7 Budgeting Methods to Make Your Life Easy
There are many budgeting methods to help you organize and plan your finances, but which one is right for you? Writing out your budgeting plan every month could help you stay on track, download our free budgeting planner to get started.
What is a budget?
A budget is a plan for your money that helps you meet your spending goals, bill payments, and your savings. With a budget in place, you will know where all your money is going so you can become more financially stable. Planning your finances may be overwhelming and you might not know where to start. Check out these seven different budgeting methods to determine the best fit for your lifestyle.
1. 50/20/30 Budget
It’s all about balancing your dollars. This method is straightforward and requires little work. The 50/20/30 budgeting method breaks down your expenses into three categories:
1. Needs (50%)
a. Necessary payments: car payment, water bill, groceries, gas, etc.
2. Savings (20%)
Retirement, emergency fund, your kids’ college fund, and debt repayment.
3. Wants (30%)
Optional expenses: eating out, taking a trip, purchasing a new outfit, etc.
If you're new to budgeting, this method would be great for you as you only focus on three categories. Although, make sure you know the difference between a “want” and “need”.
2. Using Cash-Only
No cards allowed! Plan out how you are going to spend your money each month by only using cash. Prioritize where your money should go by putting your cash into envelopes. To get started with this method, withdraw as much cash as you need from your bank account and fill each envelope with the designated amount. Make it easy on yourself by labeling each envelope. For example, as you fill up your vehicle throughout the month, keep your gas envelope in your console so you can only pay in cash. If you run out of money, you may need to cut down on unnecessary driving. This method prevents you from mindlessly swiping your card. Instead, you know exactly how much you can spend. Avoid grabbing cash from different envelopes if you run out in a certain category. Once your cash is gone, you have no more to spend. Studies show handing over physical money and watching it disappear can be painful. In case of emergencies, keep your credit card close but make sure you are only using it to cover yourself if you run into a problem.
3. The Simple Budget
From dollar signs to percentages. Instead of balancing your money with dollar amounts, this method balances your money with percentages. The goal of this method is to simplify your budget plan. If you use this method, 60% of your income will be put towards expenses you need to pay each month. These expenses go towards the things you need to survive, such as essentials and your bills. The remaining 40% of your income is separated into four categories, with 10% designated for each category.
- Retirement saving
- Paying Debt and Long-term savings, such as an emergency fund or stock purchases
- Short-term savings - such as vacations, gifts or bigger expenses
- “Fun money” for variable expenses, like dining out or new clothes
If you are someone who likes to automate and save your expenses, this would be a great method for you! However, you need to be disciplined with your spending since your bills are only 60% of your income.
4. Priority Budgeting
Instead of focusing on what to cut out of your budget, focus on what you prioritize spending money on. With this method, make a list of everything you’re allowing yourself to spend money on, based on your values. What are your values? Let’s break it down into categories- hobbies, friendship, travel, security, beauty, family, donations, and entertainment. If you enjoy going to happy hour with your friends, write it down. If you like donating to a charity each month, write it down. If it is your goal to travel to a new place every year, write it down. This method brings awareness to your spending by focusing on what is important to you. Whatever is not on your list is what you won’t spend money on. If you enjoy saving money and are already strict with your spending, this method would be a good choice for you. However, if you choose this method, make sure you are automatically saving your money and are disciplined with spending.
5. Discipline Budgeting
No planning here! Although, you need to be disciplined with your spending if you use this method. The goal of the discipline budget is to only spend what you have. With this method the only thing you need to pay attention to is your bank account. It is important to prioritize your bill payments. Make it easy on yourself and set up automated bill payments and keep track of when they occur. Use automatic transfers into your savings account so you can save money from each paycheck without lifting a finger. After you have made your necessary payments, you can spend whatever money is left over, but keep an eye on your account to avoid overdrafting. If you have trouble saving your money but don’t want to focus too much on budgeting, this method is right for you.
6. Zero-Based Budgeting
Every dollar has a job with zero-based budgeting. This method is simple and easy to use.
When using this method, your monthly income minus your expenses should equal zero.
You will plan where each dollar will go - each month, add up your necessary spending and savings to equal your income amount. Your necessary spending includes bill payments, groceries and gas. Your savings can go towards boosting your retirement savings or growing your emergency fund. There should be zero dollars remaining unaccounted for in your budget. This method allows you to be in control of your money, and know exactly where your money is going. If you have a set income each month, this method would be great for you. For this method to be effective, there is small room for error so you can’t make any compulsive purchases, unless you have budgeted for it.
7. Money Manager
For additional help with budgeting, Jefferson Bank’s money manager will help keep you on track with your finances to make life easier. The free online banking tool allows you to create a personalized budget with your savings goals. Link all your accounts, even those from other institutions so you can manage your money properly. The tool automatically tracks your spending and categorizes it, so you can see where your money is going. It can also help you avoid late payments by using the cash flow calendar to schedule when your upcoming bills are due.
Simple, Easy to Use Budgeting Planner
Once you have chosen a budgeting method that is right for you, let's get to planning! Check out this budgeting planner for an easy way to start mapping out your finances.
The information provided in these articles is intended for informational purposes only. It is not to be construed as the opinion of Central Bancompany, Inc., and/or its subsidiaries and does not imply endorsement or support of any of the mentioned information, products, services, or providers. All information presented is without any representation, guaranty, or warranty regarding the accuracy, relevance, or completeness of the information.