Raise your hand if you’re always trying to budget but it never seems to work for you 😳 I get it, budgeting can be overwhelming.
I’ve tried budgeting over and over and over again and it took me FOREVER to find a budgeting method that works for me (a combination of #3, #4 and #6).
So trust me, I’ve been there. With life being life, it seems nearly impossible to stick to a budget. But with a little bit of upfront work, we can simplify budgeting a little bit and take some of the mystery out of it.
Before we fully dive into all the different budget options for you, we’ll start with the basic components of what makes a budget a budget.
- Getting Started: Listing Out Your Income
- List Your Expenses
- Categorize Your Expenses, Part 1
- Categorize Your Expenses, Part 2
- Making a Budget That Works
- Types of Budgets
- 1. The 50/20/30 Budget
- How It Works
- The 50/20/30 Budget in Action
- Who Should Use the 50/20/30 Budget?
- How to Adjust the 50/30/20 Budget
- 2. The Cash Envelope Budget
- How It Works
- What You Should Know About the Envelope Budget
- Who Should Use the Cash Envelope Budget?
- Useful Tools to Start the Cash Envelope Budget
- 3. The Reverse Budget
- How It Works
- How Much Should You Save?
- Who Should Use the Reverse Budget?
- Tips To Make the Reverse Budget Work for YOU
- 4. The Zero Budget
- 5. The Half-Payment Budget
- 6. The Budget Calendar
- How to Stick to Your Budget
- Ready to Start Budgeting?
Once you understand what goes into a budget and you’ve done your initial prep work, we’ll get to the budgeting methods and find what works for you!
Getting Started: Listing Out Your Income
The first step in creating a budget is to write down all your income. There’s nothing fancy to this part.
Open up a notebook/word document/excel sheet/google doc/budget printable and make a list of all your take-home income for the month.
If you have an irregular source of income you’ll need to do a bit more work. Find the lowest monthly amount you’ve earned in the last year and use that as a basis for your monthly budget. This sets you up for your worst-case scenario of low cash-flow coming in.
List Your Expenses
Once you have listed out all your income, start making a list of ALL your expenses. Make sure you include everything here, from rent to your car payment, and irregular expenses (like your AAA membership.)
Do you get your nails done once a month? List it. Do you have a Spotify subscription? List it.
Go through your bank statements for the last month so you can get an idea of all your recurring charges. You might be surprised with what you find here.
Pro tip: Perhaps the single most important thing you can do for budgeting success is to track your expenses. Not only will it give you a picture of what your spending actually looks like, it’ll also help you fully and truly understand where your money is going.
Categorize Your Expenses, Part 1
Now that you have a list of all of your expenses, it’s time to start assigning them to categories. Keep it simple for now, take two different colored highlighters and mark each expense as either essential or non-essential.
For example, essential expenses would be things like rent, car insurance, car payment, utilities, groceries, etc. Non-essentials include things like your gym membership, Netflix subscription and others.
If you’re in doubt about whether something is non-essential (like your nail appointments), ask yourself if this is something you would still pay for if you lost your job today. If the answer is no, it’s probably non-essential and something you can look into cutting if you need to save some cash.
Note: The fact that something is categorized as non-essential doesn’t mean that you can’t keep it in your budget. You need to have room for fun if you’re going to budget successfully!
Designating budget items as nonessential is useful to help you be intentional about what you keep and don’t keep in your budget.
Categorize Your Expenses, Part 2
Now that you know what’s essential and non-essential, assign a more specific budget category to each one of them. You can use common groups such as:
- Utilities (electricity, gas, water, trash, sewer)
- Auto expenses (car payment, insurance, gas, parking)
- Eating out (restaurants, fast food)
- Health (gym membership, health insurance, copays, medications, etc)
If you use a budgeting printable or app, you can use and tweak the categories that come with those to find what works for your specific situation!
Making a Budget That Works
So now you know how much money you bring in every month and how much money you’re spending on your essentials and non-essentials. It’s time to start making sense of this and putting it all on a budget that you can seriously stick to.
Types of Budgets
At its core, budgeting is just an allocation of money into different categories. The type of budget that you choose to start is totally dependent on YOUR life circumstances.
There’s no one-size fits all budget! The best way to find a budget that works for you is to experiment with the different types of budgets until you find something that feels comfortable for you!
1. The 50/20/30 Budget
You may have heard about the 50/20/30 budget or “rule”. Each number in the rule refers to a percentage that you can spend on each budget category. If you don’t know what it is or how to make it work, read on!
How It Works
The 50/20/30 budget gives you rough guidelines of how to allocate your money.
- 50% means that you spend no more than 50% of your income toward the essentials you already identified (like rent, utilities, car, daycare, etc.)
- 20% then goes straight into your savings or other goals, like debt payments.
