If you’re new to budgeting, it can be difficult to know where to begin. There are a number of different methods and the effectiveness of all of them will vary, depending on your personality and financial situation. But let me reassure you: There is a budgeting method for everyone.
While it can be tough to know which budgeting method is best for your lifestyle — especially if you’re new to this whole thing — it can help to start by pinpointing your biggest money issue and then working backward.
If your problem is overspending, choose zero-sum budgeting.
With a zero-sum budget, every dollar has its rightful place in your life and in your budget. You have to account for every dollar you earn. Whether it’s rent, groceries, a gym membership, or saving up for a summer vacation or a new car, every single dollar you earn goes towards something meaningful — there’s never anything “left over.” If you struggle with overspending, it can be helpful to know where every dollar belongs so that you’re not tempted to spend the rest, which can often happen with other budgets where there is “everything else” money after essentials have been accounted for.
In order to build a zero-sum budget, start by tracking your spending. It’s easier to build a realistic zero-sum budget if you already know where you spend your money instead of insisting that you’re no longer going to go out to eat, for instance. Once you’ve identified your common spending categories, you can allocate the remaining income after your essential spending to each of those areas.
While the idea behind zero-sum budgeting isn’t to create the ideal budget you wish you could follow, you can use this technique to focus on problem spending areas and motivate yourself to spend less on certain items and save more. You can also change up your zero-sum budget every month! If it’s your birthday or anniversary month, you can always treat yourself to an extra hundred bucks for gifts or food or a vacation compared to other months when you know it’ll be easier to save more and spend less.
If your problem is low or inconsistent income, you might need a “survival budget.”
A “survival budget” is one that incorporates all the absolute essentials that you can’t live without, which usually includes just rent, utilities, required medications, and groceries but not items like transportation, a gym membership, or even therapy.
While I believe that many of the latter items are essentials to my life, the survival budget is how much money you need each month to just get by. Survival budgets are not meant to be forever budgets — they are temporary fixes to help you survive during tough financial times. When your income is inconsistent and you may not have enough money during certain months, it’s helpful to know what your “survival number” is so that you can determine, based off your income that month, how much leftover money you have to either save for the next month or spend.
This budget definitely has drawbacks since it doesn’t incorporate budget essentials, like savings, and assumes that you’ll be making minimum payments on your credit card to get by, but it can be a useful mental exercise to calculate and be aware of this number. Not only can it be reassuring during tough financial times, but it can also allow you to appreciate your “luxuries” when income is plentiful, too.
If your problem is spending guilt, try the 50/30/20 budget.
This budget allocates 50% of your income for your essentials, like rent, utilities, and groceries. Then, 20% of your budget goes towards your savings, and lastly, 30% of your budget is for your own discretionary spending. This is the budget I gravitate to since I often struggle to “treat myself” out of guilt that I’m not saving enough or am spending frivolously. With the 50/30/20 budget, I’m not only setting aside money every month to my future savings goals, but it also helps me stick to a rent/grocery/utility pattern that I can afford. The remaining 30% of my budget goes towards meals out, gym membership, therapy appointments, and splurges on items I love. There’s often so much stress associated with budgeting, and for me, this budgeting technique has allowed me to live and spend guilt-free.
A caveat to this budget is that the 50% “needs” section and the 30% “wants” section can often overlap. For instance, if groceries fall under my 50% “needs” category, some groceries, like rice or milk, are genuine “needs” while others, like baked goods, are “wants.” I’m lucky that my budget allows me to splurge on my groceries occasionally and still meet that 50% goal. But for those whose budgets are more strict, it may be more useful to turn to the 80/20 budget. With this, you set aside 20% of your income as savings and spend the remaining 80%. This way, you don’t have to stress about whether certain purchases are genuine “needs” or if they fall under the category of “wants,” instead, as can arise with the 50/30/20 budget.
If your problem is saving, pay yourself first.
Finally, if you struggle to set aside money for your retirement account or other savings goals, set aside a percentage of your monthly income for those goals first, and only then pay off your essential and non-essential items. You can use an arbitrary percentage every month to save, like 20%, but you can also look at your own savings goals and set aside money accordingly. For instance, if you’re planning a vacation, you can sit down and figure out how much that trip will cost and then divide the cost of that trip over the number of paychecks you can expect before then. Accordingly, you can set aside that amount of money at the start of every paycheck day for that goal before allocating the rest of your income to other expenses.
If none of these budget methods seem like a good fit, just stick to a traditional budget: look at your income, subtract your expenses, and put the remaining amount towards a savings goal. A traditional budget is often difficult because expenses can add up quickly, but if you’re disciplined and prefer not to think too hard about savings percentages, it can be an effective go-to budgeting strategy.
Keertana Anandraj is a recent college grad living in San Francisco. When she isn’t conducting international macroeconomic research at her day job, you can find her in the spin room or planning her next adventure.
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