Budgets are designed to help you understand and evaluate your relationship with money. While all methods have a common goal, they often use different strategies to get you there. We’ve narrowed down some options to show you how to choose the right budgeting method for you. Use these recommendations as a guide.
1. Understand your money situation and values
If you don’t know which budget system to use, first start with a financial self-assessment. You current financial situation and goals can help you make a decision. If you’re in debt and need a system to help you decrease spending or you want to learn how to balance expenses with saving for a down payment on a house. Once you know where you stand and what you hope to accomplish, pick an option that matches those needs.
GETTING STARTED: THE 50/30/20 BUDGET
This system gives you room to pay down debt, cover current costs and save for future expenses. It splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment. You can use it by itself or as a baseline for other flexible budgeting methods.
CONTROL YOUR SPENDING: THE ENVELOPE SYSTEM
If you need a rigid system to help you reduce frivolous spending or stay out of debt but don’t want to track every purchase, try this cash-based approach. You set a spending limit for each expense category, like groceries, fill envelopes with the allotted cash and use only that money for purchases. Once an envelope is empty, you can’t spend any more money on that particular category for the month.
The Goodbudget app is based on the envelope system, for those who like the method but don’t want to deal with paper envelopes.
MAXIMIZE YOUR SAVINGS: PAY YOURSELF FIRST
Designed to align your spending habits and values, this “anti-budget” budget puts savings before immediate expenses. With this system, you decide how much to set aside from your monthly income for savings goals like retirement and an emergency fund, then use the rest for bills and other costs — so you don’t have to crunch every number.
GIVE EVERY DOLLAR A JOB: THE ZERO-BASED BUDGET
This budget suits overspenders and meticulous planners alike. It makes monitoring your spending clear. You take your monthly income and use every dollar in a deliberate way — like saving a certain amount for a trip and paying for utilities and groceries — until there are zero dollars left. But if you don’t strictly use cash as with the envelope system, you’ll have to log each expense to make sure you’re on budget. Budget apps such as YNAB and EveryDollar can help you follow a zero-based budget.
2. Decide how much time & effort you’re willing to make
Consider how much time and maintenance a budgeting system involves before you get on board. Some have strict requirements, while others are more flexible. For example Excel spreadsheets and the zero-based budget demand frequent and detailed expense tracking. The pay-yourself-first system and apps that sync to your financial accounts require little upkeep.
How often should you budget? There’s no set rule, so go at your own pace. If you’re confident with your financial situation, you can probably get away with reviewing your information once a month or a couple of times a year. However, if you’re still figuring out how to handle your money, you may want to check in weekly or after every purchase you make.
3. Compare manual and digital options
Determine whether you want to take a DIY approach to budgeting or seek technological assistance. Personal finance software like Mint or Personal Capital can be convenient if you want to access and update your information on the go. Apps like Digit can automate your savings, which can help you kickstart your budget. If it doesn’t automatically input and categorize your purchases or it’s hard to use, it might not add much value.
For some, a hands-on approach, like with pen and paper, is best. Writing things down can help you retain information and feel connected to your budget. If you’re not comfortable linking your bank accounts to an electronic budgeting service, a physical method can save you worry, too.
Still not sure?
Some experts say there’s no need to follow a specific budgeting system as long as you’re aware of important details like your income, debts, goals and general spending. If you live within your means and know you’re on track to reach your goals, then tracking every penny is probably overkill. The most important thing is to find a system that works for you, and that helps you achieve your goals!
For more guidance on budgeting, check out these episodes:
- Episode 243 with Jamila Souffrant
- Episode 221 with Kimberly Hamilton
- Episode 173 with Selma C.
- Episode 128 with Mykail James
- Episode 123 with Lexa VanDamme
- Episode 121 with Tiffany Aliche
- Episode 106 with Allison Baggerly
- Episode 66 with Cindy Zuniga-Sanchez
WANT TO KICKSTART YOUR FINANCIAL JOURNEY?
*This post may contain affiliate links and I may earn a small commission when you click on the links at no additional cost to you. This helps us provide you with free content, like this blog! You can read my full disclaimer here: https://yoquierodineropodcast.com/policy