DO YOU KNOW YOUR BUDGET STYLE?

BUDGETS HELP US PRIORITIZE OUR SPENDING

Budgeting is so important in being able to make sure that we are getting the most out of our money. So often people have this thought that if you are on a budget it means you are struggling. It’s so the opposite of reality.  When we use a budget we struggle so much less than when not have one. No matter your income level, it never feels good to not know what is happening with your income.

Using a budget allows us to see what we have available to spend. We can decide how we want to spend or save what is available after paying our bills. It helps to take a look at those bills and decide if there are things we can cut back on. Sometimes we just get used to paying for something. But we might not really think much about its value until we start digging into the budget. It is a great feeling to know that you are in control of where your money is going.

IS YOUR BUDGET GOOD FOR YOU?

Sometimes we might start to budget and then not stick with it. It could be that you feel like you are never able to come in on budget. Or maybe the process of tracking your spending against your budget is just too time-consuming for you. Everyone is different in how they like to manage their money. Regardless of how detailed you want to get, it is important to prepare and maintain a budget.

If you have not yet been able to get budgeting to work for you, maybe consider a new method. There are so many different ways to create a budget. So, today I am going to share some other methods you might want to try if your current budget system is not working for you. Or, maybe you just need a slight change in one aspect of your budget to make what you are currently doing even better!

ZERO-BASED BUDGETING

Zero-based budgeting is a method of budgeting where you start from scratch each time you develop your budget. You start the process from zero. In other words, you would not roll over your prior year’s budget and tweak some expenses. To do a true zero-based budget you would start from scratch. Each budget line item starts at zero. This allows you to consider each item that you are adding to your budget. You can then make sure that the spending is still a cost that must be included (such as your mortgage, or car payment) or something that you still want to include. Looking at each expense also allows you to assess whether some savings can be found.

A disadvantage of this budget method would be that you are basically recreating the wheel. If you already have a good budget in place and you do take your time to thoroughly review the line items included, then it probably does make sense to do the work of starting from scratch each time. However, if you feel like you have not really put that much thought lately into your budget, or you don’t take time to review the budget often, this might be a good option for you. It really forces you to really take a good look at each item included in your budget.

PERCENTAGE METHOD

If you really don’t want to get into the little details of how you will be spending your money, you might want to consider using the percentage method of budgeting. In this budget style, you create your budget allocating money to each spending area based on a percentage of your income. One way to set up a percentage method budget is to use the 50/30/20 rule.

This means that 50% of your income goes to needs.  This would cover things like your mortgage payment, insurance, cell phone, gas, groceries, utilities, etc. 30% goes towards wants.  This could be things like dining out, paying for a Netflix subscription, vacations, and new clothing. 20% goes towards savings.  This would be for things like retirement, emergency funds, and other long-term savings goals.  Maybe saving for a new car in the future or a major home improvement. These percentages are just an example and would be adjusted based on your actual expenses. For example, if your needs make up 60% of your income, putting aside 50% for your needs would not work. However, this could prompt you to look at those needs and see if anything could be done to lower that percentage.

Whatever your percentages end up being, it will give you a guideline to divide up your money as it comes in so that you know where it should go. Using the percentage method offers more flexibility and less tracking. If you are not careful the percentage method can lead to excess spending if you are not careful.

PAY YOURSELF FIRST

A pay-yourself-first budget focuses on putting money aside for savings first. The purpose of this budget style is to make sure the amount you want to put aside for savings is taken care of before allowing yourself access to the money for other things. This involves creating a budget to determine how much you need for bills and other spending and how much can be dedicated to savings. Each time you receive income, the portion of that income goes to savings immediately. This ensures that you do not end up spending excess money on things that are not a priority to you.

CASH ENVELOPE METHOD

The cash envelope method of budgeting is kind of an add-on to your overall budget. Obviously, you will not be making payments for things like your mortgage, property taxes, utilities, and other similar bills in cash. So, you do first need to do a budget to make sure you cover those expenses. As part of that budget process, you would determine how much you have available to spend on things such as groceries, gas, clothing, etc.

Whatever amounts you have determined can be spent on those categories are then taken from the bank and placed in various cash envelopes. When the money is gone, you stop spending in that category, or you borrow from another if necessary.  But, then you have to reduce your spending in the category you borrowed from because you will run out of that cash sooner. Many people really love this method of budgeting because it really forces you to stay within your spending limits if you stick to it.

SINKING FUNDS

Sinking funds are not necessarily a budget style, but they can be used in combination with your budget style to help plan for irregular expenses if that is an area that you struggle with. With sinking funds, you consider those expenses that will be coming up in the future and set aside money on a regular basis to save up for those expenses. You can do this at a high level or get really detailed.

For example, you can determine on average you need say $50 a week to cover all of these various expenses as they come up. Or, you can get really detailed, and put aside weekly amounts of $10 for clothing, $5 for ordering, in $20 for pet food, etc. For myself, I like to get really detailed because it makes me feel better to see exactly what the savings are for. But, for others, it may be just fine to have a lump savings amount that can be pulled from. Creating sinking funds is probably the #1 thing that finally helped me be able to stick much closer to my budget.

SIMPLE BUDGETING FORMAT FOR BUDGETS WITH MINIMAL EXPENSES

When my son was working and helping pay for his education I helped him set up a very simple budget method. He only had a handful of budget categories that he needed to plan for. We set up a spreadsheet and allocated his earnings from each paycheck into a column representing one of the expenses. The columns he had were gas, insurance, cell phone, personal, and college.

We determined how much he needed to put aside each time we got paid for gas, insurance, cell phone, and some personal spending money. Everything that was left went into the college column. When he spent money he subtracted it out of the column that he spent from. The spreadsheet totaled down to his bank balance. So he always knew how much money he had available in each of the spending categories. This worked really well for him. It would probably be a good method for teens, young adults, or anyone with very minimal spending categories.

MAKE UP YOUR OWN BUDGET STYLE

The right way to do your budget is the way that works for you. Some people really love getting into the details and tracking expenses. Others just want to see how much is left so they know what they can spend. There is no right answer to the best way to budget. But, you want to find a method of budgeting that you will stick with.

Having a budget that you will keep up with can make your life a lot less stressful. It will lower the likelihood that you will wonder what happened to the money you worked so hard for. Budgeting is just a method of managing your money. You might need to pull pieces from all of the different methods to find something you like. Go ahead and create your own style. It’s all about making sure you are able to get the most out of the money you have available!

Thanks so much for checking in! If you would like to hear the podcast version of this topic to check out Lola’s Frugal Life Podcast! Also, be sure to check out my other blog posts on this site!

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