3 Budgeting Methods to Try

9/13/2021 Marine Bank

Budgeting, simply put, is a plan to make sure you don’t spend more than you bring in. Seems easy enough, right? Theoretically, yes, but in practice, this can be difficult. Especially if you budget using a method that doesn’t work for you.

There are a lot of budgeting methods out there. It’s nice to have options, but it’s also a lot to learn and take in as you try to figure out which one is best for you.

Everyone is different  – your goals, aspirations, lifestyle, priorities and even down to your personality – all of these determine which budgeting style you prefer.


Why is budgeting so important anyway?

Before we get too far along, we need to address why budgeting is a big deal. For something that requires so much time, effort and attention, you want to make sure it’s worth it, right?

It most definitely is. And here’s why; A budget gives you a full picture of your finances, and this allows you to take control so you can reach your financial goals, be prepared for unexpected life expenses, and rest a little easier at night because you are more financially secure. Here’s more on why you absolutely need and want a budget.

But once you understand why you need a budget, and how to make a budget, you want to start on the right foot by using a budgeting method that fits you. Here are 3 budgeting methods we like and that seem to be pretty popular among the masses.


3 Budgeting Methods

50/30/20 Budget

The basic concept is to total your income and then break down your budget into these three categories:

  • 50% toward needed expenses
  • 30% toward wanted expenses (discretionary)
  • 20% toward savings and debt

Needs = expenses you need to survive. Things like housing costs, food, utilities – your essentials.

Wants = expenses you can live without. Things like tv streaming services, eating out, vacations – your extras.

Savings = expenses you set aside for your financial goals. Things like retirement, vacations, an emergency fund, paying off debt – your financial future.

A frequent issue with this method is to keep the wants category down to 30%. If you find yourself in this situation, here are some tips to help you trim your expenses.

While the 50/30/20 is a great starting point as you get your budget up and running, you may need to modify it to meet your lifestyle. For example, as you figure out your financial goals, 20% may not be enough toward your savings, so you want to focus a larger percentage of your budget on building your savings.

This works well for those who are new to budgeting, don't have a lot of time to dedicate to their budget, or those who are big-picture focused because it doesn’t require meticulous tracking. If you understand how to break down your expenses correctly into wants, needs and savings, this method can work well without having to track every line item in your budget.

Any tools will work with this method, but the Budget tiles you find in our digital banking platform pairs exceptionally well with this.


Traditional or Zero-based budget

The basic concept is that all funds coming in match exactly to your expenses going out. Basically, your income minus your expenses equals zero. Every dollar is given a job.

First, figure out your total monthly income. Once you’ve done that, add up your monthly expenses and then categorize your expenses into your budget. Categories may include: Mortgage/rent, gas, groceries, eating out, entertainment, utilities, etc. Your categories should be detailed.

Along with all your expenses, don’t forget to put income toward your savings and emergency funds in your budget. This way even though you spend all your money on budgeted expenses, it still allows important things like savings and emergency funds to grow.

This works well for those who have a set monthly income or who can roughly estimate their monthly income. Because you track every expense, this tends to be time consuming and tedious, but those who like full control over their budget will find this method fits them well. This is definitely a hands-on approach to budgeting, so there’s a lot of room for error. That makes this well-suited for someone who is detail-oriented and has some previous experience working with a budget. If you’re more of a big-picture type of person, this may not be your style.

By far, this is the most common budgeting approach, so you will find lots of apps and tools pair well with this method.


Multiple Bank Accounts

The basic concept is to use multiple bank accounts as your budgeting categories such as needs, wants and savings. This replaces the traditional thought behind just having one checking account and one savings account.

Draft your budget ahead of time to figure out your needs, wants and savings expenses (be sure to include your savings goals). Once you know your total for each category, put the budgeted amount in each account.

You might set up your bank accounts like this:

  • Needs/bills (checking account)
  • Wants/spend (checking account)
  • Vacation to Bermuda! (holiday savings account)
  • Dream Home/down payment (savings account)
  • Emergency Fund (savings account)

It may sound complicated to use multiple bank accounts, but because your budgeting categories are in separate “buckets” some people find this easier to maintain. Different bank accounts for each budget category clearly separates and organizes funds so you avoid the risk of spending from the wrong category.

Pro tip: Give your accounts names that keep you motivated. “Bucket List Trip to Ireland” or “My Awesome New Car” is way more inspiring than “005606713-16.”

This works well for those who like to keep their income in easy to distinguish “buckets”, make the most of different types of bank accounts (this is where you can make the most of pairing a club savings account with our Common Cents program!), and who have the willpower to not dip into the needs/bills or savings accounts when you use up all the money from you wants/spend account.


Did you find this helpful? Leave a comment below if you’d like to know more about this subject or if you’d like us to dive into another financial topic.

 

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