Find the Budgeting Style that Fits You Best

Like your fingerprint, the way you spend and save your money is unique to you. That’s why it’s important to select a budgeting method that fits your household’s lifestyle and goals. Fortunately, there are several different methods to choose from, all designed to help you make the most of your finances. In this article, you’ll learn about four popular budgeting methods. Before you settle on one, it’s important to learn about your options and experiment a little—you may even end up using a combination of a few methods. Keep in mind that like any other habit, budgeting takes practice and consistency to get the best results.

The 50/30/20 Budgeting Rule

One of the most popular methods for budgeting is the 50/30/20 rule. The idea behind it is pretty simple. You divide your take home pay into three separate buckets, each with a corresponding percentage based on its importance: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment. This is a great method for those new to budgeting because it’s relatively low maintenance, and you can adjust the percentages based on your priorities. For example, if paying off debt is a priority, allocate more than 20% there.

TIP: Make sure you re-evaluate your budget allocations periodically and adjust the numbers based on income changes and goals like a down payment for a house.

Zero-Based Budgeting

This approach is a good way to better understand your current spending habits and eliminate any line items that push you over budget. Start by writing down your monthly net income (take-home pay). Then list every spending category, from housing to TV subscription services, with a corresponding dollar amount for each one. Then, subtract them all from your income, and you should get to zero. Because it’s so detailed, this is a good option for those on a tight budget or meticulous planners.

TIP: Include a miscellaneous category in your budget to give you some flexibility to cover unexpected expenses like car repairs.

Cash Stuffing (Envelope) Method

One of the stricter methods for budgeting is cash stuffing. The key is that you use cash for your expenses, adding a concrete, tactile quality to help you stay disciplined. Start by labeling envelopes for different categories: groceries, entertainment, savings, etc. Then, stuff them with the amount of cash you’ve budgeted for each category. When the cash is gone, you stop spending in that category. While it’s a little old fashioned given the prevalence of digital transactions, its longevity proves that it works for a lot of people.

TIP: Try to avoid pulling cash from one envelope to accommodate a different category as this can quickly spiral out of control.

Pay Yourself First Budget

This technique is one of the best ways to build up your savings for the future. That’s because it uses a “reverse” tactic that puts savings ahead of all other spending. You set aside a certain amount to go to your selected savings account or investments each month. You can also use this method to allocate for life insurance premium payments. Then, the rest of your monthly budget can go to bills and other living expenses. It helps to set up automatic transfers to your savings accounts to make it a true no-brainer. This is a popular choice because it gives you some freedom while still reaching your desired goals.

TIP: Make a list of your short-term and long-term savings goals and select accounts that correspond with them.

Remember, your finances are unique to you. So, finding the right budgeting technique for your money management may take some trial and error. If you prefer a simple, flexible approach, you might lean toward the 50/30/20 option. Whereas someone who needs tangible reminders may do better with the envelope system. No matter which one you choose, make sure you also account for an emergency fund that can cover living expenses up to 3–6 months. Most importantly, be flexible and adjust as needed to make your budget work better for you. If you need more help with personal finance, there are a variety of apps, calculators and online tools that can get you started and keep you on track. Once you get into the habit of budgeting, you’ll soon discover that it’s a great way to align actions with positive financial outcomes.

Budgeting is an excellent way to allocate for life insurance, as well. At Gerber Life, we can help you select the best policy based on your family needs and your budget. Call us today at 1-866-503-4481 to speak with one of our dedicated representatives, or you can get a free quote online.