How To Choose A Budgeting Method For Financial Success

Here are 4 of the most popular forms of budgeting and the pros and cons of each:

1.   Standard budgeting

Making a budget based on your income and expenses is the basic idea behind traditional budgeting. Typically, it entails making a list of all of your monthly expenses and allocating a certain sum of money to each one. Traditional budgeting calls for self-discipline and meticulous spending tracking to ensure that you stay within your budget.

Steps:

1. Audit your expenses
2. Track your income
3. Create categories of expenses
4. Allocate money to each category
5. Save the rest of the money
6. Review and ensure you are on a budget

Pros: A very simple way of budgeting, a customizable approach 

Cons: Can be overwhelming for beginners

2.  Zero-based budgeting

Zero-based budgeting involves creating a budget from scratch each month, starting with a zero balance. This approach requires you to prioritize your expenses and allocate money accordingly, ensuring that every dollar has a specific purpose. Zero-based budgeting is an excellent option for those who want to be more intentional with their spending.

Steps:

1. List out all income sources
2. Examine each expense category 
3. Justify each expense
4. Allocate dollars to expenses including savings 

Pros:  Be more intentional with your spending to ensure each dollar has a purpose

Cons:  Requires the most time as you are creating a new budget each month

3.   Envelope budgeting; Cash Stuffing

Envelope budgeting (or Cash Stuffing budgeting) involves dividing your monthly income into different categories and assigning each category a physical envelope. You then put the cash you’ve allocated for each category into the corresponding envelope. This approach is great for those who prefer to use cash rather than credit cards and want to see exactly how much money they have left for each category.

Steps: 

1. Prepare the cash from your income
2. Allocate cash into different expense buckets
3. Use the cash for your expense throughout the month
4. Review your spending

Pros: Less impulse spending as you can see exactly how much money you have left

Cons: Harder to track expenses unless you keep the receipts, Cash is inconvenient

4.   50-30-20 budgeting

The 50-30-20 budgeting method involves dividing your after-tax income into three categories: 50% for essential expenses (Needs), 30% for discretionary spending (Wants), and 20% for savings. This approach is great for those who want a simple and straightforward budgeting method that prioritizes savings.

Steps: 

1. Figure your desired % split between Needs, Wants, and Savings
2. Allocate money into the 3 buckets 
3. Track and review at the end of the month

Pros: Simple and straightforward budgeting method, prioritizes saving money

Cons: Not a one-size fits all template, plan needs to be readjusted depending on changing life situations

Things to Consider When Choosing a Budgeting method :

There are a couple of things you should keep in mind when you are deciding on which budgeting method to use. 

I’ve discovered that budgeting (and most money-related topics) are very emotional, so I would recommend you to figure out what your money psychology is and how that is driving your spending habits.

Here are a couple of things to consider:

• What do you value? What are your Money Rules?
• Are you planning to set up an Emergency Fund and Sinking Funds or invest in Retirement Funds?
• Which apps and tools would help you stay on track?
• Do you have a routine for your budgeting process? 
• Which day will you review your budget?
• Which day will you set your budget?
• Can you automate your budgeting?
• Can you stay consistent? Which method is easiest for you to follow?

The Budgeting Method I Use:

I use the standard budgeting and here are my reasons for choosing this budgeting method. 

• What do you value?
  • A: Convenience, consistency, and flexibility in my budgeting. I want to be able to spend freely on the things I love but cut mercilessly on the things I don’t care about. 
• Which apps and tools would help you stay on track?
  • A: I use Mint, spreadsheets, and Notion to build and stick to my budget
• Do you have a routine for your budgeting process? 
  • A: I review and adjust my budget on the first Friday of every month
• Can you automate your budgeting?
  • A: Yes, I use credit cards so all my expenses are easily tracked. Then, I sync up my accounts to Mint, which automatically puts my expenses into different buckets.
  • I transfer a fixed amount of money into a separate “spending checkings account.” All my credit cards have autopay, which deducts money from my “spending account.”
  • I am usually under my budget, which means the excess will be used as my “buffer” or “sinking fund” for any unusual or one-time expenses.
• Can you stay consistent? Which method is easiest for you to follow?
  • A: This method works best for me because it allows me to save time. I’m also very intentional with my spending and I have the discipline to review my spending on a regular basis.

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Remember:

• Budgeting is more of an emotional process, and that is ok.
• You can blend multiple budgeting methods together if needed.
• Be aware if and how your pre-existing money beliefs may be self-sabotaging your own success.
• Take baby steps. Start small so you don’t get overwhelmed and give up.
• Be kind to yourself. It takes time to build a system that works. You’ll make mistakes but don’t give up. 
• Avoid lifestyle creep! If you make more money, try to save more instead of spending the excess
• Consistency is Key! The best budgeting method is the one that will help you reach your goals! 
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• In the end, the best budgeting method is the one that will help you reach your goals. I recommend you to play around with the different methods before committing to a single method. You can also use a blend of different methods to create the perfect budgeting system for your needs!
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• Auditing your cash flow is an essential step that allows you to understand where and how to budget your expenses. Get your free cash flow tracker and start take charge of your money by cutting these 11 things from your budget!