Have you struggled with sticking to a budget in the past? The answer may not be trying harder, but trying a new approach all together. Finding the style of budgeting that best fits your personality and goals can make the process of working toward your financial goals less stressful and maybe even (gasp!) fun.
Your budgeting history
Before you start, it is helpful to consider what associations you have with budgeting and your experiences with trying to manage your money in the past. Did you try to implement a budget so strict that you ended up feeling frustrated and deprived? Did you make a budget without clear goals? Did you start out like gangbusters and then lose steam for your budget after a few weeks? Take a moment to make a list of what hasn’t and has helped you with sticking to a budget in the past.
It can also be helpful to notice any emotional reactions you have around managing your personal finances. Does thinking about budgeting bring up feelings of anxiety or nervousness? Would you rather think about almost anything else? Noticing and being aware of these feelings—while being as non-judgmental as possible—can keep them from getting overwhelming and derailing your process. Below are five different approaches to personal budgeting that may work for you. Feel free to combine these styles in ways that will best fit your needs and goals.
Best for: Those who don’t want to track every expense, people looking for a low-maintenance, flexible budgeting option. Those who feel trapped or frustrated with traditional budgeting.
This plan was created by Liv at Funding cloud nine and is especially developed for newbie and frustrated budgeters. With this method you invest some time upfront to design a monthly budget using 90% of your income. The 90% plan should this should include all of your expenses like mortgage, food, entertainment and savings. The 10% you don’t budget acts as a cushion if you overspend in one category or unexpected expenses arise. If you don’t use the 10% you can add it to next month’s cushion, move it to savings or use it to treat yourself for doing such a good job on your budget.
Best for: Someone who is future- focused and wanting to make progress on specific financial goals. Goal oriented people who enjoy a challenge. Those who want to save money without tracking every expense.
The reverse budget starts with your savings and debt elimination goals. This money is allocated and taken out first. For example, you could set aside $300 for student loans, $150 for shorter term savings and $500 for retirement. The remaining money can be used for all other monthly expenses.
This budget works well for people’s whos monthly expenses don’t tend to change a great deal from month to month and who have some wiggle room with their monthly expenses. For most people, it’s best to start with modest goals as opposed to setting very high goals and running out of money before the end of the month. This plan has the benefits of focusing on your goals first and then allowing you to spend the rest of your money as you choose. A nice balance of structure and freedom.
Cash Only Budget (The Envelope System)
People who are kinesthetic/physical learners, those who tend to overspend with cards and other payment methods. People who don’t make a lot of online purchases.
This budget can be highly effective for people who are trying to break an overspending habit. Using only cash—instead of other payment methods—makes it impossible to overspend, especially if you leave your credit cards at home. To set up this system, label envelopes with each of your monthly spending categories like food, fuel, clothing and entertainment.
Cash your paycheck and place the appropriate amount in each envelope. It’s also a good idea to create a category for unexpected expenses, which can help with unpredictable situations. You carry only the cash and envelopes you are going to use that day. Having limited cash helps reduce possible impulse buys and rein in over spending. The cash- only budget can also be used for a few months as a financial bootcamp to rapidly increase financial awareness and discipline.
Visual learners, people who enjoy working with technology. People who don’t want to manually track expenses and prefer the process to be automated.
Digital budgets use online apps or software to help you manage your money and reach your financial goals. Like most budgeting systems, this one takes some work to get started as you enter in your account information, goals and spending categories.
The good news is that after initial set up the program will do a lot of the work for you and can even send you notifications when you are getting near spending limits for certain categories. By putting all your financial information in one place a budget app can help you get a big picture overview of your finances, which can be helpful in working toward your goals. Like any budgeting systems these apps work best when you stay engaged and check in regularly.
People who don’t like budgets. People who don’t want to have to track every expense and prefer a more flexible spending plan. People who want an approachable way to begin to prioritize saving or paying down debt.
This type of budget begins with choosing a proportion that works with your current income and goals. Common choices are 80/20, 70/30 or 60/40. The first percentage goes toward your savings/debt goals and the rest you can use however you like to take care of your living expenses.
This system allows you to prioritize your goals, while still giving you the opportunity to manage your money creatively. For the truly budget-phobic starting with a lower ratio—such as 10/90—can increase chances of sticking with the program. A popular proportion for this budget system is a variation of 30/70 with 10% going toward retirement, 10% toward short term savings, 10% toward a travel or other discretionary goal and 70% to cover everyday living expenses.
Zero based budget
People who enjoy planning and feeling proactive about their money. Individuals very motivated to save for a specific goal or pay off debt. People who enjoy number crunching and spreadsheets.
The Zero based budget requires you to account for every dollar you make. This includes not only fixed expenses like rent and insurance but financial goals like retirement and short term savings. Each month you forecast the money you will make and then plan for where your money will go. Your monthly income minus planned expenses = zero. This style of budgeting requires a high level of planning and engagement and works best for people who are working hard toward a particular financial goal.
5 Tips for budgeting success
When possible, regularly set aside funds for unexpected expenses. Not having money available in short term savings is one of the most common reasons people don’t succeed at sticking to a budget and get into debt.
Figure out how much you need in your short term savings to feel secure and make reaching that level a priority. This will help keep you from putting expenses on credit cards or tapping into retirement funds when emergencies arise.
Super strict budgets work for some people, but most people will do better with a plan with some flexibility. Notice if you enjoy the challenge of a very strict budget plan or prefer a more relaxed alternative.
Having financial goals that matter to you is the best way to resist temptation and stay on track. Be as specific and descriptive as possible when defining your goals and how you will get there.
Take stock of your budget plan on a regular basis and make adjustments as needed. Perhaps you prefer a different plan in the summer months when you are in a more relaxed state of mind. Or, if your savings goals are so ambitious they are causing you stress, maybe it’s better to adjust them. Regularly asking yourself what is working and what isn’t will help you fine tune your budget to your preferences and keep you moving toward your goals.