
If you’re focused on paying off debt, the 50/30/20 budgeting method can help you allocate a portion of your income towards debt repayment while still allowing for discretionary spending and savings. It strikes a balance between debt reduction and maintaining a reasonable quality of life.
Budgeting Newbies:
For those who are new to budgeting and are looking for a simple yet effective way to manage their money, the 50/30/20 rule provides a straightforward framework to get started. It’s easy to understand and implement, making it accessible for budgeting novices.
Families and Couples:
The 50/30/20 budgeting method can also work well for families and couples who want to manage their finances together. It provides a clear structure for dividing household expenses, discretionary spending, and savings goals, fostering communication and collaboration in financial planning.
Overall, the 50/30/20 budgeting method is versatile and adaptable, making it suitable for a wide range of individuals with different income levels, financial goals, and lifestyles. Whether you’re looking to pay off debt, save for the future, or simply gain better control over your finances, this budgeting approach can help you achieve your objectives effectively.
Envelope Budgeting Method
Our next budgeting method is the envelope system, a straightforward and concrete approach to budgeting.
Imagine having a series of envelopes labeled with different spending categories, such as groceries, transportation, and entertainment. Upon receiving your paycheck, you allocate cash into these envelopes based on your budget for each category. Once an envelope is empty, you halt spending in that category until the next payday.
Here’s who it could be a total game-changer for:
Hands-On Learners:
If you’re the type who needs to see and touch things to really get it, this method is your jam. It’s all about physically dividing your cash into different envelopes for different expenses, so you can literally see where your money is going.
Impulse Shoppers:
You know those moments when you’re at the checkout and suddenly decide you need that shiny new gadget? Yeah, we’ve all been there. The Envelope Method puts the brakes on impulse spending by limiting you to what’s in your envelopes. No more overspending!
Cash Fans:
Do you prefer using cash over cards? Maybe you find it easier to keep track of your spending when you can physically see the money leaving your wallet. With the Envelope Method, you can allocate cash to different categories and only spend what you’ve got.
Fixed Income Folks:
Whether you’re on a pension, freelancing, or just living paycheck to paycheck, having a fixed income can make budgeting a challenge. But with the Envelope Method, you can prioritize your spending and make sure the essentials are covered first.
Debt Repayers:
Got some pesky debt hanging over your head? The Envelope Method can help you stay on track with your debt repayment goals. Just allocate a portion of your income to a debt repayment envelope and watch that balance shrink.
Budgeting Newbies:
Budgeting can be overwhelming, especially if you’re just starting out. But the Envelope Method keeps things simple and straightforward. No fancy spreadsheets or budgeting apps required—just you, your envelopes, and your financial goals.
Families and Couples:
Managing money as a couple or family can be tricky, but the Envelope Method can bring everyone together. Sit down with your partner or kids, divvy up the cash into different envelopes, and voila! You’ve got a budget that works for everyone.
So if you’re looking for a budgeting method that’s hands-on, straightforward, and totally grandma-approved, give the Envelope Budgeting Method a try. You might just find that it’s exactly what you need to take control of your finances and reach your money goals.
Pay Yourself First Budgeting Method
Now, let’s flip the script with the pay-yourself-first budgeting method. This approach prioritizes savings before anything else. As soon as you receive your paycheck, you automatically funnel a portion of it into your savings or investment accounts before allocating the rest to expenses. It’s akin to treating your savings as a non-negotiable expense, ensuring that you’re consistently building wealth regardless of other financial obligations.
The pay-yourself-first method can be effective for various individuals, especially those who prefer a tangible and hands-on approach to managing their finances. Here’s a breakdown of who might benefit from this method:
Visual Learners and Tactile Types:
If you’re someone who learns best through hands-on experiences and visual aids, the Envelope Budgeting Method could be perfect for you. It provides a tangible representation of your budgeting categories, making it easier to understand and manage your finances.
Impulse Shoppers:
For those who struggle with impulse purchases or have a hard time sticking to a budget, the Envelope Method can be a game-changer. By allocating cash to specific categories and physically seeing the money in each envelope, it creates a natural barrier to overspending.
Cash Fans:
If you prefer using cash for your day-to-day transactions or find it easier to track your spending with physical currency, the Envelope Budgeting Method aligns well with your preferences. It allows you to allocate cash to different categories and only spend what’s available in each envelope.
Fixed Income Earners:
For people with fixed incomes or irregular pay schedules, such as retirees or freelancers, the Envelope Method provides a structured way to manage expenses and prioritize spending. It helps ensure that essential bills are covered first before allocating funds to discretionary categories.
Debt Repayers:
If you’re focused on paying off debt, the Envelope Method can help you stay disciplined and focused on your financial goals. By allocating a portion of your income to debt repayment envelopes, you can track your progress and prioritize paying down debt faster.
Budgeting Newbies:
For those who are new to budgeting or find traditional budgeting methods overwhelming, the Envelope Budgeting Method offers a simple and straightforward approach. It doesn’t require complex spreadsheets or budgeting apps, making it accessible for beginners to get started right away.
