Updated: Jan 1
The thing I love the most about personal finance, is that it’s personal to each individual and their money goals. There is no one way to do things, and budgeting is such a perfect example of this. While one of these methods might be perfect for one person, you might find another works for you. Here are my top five budgeting methods, and how they can help you smash your money goals.
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Zero Based Budget
A very popular method within the debt free community, in fact whenever I see people posting their budgets online, it’s usually this method. Don’t let that fool you though, there are plenty of other methods out there. This method focuses on your income minus your outgoings equalling zero, meaning you out every penny to work. This method is great if you need rigid structures in place to help you reach your goals. If you know how much you spend each month on food and miscellaneous shopping this method is for you. It’s important that with zero based budgeting you really check your budget before finalising and moving your money around on payday because there’s no margin for error. Knowing exactly how much you need in your current account to spend throughout the month means you’ll know exactly how much you’re able to save or put towards paying off debt.
Bucket Budget Method
Often referred to as the 50/30/20 method, this takes your income and divides it into three pots, or ‘buckets’ called Needs, Wants and Savings. This method is great for people who are new to budgeting as it is less strict but still allows a portion of your income to be put towards savings or debt payoff without restricting your spending on ‘wants’. The useful thing about the bucket budget method is that you can switch up the numbers to work for you as your money mindset evolves. You may start only putting 10-20% to savings but you can always make this percentage higher as you work on your finances. If your money goals are focused around saving a set percentage each month, this may be the budget for you.
More freedom you ask? Take the bucket budget method and make it simpler. Take a set percentage of your income each month and move it to your savings, everything else is yours to spend. This is great if you feel like you need the freedom in your budget to spend as you see fit but still have a savings goal to hit for that new car, a holiday away or boosting your emergency fund. Again, you can always switch up the numbers to fit your style and goals.
Not a fan of numbers or rules, don’t worry, I’ve got you! This method can work a bit like the 80/20 method, except once you’ve put away your savings or debt payments for the month there is no written budget. You are in charge of spending as you go through the month. Intuitive budgeting is great for those wanting to work on their money mindset organically by feeling in charge of every spend. The idea is that everything you spend your money on should have your goals in mind, asking does this help me reach my goals? Is this an emotional spend? Will this bring me joy? I believe it allows a more organic shift in money mindset rather than restricting your spends or ‘allowing’ yourself a shopping budget.
Cash Envelope Budgeting
While it seems that in a post covid world we may be moving towards a shift away from the use of cash, this method is still relevant in a digital world thanks to the creation of digital money pots on banks such as Monzo. This method works a bit like the zero based budget but your budget categories are split up and the cash is placed in an envelope so you cannot physically spend more than you have allocated. If you’re likely to spend money if you can see it, this method may be beneficial to you.
Of course, like I said at the beginning, personal finance is personal and the great thing is that you can mix and match all these budgeting methods to work for you and your goals. You may find that like the bucket budget method you want to save a set percentage each month, but would benefit from having a zero based budget for the rest of your spending. Do what works for you, it may take trial and error to find which budgeting method suits your money mindset best, but it'll be worth it!