3 Simple Budgeting Systems and the Best Tools for Each
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In the spring of 2017, I’d all but given up on budgeting.
I’d tried every template I could find online, used spreadsheets, spending trackers, and even resorted to writing my expenses by hand.
But nothing stuck.
Like me, you’ve probably tried several different methods at this point with no luck. What I learned from trial and error is this: There’s no one budgeting system that works for everyone. A budget is personal. Yours will depend on your lifestyle, financial goals, and personality.
After months of trial and error, I discovered a mix of methods and tools that works perfectly for me. You may find, as I did, that a combination is the solution you need to finally make, and stick to, a budget.
If you’re not there yet, don’t give up. Try mix and matching some of these popular and widely-used budgeting methods to create a custom system that’s uniquely yours.
3 Popular Budgeting Systems
The most popular budgeting systems are the zero-based budget, the 50/30/20 budget, and the envelope method.
1. The Zero-Based Budget
The zero-based budget system means assigning every dollar of your income to a line item in your budget — either debt, savings, or an expense category.
This system works well because it gives you complete transparency over your finances. If you overspend in any category, it’ll be easy to pinpoint. And if you have money left over at the end of the month, you can assign it to your next goal, like paying off a credit card or building an emergency fund.
Best if you:
- Like knowing where all of your money is going
- Are living paycheck to paycheck
- Need help with overspending
Not ideal if you:
- Want a more hands-off approach to budgeting
- Won’t update your spending throughout the month
The Best Tools for the Job
The right tools can help streamline your zero-based budget.
You Need a Budget, or YNAB, is a budgeting software specifically designed for zero-based budgeters. The software can help you make a plan for your regular monthly spending as well as irregular expenses.
It allows you to move funds around if you overspend in one area so you can update your plan as needed. You can create custom categories or save monthly for annual expenses like Christmas gifts or your car registration.
New users can trial YNAB free for 34 days. After the free trial, you’ll pay either $11.99 per month or $84 per year with the annual plan. In addition to the app and online portal, members receive access to a host of resources, including goal tracking, progress reports, and free online workshops hosted live every week.
EveryDollar is the budgeting app created by personal finance personality Dave Ramsey.
It offers both a free and a paid version. The free version lets you create a budget but requires you to enter and track everything by hand. With the paid version, you can connect EveryDollar to your bank accounts and sync your transactions automatically.
Within the app, there are eight basic categories, but you also can add your own to customize your budget. Because EveryDollar was created based on Dave Ramsey’s teachings, you can also use it as a guide to help you move through his baby steps.
2. The 50/30/20 Budget
The 50/30/20 budget is a simple system. You divide your net, or post-tax, income into three big buckets: 50% for needs, 30% for wants, and 20% for savings and debt.
It’s easy to implement and leaves room in your budget for fun, savings, and paying down debt. As long as your spending follows the 50/30/20 rule, you can track it in detail or keep it more general.
Best if you:
- Want an easy way to divide your paycheck
- Aren’t living paycheck to paycheck
- Don’t want to track every dollar you spend
Not ideal if you:
- Have a lot of debt
- Want to save or pay off debt more aggressively
The Best Tools for the Job
Even though the 50/30/20 budget is easy to follow, software makes tracking simpler. This budgeting system doesn’t require as detailed tracking as the zero-based budget, but you still need to monitor the three categories.
Personal Capital is an online financial management tool that pulls information from your bank, retirement, and investment accounts to give you an overall view of your finances. The basic account is free to use, and you’ll also receive access to human financial advisors if you decide to invest through the platform.
Personal Capital has broad categories to help you create a personalized budget, but you can also create your own categories. The app attempts to categorize expenses on its own, but it may not be 100% accurate. You’ll still have to log on and double check the transactions.
Mint is another popular budgeting app that syncs to your accounts and automatically categorizes transactions.
Mint lets you create a custom budget by choosing from a wide range of categories or sticking to the three required for the 50/30/20 budget. You can also create subcategories for a more detailed view of your spending.
Mint is free, available for both iPhone and Android devices, and comes in a desktop version.
Excel or Google Sheets
Excel is another program you can use to stay on top of your spending and budget. You can build your own simple spreadsheet to use with the 50/30/20 budgeting system or pick a budget template that fits your needs.
