Do you find yourself going through the motions and creating a budget at the beginning of the month but getting a completely different picture by the end of the month?
Then perhaps your budget isn’t working for you.
There’s no one-size-fits-all solution when it comes to budgeting. But there are various tried and testing strategies for you to explore. From loose guidelines to strict plans, we look at four budgeting favourites.
Find out which budgeting strategy is best for you.
The 80/20 Budget
This budget is about flexibility.
If you’re not big on sticking to the fine details, then the 80/20 budget could be a winner for you. This budget plays fast and loose with your salary.
It can be hard to stick to a strict budget and when you fall off the wagon once and overspend it’s hard to stop overspending.
How does the 80/20 budget work?
Pay yourself first. The day your wage goes into your bank account make sure you put 20% of it away.
That can be 20% for your emergency fund. Or 20% into investments. Or split it across different opportunities. As long as the 20% is being put towards your future.
Then you leave the 80% of your salary to pay for everything else.
So if your monthly needs and wants bend and flex every month, this budgeting strategy is a good way to cover all bases, whilst still working towards the future.
Introduced by financial expert and politician, Elizabeth Warren, this method is an efficient model to build your budget around. It requires you to split your expenditures into three groups: Needs, Wants and Future.
How does the 50/30/20 budget work?
Once you’ve tracked all your expenses, you need to separate all those costs into three groups. You should allocate 50% of your budget, 30% of your budget and 20% accordingly.
Needs: These costs will be imperative to your quality of life. Think mortgage or rent, travel, the basic grocery shop. All the things that you cannot go without. Allow 50% of your monthly salary for this.
Wants: These expenses will be living expenses that aren’t as crucial, as well as your fun money. Gym, phone, dinner out with your pals, the ASOS monthly spend, the bottle of wine after work. Allow 30% of your salary for this.
Future: This portion can either go into savings, or investing, or paying off your debts – it will depend entirely on your financial goals. Use the last 20% of your wage to work towards your financial future.
Although this strategy does give you a bit freedom over how your pay-cheque might be spent month-on-month, making sure you have the needs and the future taken care of first will strengthen your finances and help you avoid financial shock.
The Category Budget
The category budgeting strategy is a little bit tighter than the 50/30/20 and will highlight the areas you spend the most. And probably highlight where you need to cut back or balance out.
This budget style splits your money into simplified categories, so you can track how much you allocate to each section and tailor your budget to fit your lifestyle.
How does the category budget work?
Like all great budgeting styles, you will need to track all your payments and list your outgoings. Sort all of these payments into the following categories…
Housing: We’re talking rent, mortgage, utilities, council tax and all the important things.
Transport: Make sure you can get to work – whether that’s by car (petrol, insurance, parking) or train (TFL, monthly travel card) or, if you’re feeling particularly bad and bougie, taxis.
Living Expenses: This will cover most things including grocery shopping, ‘fun money’ and the gym. Among other important things.
Savings: This is pretty self-explanatory. Put that money away for your future.
Debts: If you have any debts, an overdraft, a credit card then you need to dedicate a portion of your salary to paying those off. If you’re lucky enough to not have any debts put this section into savings instead.
The Zero Sum Budget
This budget works for both ends of the scale.
It’s perfect for the frugal budgeters who want to keep track of every penny. It’s also perfect for people who are too relaxed with their budget and often overspend.
The zero sum budget means that every penny is accounted for. By giving all of your money a specific purpose, you will be less inclined to go over. Especially as there won’t be any money left to move and spend.
How does the zero sum budget work?
Take your monthly income and make sure all your living expenses and ‘needs’ are paid for first.
With anything that is left over – look over your monthly plans and allocate the money as necessary. Those beers after work, a mother’s day card, the film coming out that you have to go and see. Every foreseeable transaction must be covered.
Lucky enough to still have some left? Allocate it to ‘fun money’ or ‘savings’. Make sure every penny is accounted for.
Whether you’re someone who often finds it hard to stick to their budget, or someone who just likes to stay on top of everything, this budget is great for taking full control of your spending.
So, Which Budgeting Strategy Is Right For You?
It all depends on how strict you need to be with yourself.
If you see a budget as a guideline, and you are generally quite good with your finances, the 80/20 budget is a good option for you.
But if you’re trying to get out of debt or figure out how to reduce your spending, the zero sum budget could be a better alternative.
Try and test the various strategies to figure out what works best for you and your money.