Which Kind Of Budget Method Is Right For You?

Everyone needs to budget, regardless of what a family or single person brings into their home in terms of income. Whether they live paycheck to paycheck or there is an abundance of disposable income left over each pay period, families must budget their money to maintain control over their financial life. Knowing where their money is going every week, how much is coming in, and what they can do to increase their savings while also decreasing their expenses is perhaps the most useful knowledge anyone has. Living a life of financial freedom is the ultimate goal, and it’s not one anyone can reach without first developing a budget. Just keep in mind not all budgets work the same for everyone, and it’s helpful for families to learn what kind of budgets are available and which one works best for their family. Start filling in this knowledge now.

Zero-Based Budgeting

Zero-based budgeting is simple, though it can sound a little complicated. It’s the art of creating a budget in which a person tells their money where to go, and they have nothing left over at the end of each pay period. Unlike most budgets, this one doesn’t allow even a dime left over when a new pay period occurs. The goal is to always have the budget reach zero by having a specific use for every dime.

For example, if a family has an income of five thousand dollars per month and expenses of three thousand dollars per month, they have two thousand dollars per month left over after saving, paying their expenses, and living. This is fun money typically spent on new clothes, school field trips, entertainment, and similar. Consider if the family budgets that two thousand dollars for fun every month, but they only spend 1,500 dollars leaving an additional five hundred dollars one month. Since the goal is zero dollars, they need to find somewhere for the remaining five hundred dollars to go, which is typically into savings. The goal is to have no money left over without a place to go each month. If someone has money left over, they send it directly to their savings account.

Continue reading to learn about basing a budget on priorities.

Priority-Based Budgeting

Priority-based budgeting is traditionally employed by government entities to help them figure out where to spend their money when revenue is questionable. It’s also a method families can use at home to help prioritize their budget and what they spend by allocating their money to the most important things in the budget while completely getting rid of the rest. For example, a mortgage payment is far more important than a cable bill and internet fees. This type of budget is the most helpful tool if a family wants to use a priority-based budget to get their finances in line and pay off debt or to help plan for an unexpected lack of income. It works by making a list of every expense and keeping only those most important. Anything a family can live without should be removed from the budget, including things like a gym membership, annual passes, cable or satellite television, and even name-brand groceries where possible. Once the budget is minimized to include only the priority aspects, it helps families save and pay off debts.

Continue reading to discover details about the most popular methods of budgeting in America.

50-30-20 Budgeting

50-30-20 budgeting, which is broken down by percentages, is one of the most popular methods of budgeting in America. It helps families save money, pay down their debts, and live without financial worries. The fifty percent portion requires families put half their income to the most important things they need in life such as their mortgage, insurance payments, and other necessities. The thirty percent piece is for the fun stuff in life such as travel, date nights, and family fun. Finally, the twenty percent portion is applied toward financial goals such as savings, debt repayments, and retirement accounts. If someone wants to go a step further to take this budget seriously and get out of debt, they can reallocate their thirty percent to financial goals and use the twenty percent for fun and entertainment purposes. This is an outline allowing families to get their financial priorities in check, and individuals to figure out how to save, get out of debt, and live comfortably.

Continue reading to find out if a reverse budget is the way to go.

Reverse Budget

Perhaps some families find using a reverse budget easier than a traditional budget. This is when families focus first on saving and subsequently on everything else. It’s the rule that allows people to pay themselves first through savings and the pay their expenses with what’s left over. Many families focus on paying their expenses, allocating funds with which to live their lives with fulfillment and purpose, and then they save what they have left over. The idea behind this kind of budgeting system is people simply cannot spend money they don’t have, and it’s best families never see their savings. What most individuals do is speak to their bank or employer to see if they can have a certain amount of money from every deposit automatically transferred to a savings account so they never see it. People don’t miss what they never had.

Keep reading to learn about when living strictly on cash works the best.

Cash-Only Budget

A cash-only budget is one that works well for many individuals because it’s one many are familiar with. It’s not a new concept, it’s not a difficult concept, and it makes following a financial plan much simpler for many individuals due to the simplicity of the plan. Most find it difficult to switch to a totally cash-only budget, so many only choose to do it in certain categories. After all, it’s difficult to pay every expense such as the mortgage and the utilities with cash. Families can start by setting up automatic payments for their standard expenses such as utilities, insurance, and mortgage with their bank. Next, they take cash and separate it into different envelopes labeled for certain items, such as groceries, takeout meals, entertainment, and shopping. Whatever the budget calls for goes into each envelope in cash. This keeps many individuals on a budget because they cannot spend money if it’s not in the envelopes.