Budgeting is one of those things that we all know we should be doing, but we aren’t exactly sure how to get started. For many of us, budgeting just feels restrictive. After all, who wants to stare at their budget every month and feel bad about spending money on things they enjoy?
The good news is that budgeting doesn’t have to restrict you. In reality, they give you freedom, because they give you permission to spend money on the things you want to spend money on as long as you’ve already budgeted for the things you have to spend money on.
Even if you’re convinced that budgeting is a good idea, you might not be sure how to get started. After all, budgeting is all about telling your money where to go. But how can we do that if we don’t know where it should be going?
Luckily there are a few budgeting systems out there that provide guidance for aspiring budgeters to figure out where they should be spending their hard-earned money every month.
1. 50/30/20 Budget
Do you ever struggle to figure out how much of your money should be going toward wants versus needs? Plenty of budgeting gurus today like to guilt us for spending money on lattes, but surely it’s okay to spend some of our money on things that bring us joy?
That’s where the 50/30/20 budget comes in.
This budget breaks down exactly what percentage of your income you should be spending on wants, needs, and savings. It helps to make sure you’re putting enough money aside for bills and savings but also lets you spend money on yourself without beating yourself up about it later.
Under the 50/30/20 budget, the first 50% of your income goes toward needs. This category includes your regular monthly bills like your rent, insurance, utilities, cell phone, and groceries.
The next 30% of your income goes toward wants. This category is anything you don’t have to spend money on, but you want to. It includes eating out, clothes, makeup, home decor, monthly subscriptions, and any other fun or entertainment you spend money on.
The final 20% of your income goes toward savings and debt. This category includes those pesky student loan payments we’ve all got, as well as credit cards and other debt. It also includes money going into savings. This would be your emergency fund, as well as any long-term savings goals you’re working toward like that vacation you’ve been dreaming of.
The fact that this budgeting system is based on a percentage of income instead of a flat amount means you can easily adapt it to fit your income level. It also leaves a lot of flexibility to spend your money where it does the most for you.
The downside of this method is that it’s not great for people with a lot of debt. Someone with a huge amount of student loan debt might be spending nearly 20% of their monthly income on debt, which doesn’t leave much room for saving.
This method also might be challenging for people living in a region with a high cost of living. In some parts of the country, you might just not be able to get away with only spending 50% of your monthly income on needs.
2. Envelope System
Chances are that most of us have put together a budget at some point, and then completely failed to follow it. Swiping your debit or credit card can make it easy to lose track of how much you’re actually spending. Not to mention, it’s easy to justify going just a little over budget. But that “just a little bit” adds up a lot over time.
The envelope budgeting system is one that encourages you to use cash. At the beginning of the month, you take out the cash you’ll need for all of that month’s spending.
Each spending category gets its own envelope for the money budgeted. And once the money is gone, it’s gone. Sure, you can pull money out of one envelope to make up for a shortfall in another. But you can only spend as much cash as you’ve got in your purse.
A big downside to this budgeting system is that plenty of people don’t carry cash these days. There’s also a security issue with carrying cash. If you lose your debit card, you can have the bank shut it down and issue you a new one. If you lose $1,000 in cash, it’s gone.
3. Pay Yourself First
How many times have you told yourself you’d put any leftover money into your savings account at the end of the money, only to find you had spent it all by then? If you struggle to put into your savings account every month, then this budgeting trick is probably exactly what you need.
Under the ‘pay yourself first’ budgeting method, transferring money into your savings account is the very first thing you do with your money every month. Instead of saving what you have left after spending, it requires that you only spend what you have left after saving.
Way too many of us are neglecting our emergency fund, so now more than ever we need to start paying ourselves first.
The one challenge with this budget might come for those with an irregular income, who genuinely don’t know how much they’ll be able to put into savings each month after paying their bills.
4. Zero-Based Budget
The zero-based budget is one where every dollar gets a job. As soon as you have money come into your bank account, you tell it where to go.
This budgeting system is great for people who tend to overspend in one or more of their spending categories. It’s easy to tell yourself that the money is there, so why not spend it?
Well, in the zero-based budget, the money isn’t there anymore because it’s already been budgeted for something else.
The struggle with this budgeting system is that you’re only budgeting with money you already have. For people who live paycheck-to-paycheck, this can make it really difficult to plan ahead with your budget. It’s also a very hands-on type of budgeting, which is a struggle for plenty of people.
Which budgeting system is right for you?
So how do we know which budgeting system is best? In the end, the best budget for you is the budget you stick to. Take some time to experiment with the different budgeting methods to see which works best with your lifestyle.
The other good news is that you can do a combination of these! Each of these strategies is one piece of the puzzle that you can use in combination with the others.
