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5 Budgeting Methods to Keep Your Family Finances on Track

April 8, 2024

Do you ever get to the end of a month and think, “Where has all my money gone?” In today’s economy, this feeling is becoming all too common. Most of us are barely getting by, much less thinking about saving for the future. But with the help of a structured budget and a commitment to stick with it, you can learn to prioritize and make the most of your family’s money each month.

What is a budget?

A budget is simply an estimate or a plan for income and expenses in a given time period. Businesses keep to a strict budget for their operations, but it’s a good idea for individuals and families to budget for their expenses, too. Creating a budget at the beginning of each month will give you a snapshot of how much money you have coming in, how much you expect to spend (plus how you expect to spend it), and how much you have left over. It can be a great tool for identifying your family’s spending patterns, figuring out how to cut costs in your household, and saving money for important things like an emergency fund or college tuition.

How do I categorize expenses in my budget?

When creating your budget, it’s helpful to categorize your expenses, so you know how much money you’re allocating to each category every month and can plan accordingly. It’s a good idea to monitor and track your spending for at least a few months, so you have a good idea of how you can typically spend your funds to begin with, and then make a plan for how you can change or maintain that amount. A good first step is making a list of your recurring monthly expenses to give you a starting point, then you can categorize those expenses and make sure you’re setting aside an appropriate amount.

Sometimes, just the thought of getting started can seem overwhelming, so here are some examples to help you get started. Common budget categories can include grocery/food (not including eating out at restaurants), housing (this could be rent, mortgage payments, HOA fees, etc.), utilities, transportation (like gas, car payments, and maintenance), childcare, insurance, entertainment, savings, and debt repayment. You should also think about setting funds aside for emergencies or unforeseen expenses that could occur throughout the month. Keep in mind that you may need to tweak some of the categories or the characterization of an expense to meet your family’s budgeting needs. 

The Spending Analysis tool in your Platinum smiONE™ Visa® Prepaid Card account is a great starting point for organizing your expenses and making your budget! Spending Analysis provides a clear view of your current spending, organized by category, along with a graph showing your spending (expenses) and loads (income) over time. This data can be really helpful when it comes to budgeting and creating a plan for the month ahead.

5 Budgeting Methods

Budgeting is NOT a one-size-fits-all exercise, and it can be hard to build the habit if you’re not using a method that resonates. Learn more about each of the different budgeting methods below and test them to find out which works best with your priorities and needs.

The Traditional Method

Traditional budgeting is really recording and organizing your monthly income and expenses. To create your budget, you’ll need to calculate your monthly income (this can be from employment, side jobs, government benefits, child support, etc.) and categorize your typical expenses for each month. Track your spending for at least a few months and refer to receipts, account statements, bills, etc. to calculate your average spending in each category. You should also track deadlines for the expenses you can, like rent and other regularly occurring bills, keeping in mind that some bills may not be paid every month. Keeping this list on or near your budget will help you allocate your funds for whatever might be coming up during the next month. It can be helpful to track your budget in a spreadsheet or other budgeting software. Once you’ve determined how much to spend in each category, you can fill out your budget which will serve as your monthly spending guide—keeping you on track and helping avoid overspending. With all the numbers mapped out, you can monitor your spending and make changes as you see fit. Any funds left at the end of the month can be put towards saving and repaying debt.

The 50/30/20 Method

The 50/30/20 method is a way to budget your funds by breaking your spending into three main buckets, dedicating 50% of your income to needs, 30% to wants, and 20% to savings. Needs will often include expenses like housing, utilities, transportation, food, and insurance. Wants can be more fun expenses and things you can go without, like going out to eat, entertainment (Netflix subscription, movie tickets, etc.), Target trips, and the like. Savings can mean adding your funds to a savings account or emergency fund, collecting money for a savings goal (like a vacation), or setting aside funds for debt repayment (things like student loans, credit cards, etc.). This can be a good choice if your goal is to increase savings or pay down debt because it accounts for that with 20% of your income.

