Five Budget Methods You'll Want to Try

If you find yourself struggling to make ends meet every month, you need to take control of your finances. What’s the best way to do this? You guessed it – a budget!

A budget is a detailed plan that helps you decide where you should be spending your money. When you stick to your plan, it can help you to reach other financial goals that you have, such as saving to put a down-payment on a house, sending your kids to college, or setting up a rainy day fund.

Whether you’ve tried to follow a budget before and were unsuccessful or this is your first shot, there are many different approaches you can follow. You may find some methods easier to stick to than others. If you want to take control of your financial future, consider following one of these five budget techniques.

Traditional Method

When we think of a household budget, the traditional method is probably the most common approach. Here, you compare the amount of money that you take home every month to what you expect to pay out every month. To figure out how much you pay out each month, group your expenses as either necessity or discretionary and write them down.

What’s the difference between necessity and discretionary? Basically - it’s whether you can live without it or not. Necessary expenses include your rent or mortgage payment, electricity and water, groceries, gasoline, and insurance payments. If you have any debt, such as student loans or car payments, include them here. Discretionary expenses are things that you pay for that are nice to have, but you can live without. Clothes, movies, manicures, and pedicures, and dining out often fall in this category.

Once you list out how much you make and how much you spend, you can see where your money is going. If you spend more than you make, you can pinpoint certain areas that you can cut back on. If you find yourself eating out multiple times a week, it may be time to start preparing more of your meals at home.

This can be a highly effective method for those of us who like to pinpoint exactly where our money goes.

Pay Yourself First

Budgeting can be a great way to help you achieve other financial goals that you may have. If you are looking to save money each month, paying yourself first may be a good way for you to go. With this method, you decide how much money you want to save. This can be either a set dollar amount or you can go with a percentage of your income – usually 5% - 10%. Whenever you get paid, the first thing that you do is write a check to yourself and deposit this into your savings account. If the company you work for offers direct deposit for your paycheck, you can have this amount automatically deposited into your savings account.

Whatever you have left between what you earned and what you saved is available to use to pay your bills. You may want to follow a similar approach as the traditional budget method, which can help you decide what expenses you must pay and those that you can reduce or cut out altogether.

While this approach may be a little tough in the beginning, seeing your savings account grow will give you a motivational boost.

The 80/20 and 50/30/20 Method

These are two popular proportional budget approaches. They are simple methods that set guidelines as to how you use your money each month. Although the percentages differ, both methods work essentially in the same way.

Under the 80/20 method, you spend 80% and save 20%. Using the 50/30/20 method, you would spend 50% of your income on necessary expenses, 30% on discretionary expenses and 20% is saved. Since these are percentages of your income, you need to keep a close eye on your spending to make sure you have enough money to carry you through the month.

If a 50/30/20 approach is a little too restrictive, you might consider starting with a 60/30/10 breakdown. This budget approach still helps you save money while limiting your spending. Over time, you can work toward saving 20%.

Envelope Method

If you find that you rely heavily on credit cards to pay for your monthly expenses, you may be spending more than you should. The envelope method may help you to control your spending. To follow this method, you need to figure out how much money you need to spend on things that you typically charge, such as groceries, gas, personal care, dining out, and entertainment. Once you’ve figured this out, withdraw the total amount from your bank account and divide this up into envelopes for each category. For example, if you plan to spend $400 at the grocery store each month, put $400 in an envelope called “Groceries”. This is the amount that you have for the month. Once it’s gone – you have to wait until you refill this next month.

This method can help you to reduce your spending on credit cards. Plus, if you know your funds are limited, you may be more careful with what you are buying. At the end of the month, take any remaining cash in the envelopes and deposit this into your savings account. Next month – you’ll start the process again.

No Budget

No - this isn’t the green light to just spend without a budget, it’s actually an approach that can work well for some people. If you have fairly consistent bills that you pay every month and really don’t have a problem overspending, this might be a good approach for you.

Here’s how it works: You set up the payments for the bills you need to pay every month to come out directly from your bank account. This includes your mortgage or rent, utilities, and loan payments, to name a few. You also set up an automatic payment that goes directly into your savings account. Schedule these to correspond with when you are paid every month. Once your bills and savings deposit has been taken out, whatever is left in your checking account is what you have to spend for the month on groceries, gasoline, dining out, and entertainment.

This is a simple budget approach that can work well for some of us. The key is to make sure that you have paid your essential bills and made your deposit to your savings account before you pay for anything else.

Budgeting is a great way to take control of your finances and plan for your future. Since we all operate a little differently when it comes to money, choose a budget approach that works best for you. Whether you choose a detailed or simple approach, pick one that suits your style.

You can succeed in taking control of your financial future. If you find yourself struggling – don’t give up! Just try a different approach.