How to Start Budgeting: Choose the Right Style and Why That’s Just the Beginning
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In today’s fast-paced world, managing our finances can feel overwhelming, so much so that many of us tend to put it off, as long as we can cover our current expenses. But this mindset can be risky, leaving us unprepared for the future.
That’s why financial literacy is more important than ever. I’ve actually written an entire blog post on this topic, so feel free to check it out.
The smartest step we can take is to start planning now—by budgeting for both the present and the future, we give ourselves the flexibility to adjust as life changes. So, let’s dive in!
Why should I budget?
Budgeting is perfect to help you know what you are spending your money on and exactly how much you will have saved in the future.
Right now, you might have expenses that perhaps you thought you canceled, but in reality, they are still stealing your money every month. We have all been there.
It took me three months to cancel a subscription once because, for some reason, every time I went in to cancel, it was not registered by the company's system. I would still be paying for that service today if I had never gone in to check and see if it was canceled! You never know these things if you do not go in to check regularly by budgeting.
And once you find these money wasters, then you can cancel them and put that money towards savings or debt.
Furthermore, there a ways to adjust your budget so that if an emergency happens, then you do not need to dig into your emergency fund, or if you do have to, then you can build up your emergency fund quickly.
Ultimately, budgeting gives us both peace of mind as there is a plan for emergencies and there is a plan for how to achieve our goals, lowering our stress.
An emergency fund is extremely important for you to have. I strongly recommend having 6 months of expenses saved up due to past events (COVID-19) that have shown us that 3 months is perhaps not the safest.
If it is hard for you to not spend money, then I strongly urge you to get an account that is not easy for you to withdraw from, which means having it not logged in on your phone and instead only being able to log into it on your laptop.
It could also help you to simply have a debit card for this account and hide that debit card somewhere that you normally do not go. Make it so you have more hoops to jump through to get to that money. Make it so that this account automatically gets money from your other accounts so that it is easy for your emergency fund to replenish itself.
Where do I even start?
Even before you start to budget, gather your financial information, like your income, credit card, debit card, and bank statements, as well as any other financial documents.
Then categorize your expenses from your credit card or debit card; usually, they are already categorized, and in some banks, they already have percentages based on that information.
Next, determine your future financial goals, both short-term and long-term, as this will change your budget. Then create your budgeting categories. This varies depending on the person; however, you must have categories for savings and debt payment, as well as other essential categories.
Finally, choose a budgeting method as I can not choose it for you due to the number of budgeting styles.
To be honest, creating your budget depends on what style of budgeting fits best for you. So to help you, we'll explore 5 different budgeting styles, allowing you to choose the one that best fits your lifestyle, your personality, and your financial goals.
However, eventually, there will come a point where you need to make a higher income to support your goals, while still budgeting.
5 Different Budgeting Styles:
Style 1: Zero-Based Budgeting:
This allocates every dollar of income to specific categories, leaving zero unallocated and therefore no wiggle room. This method ensures that every penny has a purpose.
I am a tad bit concerned about this style of budgeting as some individuals reading this are just starting, and to me, this sounds like it would take more time to set up your budget than most of the other styles listed as you have to make sure that everything adds up to exactly what your income is.
Furthermore, there is no room for adjustments as every dollar is devoted to a specific expense. However, on the flip side, this is an extremely detailed budget and can be helpful for individuals who need a step-by-step plan of where their money is going to go.
Style 2: 50/30/20 Budget:
I feel like everyone by now has heard of this at least once, even if they do not know what it is. But just to recap, this budget devotes 50% of income to needs, 30% to wants, and 20% to savings and debt repayment.
So, ultimately, you organize everything as one of those three categories, making it easier to create your budget and follow it.
This is probably one of the most beginner-friendly budgets as it is not time-intensive once you get started and follows a simple formula.
Personally, I switched the 30% wants and 20% savings to 20% wants and 30% savings as savings at the moment are extremely important for me and my long-term goals. College is very expensive.
Style 3: Envelope System:
This one involves using physical envelopes for different spending categories. Once the envelope is empty, spending for that category stops until the next budgeting period.
This one reminds me very much of zero-based budgeting; however, instead of the overall expenses matching your income, the expenses must match the allocated category.
This strategy works best for individuals who need physical cash to know how much they are spending and whether they are spending too much.
This is one of the more intensive budgeting styles as you have to withdraw money from your account, create the envelopes, and follow it as directed exactly with no wiggle room.
I do not follow this plan due to the very idea of having a lot of money in my house makes me feel very unsafe.
Style 4: Pay Yourself First:
This style prioritizes savings by allocating a percentage of income to savings before budgeting for other expenses. This ensures that saving becomes a non-negotiable part of your financial plan.
I love this idea, and it technically is already being followed if you have a 401K, as that money is taken out of your account before you get your paycheck.
If you find that you spend money as quickly as it comes in, then maybe increasing your allocation to your 401K or creating a devoted savings account that will take out your money immediately after it is deposited would be best for you.
Style 5: The 60% Solution:
This style caps essential expenses at 60% of income, and then that leaves 10% for savings and 30% for personal spending. This is helpful to individuals who realize that their needs are higher than the 50/30/20 percent model allocates.
However, as you can see, you are not saving as much as the other models, which can make it difficult to reach your goals. However, all of these styles are simply guidelines, which means that you can alter one to suit you.
Like, I altered the 50/30/20 into the 50/20/30 method because I wanted to save more.
So in this situation, you can alter the 60/10/30 into the 60/20/20 or any other percentage breakdown as long as you are still saving. It is completely up to you.
Recap:
Creating and sticking to a budget is a transformative step toward financial stability and success.
Whether you choose a traditional budgeting method or opt to create your budgeting method by altering one of these methods, the key is to find a style that aligns with your lifestyle, personality, and goals.
By understanding the "why" behind budgeting and following a step-by-step guide, you can take control of your finances and pave the way for a more secure and prosperous future.
However, it is also important to note that while budgeting is an extremely important aspect of your financial future, it is not the only important one.
Budgeting alone can only take you so far. Eventually, you’ll reach a point where increasing your income through side hustles becomes the next logical step — and pairing that with your new budgeting skills is a spectacular way to build wealth. And the exciting part? You can even leverage social media to start making money online!
I started with this course to get the fundamentals down, and then later took more advanced training in blogging — something I had always wanted to explore. These are the only two courses I consistently use today, even though I’ve tried several others just to see if they were worth recommending.
The truth? These two have provided the best information I’ve come across — and one of them was only $17. Even better, the course also gave me a free consultation with a tax planning business, so I was able to write off my learning investment as a business expense.
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Start strong and skip the guesswork — your future self will thank you.
So if you're ready to move beyond budgeting alone and start building a future you're excited about, take the first step today. You’ve got this.