To effectively budget using the 50/30/20 method, you’ll first need to calculate your monthly income after taxes. From there, you can calculate your spending goals for each bucket by multiplying your income by 0.5 for needs, 0.3 for wants, and 0.2 for savings. You should then calculate your expenses for each bucket and compare that to your spending goal. If you’re spending more in one bucket than you want to be, start thinking about and implementing ways to cut costs so you can get closer to reaching your goals. Tracking your budget with a budgeting app, desktop software, or spreadsheet can help you visualize and manage your spending habits.

The Envelope Method

The envelope method is a more visual way to budget. With this system, you keep physical or digital envelopes to allocate your funds. As you can imagine, this method starts out similarly to the others – you’ll need to first calculate your monthly income and decide how much of it you want to spend in each category you’ve identified (think back to the categories we discussed in How do I organize my budget?). Again, it’s smart to reference previous statements, bills, and receipts to get an idea of your monthly expenses in each category. Then, each envelope should be labeled with a corresponding expenses category and filled with the determined amount for that category. This method is most effective for those looking to cut back on needless spending because you’re giving yourself strict spending limits to maintain throughout the month.

Once you’ve depleted the amount in an envelope, you should avoid spending more towards this category until you add additional funds, typically at the start of the next month or when you receive your next paycheck. If you run out of money in an envelope and need to continue spending in that category, you can take funds from another envelope, but be sure to consider how often this occurs so you can adjust your budget where needed. As you spend, you can keep track by writing what you’ve taken out on the back of the envelope, so you always know how much is left. Any money leftover in your envelopes at the end of the month can be put towards next month’s budget, saved for emergencies or larger purchase goals, or used for repaying debts.

The Zero-Based Method

With zero-based budgeting, you expect to allocate every dollar you make, so at the end of the month your income minus expenses and savings should equal zero. Using this method, you should start by calculating your monthly income, then calculate your monthly expenses. Check previous bills and receipts to be as accurate as possible and use the average for things like utilities that might cost a different amount depending on the month. Be sure to account for necessary and unnecessary spending along with savings and debt repayment to capture everything for the month. Remember, your total at the end of the month should equal zero, so if you’ve earned more than you expected during the month, you can add that amount to one of your spending or savings categories. This method can be helpful for those looking to be more intentional with their spending.

Zero-based budgeting allows for flexibility when you need it. If your bills end up being higher than you expected during the month, you can opt to pull those funds from your savings or one of your unnecessary spending categories (like entertainment). If you’re left with a negative at the end of the month, you can look for ways to cut back on spending or make some additional money on the side to accommodate.

The Pay Yourself First Method

Pay Yourself First is a method of budgeting in which you add funds to your savings before allocating money anywhere else. This method can help you get ahead with savings and ensure money is available for emergencies or unforeseen circumstances. It’s important to keep debt and other obligations in mind when deciding if this is the right method for your situation. Be practical and think about choosing another budgeting method if you have debt to tackle before focusing on saving. This method is especially effective for those hoping to increase their savings.

The amount you put towards savings at the beginning of the budgeting period can be as big or as small as you choose. Even just $20-$50 per paycheck will help you get a good start. Once you’ve added a designated amount to your savings account each month or each paycheck, you can effectively allocate the rest of your income towards your expense categories. Sometimes, you can even use automatic payroll deductions if you’re adding to a retirement account or similar. This automation can really help you acclimate to bringing in slightly less income each month.

The best way to implement this method is opening a dedicated account for these self-payments. This can be a savings account, high yield savings account (HYSA), certificates of deposit (CDs), or retirement account. Linking this account to your checking or spending account will help you make seamless, or even automatic, transfers at the start of each month.

The Bottom Line of Budgeting

Budgeting can be a difficult, but important, financial habit to learn and implement. It can help keep you and your family on track with spending and saving throughout each month and provide insights if you want to change your spending patterns to meet goals. There are various budgeting methods to choose from, and they won’t all produce the same result. If you’ve ever been unsuccessful in keeping a budget, it might be time to try a different method. Once you find a way to budget that works with your lifestyle and goals, you’ll be better equipped to effectively plan for your monthly expenses and stick to your new budgeting routine. Remember, it’ll be important to review and update your budget as your life circumstances change.

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