5 Types of Budgeting: Which One Best Fits You?
Did you know there are 5 types of budgeting? Most of us are looking for ways how to budget money. and there are various ways how you can do your budgeting.
When it comes to type of budgeting you do, it all depends on what will work for you and your family. There are plenty of budgeting challenges, but if you find a system, or one of these 5 types of budgeting, that will fit into your lifestyle, it can be helpful.
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Do you know how to budget?
If you don’t, it can be difficult to understand what is going on with your money. When you don’t understand, it’s easy to get overwhelmed and lose track of where your money goes every month.
But there are ways that you can make sure that your hard-earned cash doesn’t go anywhere without you knowing about it and you’re not wasting money.
If you want to start budgeting, let’s go over the 5 types of budgeting so that you can find one that works for you and your family.
Here are 5 types of budgeting that you can try
Hopefully, with the information below, you will learn all about the most common types of budgets and which one might work best for you.
In a nutshell, we will go over:
- the zero-sum budget
- the 50-30-20
- the flexible spending plan
- daily allowance method
- envelope system
Each of the 5 types of budgeting has its own pros and cons so we want to go over each. It’s can be confusing but let’s see if we can explain them in an easy way. Then, you can see which one might work best for your family.
Need some motivation? Check out these motivation tips for saving money.
1. The Zero-Sum Budget
With the zero-sum budget you take your income minus your expenses and it should equal out to zero. This means that every dollar you earn should have a purpose.
The zero-sum budget can be difficult to stick to at first, but it will help you in the long run. The main goal of this budget is to make sure that you are not spending more than you earn.
For example, if you have a job that pays $2000 per month, your budget should be $2000 per month. This includes all of your expenses such as rent, food, transportation, and bills. If you go over this limit in any category, you will need to find ways to cut back on your spending or reducing some of your bills. You may be able to reduce your water bill or get on some type of budget billing.
If you are good at tracking your income and expenses, this type of budgeting may be best.
2. The 50-30-20 Budget
The 50-30-20 budget is one of the 5 types of budgeting where you spend only 50% of your income on necessities, 30% on wants, and 20% goes into savings.
This is probably one of the most popular of the 5 types of budgeting because it allows you to have some money for things you might want to do. Plus, it makes saving money fun because you are still doing the things you enjoy, while saving.
An example of this would be: If you have an income of $2000 per month, you would budget $1000 for necessities, $600 for wants or fun activities, and $400 for savings.
While hard to stick with if you have a lot of expenses, it is a good way to make sure that you are still saving money even if you have some debt or other bills to pay.
3. The Flexible Spending Plan
The flexible spending plan is a type of budget where you allow yourself some flexibility in your spending. This means that you are not as strict with your budget and can spend money on things that are important to you.
For example, if you have an income of $2000 per month, you might budget $1000 for necessities, $500 for wants, and $500 for savings. Or, you want to split that $2000 income into $800 for necessities, $300 for wants, and $900 for savings.
If you have the option to be more flexible with your spending, this may be one of the 5 types of budgeting that works best for you. We actually did this one year when we wanted to save money for traveling. We ended up going to the zoo and taking a trip around the midwest.
4. The Daily or Weekly Allowance Method
The daily or weekly allowance method is where you give yourself a set amount of money to spend each day or week AFTER your bills and necessities are paid. Whatever amount you are able to set for your allowance, is the amount you spend. No more.
Yep, we have another example! Let’s say you have an income of $500 per month, and you have fixed expenses that total up to $400 that need to be paid that week. With the leftover $100, you can break that up to around $14 a day. Each day, for the 7 days of the week, you can only spend $14 on whatever you want.
This is a great way to make sure that you are not overspending while making sure that you have the bills paid. It’s also a great money saving challenge couples can do to see who spends less and saves more.
5. The Envelope System
The envelope system has become popular over the years. After you receive your paychecks, you put all of your money into envelopes labeled with different expenses. This can help you stick to your budget better because you will only have a certain amount of money to spend in each category.
For example, if you have an income of $2000 per month, you might put $1000 into an envelope for rent and utilities, $300 into an envelope for food, $200 for gas or transportation, $300 for groceries, and $200 into an envelope for extra spending.
The tricky part is that you are not allowed to get any amount from other envelopes unless you have money left over at the end of the month. With that leftover money, you put it into savings.
This type of budget is effective because it helps you see how much money you have left for each category. With that, you can track where your money is mostly coming from and where you might need to cut back.
More Thoughts on the 5 Types of Budgeting
Budgeting can be tricky. With of of these 5 types of budgeting, you can find the best way to budget that is ideal for you and your lifestyle.
Always remember that there is no one size fits all method to budgeting your finances. We always find it helpful to try out a few methods until you find the perfect fit.