Couples and Families:
Managing finances as a couple or family can be challenging, but the Envelope Method can help streamline the process. It encourages communication and collaboration in financial decision-making, as each member can participate in allocating funds to different envelopes based on shared priorities.
Overall, the Envelope Budgeting Method is versatile and adaptable, making it suitable for a wide range of individuals who value simplicity, control, and a hands-on approach to managing their finances. Whether you’re striving to curb overspending, pay off debt, or simply gain better control over your money, this method can provide the structure and discipline you need to achieve your financial goals.
Percentage-Based Budgeting Method
Last but not least, let’s explore the percentage-based budgeting method. This approach is similar to the 50/30/20 method but offers more flexibility.
Instead of adhering to strict percentages, you allocate your income based on your financial goals and priorities. For example, if you’re saving up for a down payment on a house, you might allocate more funds to savings.
If you’re working towards becoming debt-free, you might allocate more to debt repayment. It’s a customizable approach that adapts to your unique financial situation and aspirations.
The Percentage-Based Budgeting Method can be a great fit for various individuals, offering a straightforward approach to managing finances based on income percentages. Here’s who it’s best for:
Simplicity Seekers:
If you’re someone who prefers a simple and easy-to-follow budgeting approach, the Percentage-Based Method could be perfect for you.
It simplifies budgeting by allocating percentages of your income to different expense categories, eliminating the need for complex calculations or tracking every penny.
Budgeting Newbies:
For those new to budgeting or feeling overwhelmed by complicated budgeting methods, the Percentage-Based Method provides a clear and manageable starting point. It’s easy to understand and implement, making it accessible for beginners to get started with managing their finances.
Fixed Income Earners:
If you have a fixed income or stable salary, the Percentage-Based Method offers a predictable and consistent way to budget.
By allocating fixed percentages of your income to various expenses and savings, you can create a budget that fits your financial situation and goals.
Fluctuating Income Earners: Even if your income varies from month to month, the Percentage-Based Method can still work for you. Simply adjust the percentages based on your current income level, ensuring that you’re allocating a consistent proportion of your earnings to different expense categories and savings goals.
Goal-Oriented Individuals: If you have specific financial goals you’re working towards, such as saving for a vacation or paying off debt, the Percentage-Based Method can help you stay on track. By allocating a percentage of your income to savings and debt repayment, you can make steady progress towards your goals over time.
Hands-Off Budgeters: For those who prefer a more hands-off approach to budgeting, the Percentage-Based Method can be a low-maintenance option.
Once you’ve set your percentage allocations, you can automate your finances using direct deposits and automatic transfers, freeing up time and mental energy for other priorities.
Flexible Spenders: The Percentage-Based Method allows for flexibility in spending, as it focuses on allocating percentages rather than fixed dollar amounts.
This flexibility can be especially beneficial for those who have fluctuating expenses or lifestyle changes, allowing them to adjust their budgeting priorities as needed.
Overall, the Percentage-Based Budgeting Method is versatile and adaptable, making it suitable for a wide range of individuals with different financial situations, goals, and preferences. Whether you’re looking for simplicity, consistency, or flexibility in your budgeting approach, this method can provide a solid foundation for managing your finances effectively.
Budgeting with an App vs Spreadsheet
When it comes to managing your finances, there are various tools available to help you stay on track with your budget. Two popular options are budgeting apps and spreadsheets. Each has its own set of benefits and considerations:
Budgeting Apps:
Convenience: Budgeting apps often offer user-friendly interfaces and automation features, making it easy to track expenses, set goals, and monitor your financial progress.
Real-Time Updates: Many budgeting apps sync with your bank accounts and credit cards, providing real-time updates on your spending and helping you stay informed about your financial status.
Categorization: Apps typically categorize your transactions automatically, saving you time and effort in manual data entry. This can provide valuable insights into your spending habits and areas where you can cut back.
Accessibility: With budgeting apps available on smartphones and tablets, you can access your financial information anytime, anywhere, making it convenient for on-the-go budgeting.
Spreadsheets:
Customization: Spreadsheets offer a high level of customization, allowing you to tailor your budgeting system to meet your specific needs and preferences. You can create your own categories, formulas, and formatting to suit your financial goals.
Transparency: With spreadsheets, you have full control over your financial data and calculations. You can see exactly how your budget is structured and make adjustments as needed without relying on external platforms or services.
Privacy: Some individuals may prefer using spreadsheets for budgeting due to privacy concerns. Unlike budgeting apps that may require access to your financial accounts, spreadsheets keep your financial information secure on your personal device.
Skill Development: Managing a budget with a spreadsheet can also help improve your Excel or Google Sheets skills. As you build and maintain your budgeting spreadsheet, you may learn valuable spreadsheet functionalities that can be applied to other areas of your life or work.
Ultimately, whether you choose to use a budgeting app or a spreadsheet depends on your personal preferences, financial goals, and comfort level with technology. Some people may find that a combination of both tools works best for their needs, while others may prefer one over the other. Experiment with different methods to find the approach that helps you effectively manage your finances and stay committed to your budgeting goals.
