7 Kinds of Personal Budgets and How They Work
It can be easier to know where you are at financially and achieve your financial goals if you keep track of your money every month. A budget can help you monitor your money and make you feel in control of your finances. The catch is to find a budgeting style that works for you so you will use it consistently and reach your goals. Here are some of the different types of budgeting styles you can try:
- Traditional Budget
- Zero-Based Budget
- 50/30/20 Budget
- Goal Based Budget
- Pay Yourself First Budget
- Spending Cap Budget
- Envelope Budget
A Traditional Budget
This is possibly one of the most widely used styles of budgeting. You simply subtract your expenses from your income and what ever is left over at the end of the month can be used for savings, retirement, additional payments towards debt or extra purchases. This is one of the easier to use methods and is recommended for beginners.
The Zero-Based Budget
With a Zero-based Budget, the goal is to give every dollar you earn a job, making your income get to Zero every month. But that doesn’t mean it all goes to spending, you give each individual dollar a job, whether that is savings, retirement investing, or paying necessary bills. You choose where you spend the money, making sure each cent has a job and at the end you have nothing left over.
The 50/30/20 Budget
This budget is great for people who want to separate their income into precise portions. The idea is that 50% of your income goes towards necessary expenses, 30% goes towards things you want to spend money but aren’t necessities and 20% goes towards your savings and/or debt.
Other Family Members
So perhaps you have specific goals in mind that you want to achieve. This would be the budgeting style for you. In this budget you have financial goals you want to accomplish, and you set aside money to help reach those goals. Usually, you choose one to two major goals and work with those. Examples of this could be:
- Save 15% of my income every month.
- Put 10% of my income into a retirement plan.
- Pay down 20% of a debt every month.
- Spend no more than $200 each week on groceries.
With this budget, you choose the goal(s) and then put money aside to achieve them.
The Pay Yourself First Budget
This method puts you and your financial goals front and centre. When you get your pay cheque, you literally pay yourself first by paying towards your financial goal before any other expenses. Whether that’s putting money in a high yield savings account, retirement plan or whatever savings goal you might have. This plan is especially good if you have a hard time making you and your savings a priority. After you pay yourself first the rest of the money goes towards expenses like rent, groceries, car, etc.
Spending Cap Budget
This budget says it all in the name: SPENDING CAP. In this budget you include all that you are willing to spend in a month to a maximum. This includes groceries, bills, debts, and savings all in one monthly limit and you can’t go over that amount. What ends up being left over you are free to do what you want with it, but we will always recommend you put it into savings.
The Envelope Budget
If you are more of a visual person and get encouragement from seeing your money pile up before your eyes in real time, then this budget might work for you. In the Envelope budget, you take physical cash and portion it out into labeled envelopes that are categorized for each expense and savings. For example, one envelope for a vacation, another for the car payment, another for groceries, etc. For maximum visual appeal you can get clear plastic sleeves in a binder or keep it simple with regular letter envelopes.
So which Budget is the best one for you? The one that works and gets you using it consistently. Some people like more restrictive budgets like the “Traditional Budget” or the “Spending Cap” method. Others might want more freedom like the “Pay Yourself First” style. Either way, the best budget is the one that works for you and helps you achieve your financial goals.