Finding Your Budget Style
There are numerous ways you can budget, but they might not all work for your financial circumstances. In this blog, we’ll go over the different budget styles to help you determine which one is the best for you.
50/30/20
The 50/30/20 rule is a common budgeting style. With this style, you allocate 50% of your monthly income to needs, 30% to wants, and 20% to savings.
Examples of needs: rent, utilities, groceries, car payment, bills.
Examples of wants: dining out, hobbies, streaming services.
It’s important to not skip the 20% to your savings each month. Building an emergency fund and contributing to your retirement plan are both essential to building financial independence. If you would like to learn more about the importance of having an emergency fund, read our blog. Learn more about retirement planning to set your golden years up for success.
Pay Yourself First
This budgeting style is very similar to the 50/30/20 one, but there is one distinguishable difference between the two. With the pay yourself first method, you are prioritizing your savings. You will set up an automatic transfer of 20% to your savings account and then use the remaining 80% for wants and needs. This method ensures you are saving without having to think much about it.
Envelope System
If you prefer using cash, this budgeting style could be the one for you. The envelope system has cash-filled envelopes, labeled with a spending category. If the envelope becomes empty, that means you have used up the allocated amount for that category. This option is great for visual or impulse spenders because they can actually see how much money they have spent and how much they have available.
Kakeibo Method
If it’s easier for you to see things written down on paper, this method could work for you. The Kakeibo method is a more mindful approach to encourage you to think things through before making purchases. The Kakeibo method involves writing down your income, expenses and financial goals. If you are debating purchasing something, you can reflect in your journal if you can afford it and if you will use it. A lot of the time, especially with impulse purchases, if you reflect on the purchase before completing it, you’ll decide against buying it. That is why this method is great for people who tend to buy a lot of things impulsively.
Zero-Based Budget
The zero- based method is ideal if you are wanting to eliminate unnecessary debt. You will have to be on top of tracking your expenses with this method. Here’s how it works: for each dollar you spend, you will “assign” a purpose to that dollar. Is it being used for rent, groceries, dining out, etc? This method teaches you to be very mindful with your spending and can help you learn about your spending habits.
Find Which Method Works Best for You
Everyone has their own ways of doing things, but one of the budgeting methods listed above should work for you. You might know exactly which method you want to use, and that’s great. If not, don’t worry—you can try multiple methods and see which one you enjoyed the best. Enjoy finding the budget style that best fits you and your goals!