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Budgets, unlike hula hoops, are not one-size-fits-all. There is no one solution for everyone, because everyone’s finances are different.
You may be familiar with how to create a basic budget, if you’ve followed our five easy steps, but what comes next can feel a little more complicated.
If you really want to progress and save money, the next thing to do is find the budgeting system that works for you.
So what do we mean when we say “works for you”?
That’s up to you. A proper budgeting system will help you reach your financial goals, whatever they may be, and be tailored to your lifestyle. Though budgets require you to adjust certain aspects of your spending and saving, you don’t want it to be so restrictive that it upends your entire life. A budget like that will meet with resistance as opposed to leaning in.
You want to have control over your finances, and the right budgeting system will give you the motivation you need to stick with it.
How to Start Choosing a Budget
Before you fill your head with the many methodologies of budgeting systems, it’s important for you to understand what you need from a budget. To do so, consider the following:
- What are your financial goals?
- Do you want a rigid budget or a more relaxed one?
- Do you want to use cash?
- Do you prefer to pay your bills physically or digitally?
- Is this a long-term or short-term budget?
- Is this a budget for you individually or for multiple family members?
If you get a handle on these questions, then the process of choosing a budget system will be seamless.
Which of these 5 Budgeting Systems are For You?
Now, we’re not going to pretend that there aren’t already a bunch of articles dedicated to breaking down different budgeting systems.
However, after reading many of these articles, I realized that they require you to read through entire paragraphs to learn about every system. I want to give you the basics upfront. In a matter of seconds you’ll be able to figure out if the budget will work or not. Time is money after all.
The 80/20 Budget
In a nutshell: Save 20% of your money, spend 80%
Perfect budget if you like: a simple strategy with flexibility
Not the right choice if: you are controlling or you need a detailed plan
The 80/20 budget is one of the most simple systems you can choose. To put it simplyl, you spend 80% of your income each month and save 20%. These proportions can be modified to adjust to your needs, for example, 70/30, 50/50, etc.
Unlike other budgeting systems, you do not have to clarify exactly where that 80% is going. It’s up to you to calculate your expenses, like with any budget, and spend accordingly. This is good and bad. It’s good if you want flexibility but bad if you have trouble controlling your spending.
The Envelope-Based Budget aka Cash-Only
In a nutshell: set aside cash in envelopes for spending
Perfect budget if you like: to physically see and spend your money, enjoy organizing and own a label maker
Not the right choice if: you don’t trust yourself with cash
This budgeting system is old-school. So if you’d like to take a break from computers and apps, you will surely enjoy yourself with the envelope-based budget.
Using this system, you withdraw money from your account each month and allocate it to different categories. You then write these categories, like utility bill, groceries, rent, etc., onto different envelopes and seal the correct amounts of cash in them until it’s time to spend.
Fans of scrapbooking will enjoy the process but if you are hesitant to have cash on you, then skip over this choice. If you want to try it anyway, make sure you also have a system for storing these envelopes. Put them somewhere safe so that you won’t be tempted to spend but don’t hide them too well where you could lose them.
The 50/30/20 Budget
In a nutshell: spend 50% on needs, 30% on wants, and put 20% in savings
Perfect budget if you like: a simplified system with few categories
Not the right choice if: you have a lot of debt
The 50/30/20 budget is a modification of the 80/20 budget. The basic premise is the same, but the spending category is broken down into two, needs and wants, giving you more control.
What gets complicated around this system is the very thing that distinguishes it. What are necessities and what are wants? Though groceries are a necessity, this budget requires you to look deeper, to separate food needs from food wants. So, you may need cereal and milk for breakfast, but you don’t need cookies. You’ll have to take a close look at your spending to really get the most out of this budget.
Your savings can be broken down into subcategories as well. It can be used for retirement, debt or an emergency fund.
Zero-based Budget
In a nutshell: assign every dollar a place
Perfect budget if you like: planning everything
Not the right choice if: you want flexibility and to be less involved
If you’ve ever seen the way a non-profit operates, this type of budgeting will make sense to you.
In short, every dollar has a place. Unlike the 50/30/20 budgeting systems, the zero-based budget requires you to name a category for every bit of your income each month. So, if you make $1000, you have to break it down, like $500 for rent, $200 for bills, $200 for food and $100 for transportation until you are left with $0.
This budget gives you the ultimate control over your spending. Since every dollar has a place, you know exactly where your money is going. However, this does require much more planning than other budgets. You also have to remember to allocate money for savings, and use another system, like the You Need a Budget app, to record your transactions.
The No Budget
In a nutshell: only spend what you have
Perfect budget if you like: simplified systems and you don’t cringe every time you check your bank account
Not the right choice if: you don’t have flexibility in your spending and have a lot of debt
Most of us probably practice the No Budget without even realizing it. With this system, you spend only what you have. So think of it as swapping out your credit card for a debit card.
You also need to swap out your excel sheet with a schedule for checking your bank account. You’ll only be able to understand how much money you have by actually seeing that money in your account.
If you’re not diligent, it is easy to overspend, so this system is best if you can hold yourself accountable (pun intended).
Tools to Help You Stick with a Budgeting System
Congratulations! You’ve made it to the end of the article! Hopefully you’re not overwhelmed but if you are, just know that there are so many tools and techniques out there to help you stick to your budgeting system.
If you need some extra motivation to stay on track, try a budgeting app. If you’re on a budget with your significant other, try a budgeting app for couples.
You can also browse RebateKey for products that will help you keep up with your budget. If the Envelope-Based Budget is the one for you, consider spending $4 to purchase assorted envelopes with labels to keep you organized.
You don’t have to spend a fortune to save a fortune. All you need to do is stick to a system.
