Budgets, spreadsheets, and expenses, oh my! You’ve heard about budgeting, and that you need to budget, but you’re not even sure where to begin. There are different types of budgeting, and one of them will be your style!
Types of Budgeting
If you have a big goal that you’re saving for, than this type of budget is for you. Whether that goal is as small as a new video game console or phone, or as big as a new car or vacation, you’ll need to put some serious money aside for it.
The advantages to Trickle-Down budgeting are great for some people. You can rock your savings goals by prioritizing them first. You’ll crush your goal so much faster this way.
The cons of Trickle-Down budgeting, however, are a total turn-off for some people. If you put your savings goals first, then you’ll have less money for the fun stuff after you pay your rent.
The idea behind this type of budgeting is all about priorities. This type of budgeting is all about prioritizing what is important to you.
One of the most structured of the types of budgeting is the 50-30-20 budget. This kind of budget works best for people who aren’t sure exactly how much money they should be spending in each category.
According to this type of budgeting, you should be spending 50% of your money on required expenses, such as your housing costs, food, gas, etc.
30% of your budget should be spent on lifestyle expenses, like entertainment costs, spending money, and other categories like that.
The final 20% of your money should go to savings. This can include your retirement savings, emergency fund, or other things that you’re saving for.
This type of budgeting is super great for people that need a lot of structure in their budget until they get it figured out. The great thing about this style of budgeting is that you can adjust the percentages to fit your lifestyle.
Some people think this budget system allocates too much to housing and not enough to savings, and that could very well be true for their situation. Everyone’s situation is unique and different, so, if this is the type of budget for you, go for it!
Envelope System Budgeting
This type of budgeting is great for people trying to be very strict about how much they spend. This is also the budget system that Dave Ramsey recommends. Of all of the types of budgeting, this is the most cash-based.
Basically, the envelope system has you physically separate your money so that you only spend what you budget for a certain category.
To budget with the envelope system, you need a different envelope for every category you’re going to spend money on. People can have envelopes for all kinds of things, from food, to spending money, to a vacation fund.
After you’ve assembled and labelled all of your envelopes, you put the amount of money you plan to spend on each category in its envelope.
There are ways to do this electronically, and my personal favorite budgeting app, You Need a Budget, works a lot like digital envelopes. You should check it out!
Some people like the envelope system because it’s so strict. Once your money is gone, it’s gone.
That’s also why people don’t like it. Some people aren’t fans of this system of budgeting because they don’t really want to carry around all of that cash, and some people don’t like it because it’s very hard to spend more than you have.
Bottom-Up budgeting is the opposite of the Trickle-Down budget.
Basically, instead of saving for a big goal first, you’re trying to fund your smaller expenses before anything else. You’ll plan to spend money on your lifestyle expenses first, and your savings goals later.
Some advantages to Bottom-Up budgeting include ensured funding for your lifestyle expense.
Some people, however, prefer to save for a bigger goal before they plan to spend money on small lifestyle expenses.
If you’re going to be happier spending money on the fun expenses, this is the type of budget for you.
Zero-based budgeting works a lot like the envelope system, but is a lot more well suited to number crunchers.
This type of budgeting aims to have your expenses and savings equal your income. Basically, if you make $1,500 every month, then your expenses+savings should equal $1,500.
You can pair this with the envelope system to never spend more than you have available. This can be super useful for getting out of debt, which is a major goal for a lot of people.
Some people don’t like this system because it accounts for every dollar. You shouldn’t have ‘extra’ money at the end of the month with zero-based budgeting. This is a little restrictive, so it’s understandable if you’d rather try a different type of budgeting.
Which of the Types of Budgeting is for You?
Now that you’ve seen five different types of budgeting, which one will you try?
This is a great way to start living within your means!