5 top methods of budgeting for beginners

With today’s economy roaring like the 20s (wait, we’re in the 20s), budgeting and financial planning hasn’t been more essential then ever. If we plan according and correctly, that’ll help us later when we need those extra funds that we planned on from the beginning. With these 5 budgeting methods, we’re going to work out the ideal budget for your financial needs.

1. The 50/30/20 Budget:

• Simple and widely used. Divide your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings and debt repayment.  

• Easy to understand and implement. Provides a clear framework for allocating your money.  

• May not be suitable for everyone. The fixed percentages might not be ideal for all income levels or financial situations.

  • My Take: This method is your traditional, old school method and you will be on track to retire at 65 with a nice little retirement account to fall back on. Not many of us fall in this category and that’s fine. Let’s explore other options.

2. The Envelope System:

• Cash-based budgeting. Allocate specific amounts of cash into envelopes labeled with different spending categories (e.g., groceries, entertainment, transportation).  

• Visual and tangible. Helps you see and feel where your money is going.

• Limits overspending. Once the cash in an envelope is gone, you can't spend any more in that category until the next budgeting period.  

• Can be inconvenient. Requires frequent trips to the bank and may not be suitable for all types of expenses.

  • My Take: I love this method and I put my own spin to it. The way it’s set up is complicated but it works for me. I have seperate online bank accounts each divided by a expense. Each one is connected to a credit card that usually is paying me anywhere between 2-5 percent back on purchases like gas or groceries. I study my budget before shopping and use my credit card for purchases and paying off the credit card in full with the bank account allocated towards it. It can seem complex but I’m saving on top of saving and building good credit habits in betwen.  

3. Pay Yourself First:

• Prioritize savings. Set aside a predetermined amount for savings and debt repayment as soon as you receive your income.  

• Ensures consistent saving. Makes saving a habit and helps you reach your financial goals faster.  

• May require discipline. Requires you to stick to your budget and avoid dipping into your savings for non-essential expenses.

  • Having good budgeting skills is knowing when to pivot. I’ve used this when aggressively paying down debt or saving up for a trip. Paying yourself first requires a lot of discipline to not touch your savings. This method is good those with clear goals in mind

4. The No-Budget Budget:

• Track spending without strict categories. Focus on mindful spending and being aware of where your money goes.

• Suitable for those with irregular income. Provides flexibility for those whose income fluctuates.

• Requires strong financial awareness. Relies on self-control and a good understanding of your spending habits.

  • My Take: This is a method I have used a long time ago when I didn’t know how much I was going to earn throughout the month. You are being mindful of your spending but there’s no way to track it and when I lived like that, most of the time I wasn’t getting paid enough to save fully or maybe I could save some money but then immediately needing to withdraw it. There is a method to the no method, after all!

5. The 60% Solution:

• Similar to 50/30/20 but with more emphasis on "committed expenses." 60% of your income goes to committed expenses (rent, utilities, groceries, transportation, insurance, minimum debt payments), leaving 40% for everything else.

• Provides more flexibility. The remaining 40% can be used for savings, entertainment, dining out, and other discretionary spending.

  • My Take: This should be used when expenses go up but your income in stagnant. this happens from time to time, and you have inflation to blame but at the end of the day, you can only blame yourself. because you could’ve planned for that!

Choosing the right method for you depends upon your personality, financial goals and lifestyle. Experiment with different methods to find out what works best for you.

Tajah Grady/CEO & President of CEO