- The last 30% can go to the non-essentials (eating out, shopping, etc), and
The 50/20/30 Budget in Action
Let’s say that your monthly take home pay is $3,000. Using the 50/20/30 rule you’d allocate your money as follows:
- $1,500 can go towards a combination of rent, utilities, groceries, and other essential items that you absolutely NEED.
- $600 is set aside for savings and is transferred to a separate savings account.
- The remaining $900 can then be used for all of your non-essentials, like eating out, shopping, etc.
Who Should Use the 50/20/30 Budget?
I firmly believe that the 50/20/30 budget rule is a great one for EVERYONE to follow. I like it because it gives you structure of knowing how much you have to spend on broad categories.
At the same time, this budget type doesn’t force you to track every little detail or to allocate a specific amount to each thing you spend money on.
If you like having structure, but still enjoy the freedom of having budget piles that you can move around in various categories, this is a great budget for you.
How to Adjust the 50/30/20 Budget
If your essentials are greater than 50% of your take-home income, it’s worth looking into ways to cut down your big expenses (like rent or your car) significantly or look into ways to make more money.
Same thing goes for your non-essentials. Are they greater than 30% of your income? Start slashing.
Do you really need that Spotify subscription, or can you live with the ads? Are you paying for a gym membership that you never use? Start cutting these categories out.
2. The Cash Envelope Budget
The main thing with the cash envelope budget is right in the name: you use cash in envelopes to pay for your expenses.
With this budgeting method you say goodbye to your credit cards and focus on paying cash for everything!
A little disclaimer here: you’re obviously not expected to pay in cash for your mortgage payment, but it does mean that you would pay for this using your checking account, not your credit cards.
How It Works
To get started, get enough envelopes for each budget category you’ve decided to spend your money on each month.
Label each envelope with the name of each category in your budget and put the amount of cash you’ve decided to allocate in that envelope.
You then take those envelopes shopping with you and use them to pay for your expenses every time you buy something!
What You Should Know About the Envelope Budget
- When you go to the bank to withdraw your cash, ask for bills in small denominations. It’ll make it easier for all your transactions to go smoothly if you have small bills accessible!
- Get a coin purse, like this one or this one, to keep all your loose coins. It can get cumbersome to have the coins in each envelope.
- Make sure you keep that cash somewhere safe, and don’t take every single envelope with you when you go out.
- Using cash requires planning. You’ll need to plan in advance what envelope you take depending on where you’re going.
Who Should Use the Cash Envelope Budget?
If you don’t mind using cash to pay for your transactions, this might be the budget for you!
Additionally, if you’ve tried and failed to cut back on your spending, the cash envelope budget is great to help solve that problem!
Studies have shown that using cash is a great way to help you spend less (and thus more likely to stick to your budget and achieve your money goals!)
There’s something about parting with our hard earned cash that makes it less likely that you’ll easily spend your money.
Useful Tools to Start the Cash Envelope Budget
3. The Reverse Budget
The reverse budget is also known as the “pay yourself first” budget and I LOVE IT.
With this budget, you don’t have to spend hours tweaking your different budget categories. You just decide how much you want to save and everything else kinda falls into place from there.
This budgeting method is the first one that I was actually successful with, and allowed me to build up my first emergency fund!
How It Works
When you’re using the reverse budget, you choose an amount that you want to save every month, say $100. You subtract that savings amount from your total income, and whatever is left over is what you’re able to spend for the month on all your expenses.
How Much Should You Save?
Figuring out how much you can save every month is a very personal decision and depends on what your income and expenses look like.
A couple rules of thumb I personally like to follow are:
- Using the 50/30/20 budgeting “rule” to find out what 20% of my income is and saving that amount every month
- Saving enough for my retirement so that I’m getting my employer’s 401(k) match;
- Setting goals and saving based on those same goals I’m trying to reach. Because I like to travel, I set aside money each month directly into a travel fund so my vacations are fully paid for in advance.
Who Should Use the Reverse Budget?
You should consider using the reverse budget if:
- You find yourself with little or no money left over at the end of the month, or you have extra money but treat it as “free” money.
- You have a hard time budgeting, or have savings goals you’re trying to reach.
Tips To Make the Reverse Budget Work for YOU
Sine the whole point of reverse budgeting is to pay yourself first, you want to make sure you DON’T touch that money unless you absolutely need to.
I strongly recommend two tips to ensure this:
- Automate! Set up a direct transfer when you get paid to make sure you actually set aside the money.
- Make sure that you transfer the money to a separate savings account that’s not easily accessible so you’re not tempted to spend it!
4. The Zero Budget
I am currently IN LOVE with the zero budget. I’ve known about this budgeting method for a while but always thought it was too much work for me.
Then, a few months ago I discovered an app from THE Dave Ramsey himself that makes the zero budget so much easier! I’m not even kidding when I say THIS is the budgeting method that’s been rocking my world lately. I’ll tell you why!
How It Works
With the zero based budget, you assign a job and category to every single dollar. Essentially, this means that all of your income minus all of your expenses for any given month should get you to zero.
