We are all unique. We like different foods, we have different clothing styles, we have different tastes in music. Finding a budgeting style that works for you is no different! What works for others may not work for you and in order to be successful, you have to find the right fit for your budgeting style.
When you start budgeting, it can be overwhelming. There are so many different budgeting methods…how do you know which one to choose and what will work for you? When I started budgeting, I tried several – most didn’t work because it didn’t feel right, it didn’t fit me. When I found my budgeting style, things clicked and I was able to stick to it and actually (dare I say this?) enjoyed budgeting.
To help you get started on finding your budgeting style, I’ve put together a list of three simple and effective budgeting methods.
Zero-based Budgeting – Whit’s personal favorite!
When using a zero-based budgeting method, it means that you are finding a specific purpose for all of your income, essentially bringing your budget to $0 at the end of the budgeting period. This can sound really scary when you are starting out, because people commonly think that it also means bringing your account balance down to $0, which is not the case.
In the zero-based budget method, you can allocate money for whatever “categories” that you designate for your budget. For example, in addition to my normal expenses, I also have a “checking buffer” category in my budget, which I allocate a certain amount of money each month. This allows me to set aside money as a “buffer” in my account for any small emergencies or forgotten expenses, while still being able to close my budget out at $0. Doing this gives me peace of mind and I’ve incorporated it as a standard expense in my budget.
Want to see how it works? See below!
Example:
Earned Income: $500
Expenses: Rent $250
Groceries $100
Electric $100
Checking Buffer $50
Remaining amount to Spend/Allocate: $0
The remaining amount to spend or allocate to categories is $0 as intended with the zero-based budgeting method and I still get my peace of mind with a little buffer in my account!
Proportional Budgeting (aka 50-20-30 Budget)
The 50-20-30 budgeting method is a great way to approach your budget. This budget method states that a person should split their after tax income into the following categories:
50% to needs
Now, let’s drill down on the definition of “needs” because even though I love Amazon Prime, sadly, that’s not considered a need. Needs are going to be defined as those expenses that you must pay in order to survive – think housing costs, food, health care costs, and utilities.
20% to savings/debt repayment
This budgeting method states that approximately 20% of income should go towards a person’s savings goals and/or additional debt repayment. The minimum payments on your debt would be included in the needs category, but any additional payments, like principal payments, would be included in this category.
30% to wants
This budgeting method allows 30% to be spent on those items that are not critical or essential to your survival. (Finally, we can talk about my Amazon Prime!) Expenses in this category could include dining out with friends, vacations, or extras that you may want.
This method of budgeting is helpful because it provides a framework on the percentage of income that a person should be spending. However, it’s important to remember that it’s only a framework and ultimately, a person’s percentages might need to be different, based on their individual situation.
Envelope budgeting (aka Cash Budgeting)
The envelope budgeting method, also known as the cash budgeting method, is another great method for budgeting. This budget method is done by dividing a person’s net income into various categories and filling envelopes with the designated cash amount. If carrying envelopes of cash isn’t your thing, this can also be done through electronic means, by using various apps or manually tracking how much is spent in each category.
The great thing about the envelope budgeting method is that it can help curb the desire to overspend in a certain category. Once the envelope, cash or electronic, for that category is empty, there is nothing left to spend until the next paycheck when the envelope can be refilled. Any leftover cash not used can be rolled over to the following cycle or used for other savings/debt repayment goals.
Finding your budget style may incorporate one of these three methods, a completely different method, or a combination of several! There is no wrong way to budget, as long as it works for you and helps you reach your specific financial goals!
I would love to hear your preferred budgeting method and why it works for you!
Thanks for reading!
-Whitney
