If you’ve ever talked to me about money, you’ve probably heard me say that if your priorities are in the right place you can afford anything you want. A lot of times it takes budgeting to figure out where your priorities are, and where they need to be. But how do you get there? If you’ve ever looked into budgeting at all, you know that there are a ton of different budgeting methods out there. So, what are they, and which one is the best?
Well, if you ask me, the one that is the best is the one that works for you. I will outline some of the most popular methods below.
The No Credit Card Method
This method is built on the principle that in order to save money and stick to a budget you have to get out of debt and stop using credit cards altogether. Essentially, credit cards have minimum monthly payments and high interest rates that bring up your debt each month.
Personally, I disagree with this method (if you are a responsible person). There are so many rewards and benefits to having a credit card that I personally think everyone should have one. BUT I think that it should be used as a debit card instead of a credit card. If you consider it to be a debit card and think of the money coming directly out of your account every time you swipe it, then you can build credit and getting nice reward perks without anything to lose. The main thing with this is that you have to pay off the entire balance at the end of each month.
The Envelope Method
The envelope system by Dave Ramsey says that you should only use cash. Each month every dollar is allocated toward a specific envelope or category – like groceries, clothing, entertainment etc… This way you can see exactly how much you have left in each category, and when the envelope is gone you can’t spend any more in that category until the end of the month.
I personally don’t like to carry around cash. It’s too easy for me to lose or get stolen, but it might be a good method if you are a cash person. Here are all the reasons I don’t use this method.
The Zero Based Budgeting Method
This method is based on the principle that your income – expenses should equal zero at the end of each month. It doesn’t necessarily mean that you should actually spend each dollar each month, but that you should have each dollar allocated toward a category whether it be groceries, savings, or debt pay off.
I really like this method because it is flexible from month to month. It also makes a plan for each dollar which is important if you want to stick to a budget.
The 50/20/30 Method
This budgeting method says that your income should be divided into 3 categories at specific percentages.
- 50% should go toward living expenses and all essentials. That includes things like rent, utilities, tuition, groceries, and fuel.
- 20% should go toward savings, investments and debt reduction – like credit cards.
- 30% should go toward everything else. This often includes the fun stuff that your don’t necessarily need. Think about things like vacations, Netflix, coffee etc…
The 60% Solution
The 60% solution says that 60% of your income should go toward ‘committed expenses’. In other words, all of your bills that reoccur every month – including mortgage, groceries, insurance, car payments, phone, internet etc…
The other 40% is divided into 4 categories each with 10% weight. These are:
- Retirement
- Long-term savings – emergency fund or investments
- Short-term savings – vacations and other big expenses like house or car repairs
- Fun money – the ‘wants’ rather than the ‘needs’ (ex. dining and entertainment)
Conclusions
As I mentioned above, I don’t think there is a clear cut BEST budgeting method out there. Each person has a different lifestyle and personality type that will determine which budget will work best for them. Additionally, I think that you can use a mix of budgeting methods – that’s what I do.
I have a post on how to create a monthly budget here.
In my freebies section you can get a free budgeting spreadsheet to help you in creating your budget. There is an excel based one and a printable one depending on which you prefer.
If you choose to use my excel based budget, I have written instructions for it here. I also have a video tutorial if you prefer that.
Do you have any questions? Let me know, I’d be happy to help! And don’t forget to sign up for my newsletter to get access to the freebies!