Getting started with this budget may require that you do some initial prep work with the 50/20/30 budget. Why? You need to decide how much you’re able to allocate to essentials, nonessentials and savings. From then, you can allocate specific amounts to each specific category.
The whole point of this budgeting method is to be intentional with your money and know where all of your cash is going every month.
Why? Because if you don’t know where your money is going you may be spending money in areas that aren’t really important to YOU. Meanwhile, you could be overlooking areas for you to cutback on and save more money.
Who Should Try the Zero Based Budget?
I have to admit, the zero based budget isn’t the best for everyone, but it works SO WELL if you’re willing to give it a try.
If you’re looking to get out of debt, be more intentional with your spending, or save more money every month, this budget should be your JAM.
Tools for Zero Based Budgeting Success
The best way to get started with the Zero Based budget is to use an app like Every Dollar or You Need a Budget.
Both of these apps walk you through the process of creating a zero-based budget and assigning a role to each and every dollar you bring in.
They also allow you to track your spending so you can stay on top of your monthly budget!
5. The Half-Payment Budget
How many times have you made it to the end of the month only to find that you have no idea where your money has gone? Worse yet, there’s still bills to pay and very little money left to pay them!
Here’s where the half-payment budget method can work for you and ensure that you don’t find yourself in that dreaded situation again!
How It Works
The main idea behind the half-payment budget method is to take each one of your bills and divide it by half.
When you get paid, you take that half amount you’ve figured out you’ll need and set it aside to use when each bill is due. Note that this doesn’t mean you make half payments to each bill, but rather you SET ASIDE the half payment to use later.
The Half-Payment Budget In Action
Let’s take a simple, sample budget to see how this budget would work in real life.
Monthly Income: $3,000
– $1500 paid on the 1st
– $1500 paid on the 15th
Recurring Bills:- Rent: $1,000, due on the 1st
– Rent: $1000, due on the 1st
– Utilities: $150, due on the 5th
– Car payment: $300 due on the 16th
– Car Insurance: $150 due on the 18th
– Cell phone: $100 due on the 20th
– Childcare: $250 due on the 28th
Total Recurring Bills: $1950
Total Left: $1050
When you get paid on the 1st, you’d set aside $975 for half of all the bills. At this point, you’d be left with $525 to spend until you get paid again.
On the 15th when you get paid again, you’d set aside the other half, be left with another $525 to spend, and pay all your bills that are due.
Note: you’ll notice that you need to get half a month ahead in order to make this budget work for you. If you’re tight on money, slash as much as you can to save up to get started with this method!
Who Should Try the Half-Payment Budget?
The half-payment budget method is great if you constantly find yourself in the red in the part of the month that has more bills than the other. Because this budgeting method requires you to plan in advance for your bills, it reduces the amount of money your brain thinks is “free” to spend on unnecessary things.
If you’re paid weekly, biweekly, or twice a month, this budgeting method might be perfect for you. For those of you who get paid weekly, you’d just split the payments into quarters instead of halves!
I think this budgeting method can work for everyone, and is a great way to ensure you don’t fall behind on your bills, or are using credit (and thus debt) to get by every month!
6. The Budget Calendar
A budget calendar isn’t necessarily a budget, but rather a way to help you manage your money, keep track of all your bills, and more!
A budget calendar is useful if you like to see things visually. It can help you stick to your budget by allowing you to see when your bills are due and when you can expect money to come in.
Using a calendar alongside another budgeting method on this list is a great way to create a custom budgeting method that works for YOU!
How It Works
Start by writing down all of your income and expenses and assign a due date to them. Look at the month ahead and make note of any other important events that might cause to spend money unexpectedly, like a birthday celebration.
Once you have that written down, transfer it to a calendar. This can be a desk calendar, a wall calendar, or even your google calendar!
At this point you can get fancy with it and color code your items with highlighters. For example, you can use green for your paydays and red for your expenses, and you’re done!
How to Stick to Your Budget
At this point, you’ve hopefully picked a budget method (or methods!) that you’re ready to try. So what now? How to do you stick to this new budget of yours?
- Make sure you stick with it for at least 21 days, since it takes at least that long to make something a habit.
- Take advantage of technology. There’s plenty of apps out there that make sticking to your budget much more easy!
- Cut yourself some slack! If you have an off month, it’s ok! Look at what you spent money on and brainstorm ways you can avoid that (or build it into your budget) going forward.
- If you find yourself low on cash every month no matter how much you slash your budget, consider finding a way to make some extra money.
- Look for additional ways to save money every month!
Ready to Start Budgeting?
Hopefully you now have an understanding of how you can make a budget work for YOU.
Whether you start with the 50/30/20 rule or go straight into the zero-based budget, find a method that you can stick to longterm, and don’t be afraid to mix it up!
Are you ready to start budgeting? Let me know how YOU budget in the comments!