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A simple household budget can help you feel in control of your money—and set the stage for financial empowerment. It's essentially a plan for managing your monthly income and expenses. There are multiple budgeting styles to choose from, and picking the "right one" can be overwhelming. The best budget for you will depend on your unique spending habits and personality. Here's how to pick a method that gels with both.
Best Budget if You Like to Be in Control: Zero-Based Budgeting
Zero-based budgeting is ideal for folks who like knowing that every penny is accounted for. This method makes it so that your monthly expenses are always equal to your take-home pay. When you deduct your spending from your income, the difference is zero. A spreadsheet is a simple way to manage a zero-based budget, especially since many will automatically tally up your expenses for you.
Begin by putting your monthly earnings (after taxes) at the top. Beneath that, list out each of your monthly expenses as its own line item. For example:
- Rent/mortgage payment
- Debt payments
- Household items
- Medical spending
The most important part is to assign a dollar amount to each category, even if it's an estimate. Then deduct each item from your top number until you get to zero. If your final number is negative, it means you have to reduce spending somewhere to make up the difference. If you have a surplus, you can direct it toward saving or other financial goals.
Every dollar has a job. As such, it requires a strong understanding of your monthly expenses. Tracking your spending is a good place to start. Zero-based budgeting often requires a little more time and attention than other budgeting styles, but it can provide a sense of control because it shows you exactly where your money is going every month.
Best Budget if You Want Something Hands-Off: 50/30/20 Budgeting
The main goal of budgeting is to live within your means. The 50/30/20 rule is one way to get there. It breaks down your monthly take-home pay like this:
Essential Spending: 50%
These are necessities you absolutely have to pay each month. Think of them as the non-negotiables. The following kinds of bills all fall under this category:
- Housing payment
- Minimum debt payments
- Insurance premiums
- Child care bills
Variable Spending: 30%
This bucket is designed for discretionary spending that may fluctuate from month to month. Spending in this category tends to include creature comforts, splurges and other expenses that allow you to enjoy your hard-earned money. This often includes things like:
- Dining out
- Subscription services
Financial Goals: 20%
The 50/30/20 rule carves out space for financial goals in your monthly budget. They might include:
- Building your emergency fund
- Paying down debt (minimum monthly debt payments are an essential expense, but paying beyond that would be a financial goal)
- Saving for a home down payment
- Saving for your next vacation
- Padding your kids' college funds
If you'd like to accelerate your financial goals, you can dial back variable spending—just proceed with caution. You might not stick to a budget if it feels too restrictive.
The 50/30/20 budget may be a great option for those who want to ensure their essentials and savings are accounted for, but aren't as worried about where their discretionary funds go after that.
Best Budget if You Prefer Cash: Envelope Budgeting
Cash spending may not be as common these days, but that doesn't mean it isn't worth exploring. Envelope budgeting has you pay for certain monthly expenses with cash. Once the money is gone, it's gone. It could make sense for folks who have a history of overspending. According to one MIT study, credit cards sensitize reward networks in the brain—which could drive greater purchasing.
First, identify which bills you can easily cover with cash. While your housing payment and cellphone might be out, you could look to expenses like:
- Dining out
Once you determine how much you can reasonably spend every month, take cash out of the ATM and put it into labeled envelopes that correspond to each spending category. The idea is that you'll monitor your spending responsibly if you see cash depleting in real time. There's also room for flexibility. If you notice you're spending more in one category and less in another, you can move cash between your envelopes as you see fit.
Just one note: If you routinely use credit cards to earn rewards, set aside cash as you go and park it in an envelope for when your monthly bill comes due.
Best Budget to Prioritize What Matters: Values-Led Budgeting
Values-led budgeting allows you to manage your money in a way that aligns with what matters to you. It begins with getting clear on your core values, which may include a mix of things like:
- Charitable giving
- Family experiences
Take a closer look at your essential monthly expenses to see if they line up with these values. For example, if environmental sustainability is one of your core values, it could shape your transportation spending.
Values-led budgeting can also shine when it comes to discretionary spending and financial goals. You can create a budget where your values directly influence these spending categories. If charitable giving and travel are two core values, your budget might make space for a volunteer vacation.
Budgeting Apps Can Save You Time
If you prefer a digital budgeting method you can carry in your pocket, a budgeting app may be a good fit. Some go hand in hand with the budgeting styles mentioned above. You Need a Budget, for example, helps you assign a purpose for every dollar, which supports zero-based budgeting. If you're utilizing a 50/30/20 budget, an app like Mint can send you alerts to help manage your spending.
On the whole, budgeting apps can simplify the way you manage your money. Personal Capital, for example, will generate a chart showing your income and expenses across all your accounts, month over month. This visualization allows you to double-check that your spending is on track and adjust as necessary.
The Bottom Line
The right budget allows you to manage your day-to-day spending while saving for financial goals that matter to you most. Just don't forget to factor in non-monthly bills. Expenses like insurance premiums and holiday spending can sneak up on you if you aren't planning for them.
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