When using Excel, you’ll have to enter transactions manually. This means logging into your bank and credit card accounts every so often to check your spending and add transactions to your spreadsheet. Using a spreadsheet can help you become more mindful of your spending, but only if you update it regularly and consistently.
If you don’t have access to Excel and don’t want to pay for Microsoft Office, you can use Google Sheets, Numbers (for Apple products), or another free program. Which spreadsheet software you use doesn’t matter as much as finding one that you’ll stick with.
3. Envelope Budgeting System
The envelope budgeting system, as popularized by Dave Ramsey, is another popular way to track your spending. It requires using cash and paper envelopes labeled with the name of each category. Once the cash in the envelope is gone, you can’t spend any more on that category.
Studies have shown that spending cash is more painful than swiping a credit or debit card and causes us to feel more connected with our purchases. Because of this, the cash envelope method is great for anyone who struggles with overspending. You can still use a debit card or bank account for bills that can’t be paid in cash, such as utilities, rent or mortgage, and other bills.
You also don’t have to go all in with cash envelopes at first. Start by using envelopes for the 1-3 categories you struggle with the most. You can always add more later if you want.
Best if you:
- Overspend in certain categories or lose track of spending altogether
- Don’t mind carrying around cash
- Don’t shop online very often
Not ideal if you:
- Don’t want to carry big quantities of cash or go to the ATM every pay period
- Burn through cash if you have it on hand
- Do most of your shopping online
The Best Tools for the Job
If you make most of your purchases online, then using physical cash isn’t always feasible. However, there are some tools that can make this system work for you.
If you want the convenience of using plastic but like the accountability of the envelope system, Mvelopes is a solution that marries the two. The program lets you use digital envelopes to track your expenses within each budget category.
To get started, you’ll need to connect your bank accounts and create a budget. Mvelopes gives you a complete picture of your financial standing and generates reports you can use to review your spending patterns.
While the program makes using digital envelopes easier, it’s not the same as using actual cash. You still use cards for your transactions and need to check in with the app to stay on top of your spending in each envelope.
If you want to use physical cash, all you need to do is buy a box of envelopes, write the different spending categories on the back, and add your cash. Multi-colored envelopes make it easier to differentiate among different spending categories. You can also use a wallet or an accordion style organizer.
If you want to get a little more creative and have some construction paper on hand, you can make your own simple envelopes in different colors or buy a ready-to-use kit that has everything you need to use the envelope budgeting system.
3 Tips to Make Any Budgeting System Successful
No matter which budgeting system you use, there are few things you can do to increase your likelihood of success.
Schedule a consistent time to check in
Whether you use a budgeting app or track your expenses by hand, for a budget to work, you need to check in with your spending. Try to do this at least once a week. If you share your money with a spouse or partner, make sure you involve them so you’re both on the same page.
Budgeting is like working out. Going to the gym once a month won’t have as much of an impact as if you go three times a week. If you only update your budget on occasion or at the end of the month, it won’t be as effective as if you check in every week.
If you miss a day, don’t beat yourself up. Be kind and recognize your limitations. You don’t need a perfect track record to for your budget to have an impact. If you go over budget, try to understand why and adjust your categories for the next month as needed.
Choose one or two categories to focus on at a time
When you create a budget, you may want to immediately cut back in every category to get your spending under control. However, this can backfire. You may feel deprived and end up overspending to compensate.
Instead, choose one or two categories where you want to cut back and lower your spending in those first. For example, if you spend $400 a month on groceries and want to lower it, plan to spend between 5 to 10% less the following month.
Keep cutting back until you’re comfortable with your spending in that category. Then move on to the next. By picking one category to focus on, you won’t get overwhelmed trying to cut back on everything all at once. This way you set yourself up to succeed.
Leave room for life
When you first create your budget, you may be tempted to leave out categories like eating out or entertainment. While this can save you money in the short run, completely eliminating entertainment may also lead to burnout and cause you to abandon your budget entirely.
Instead, build some fun into your monthly spending. Include a line item for dining out or manicures or give yourself a personal allowance. Try to keep it reasonable, but make it enough for you to enjoy yourself without feeling guilty.
Combine Your Favorite Budgeting Systems
You don’t have to use one budget type to get control of your money. Take the parts you like the best from each budgeting system and create your own method for tracking your spending and saving.
For example, you can combine a zero-based budget and the cash envelope system. Create a zero-based budget for each month, but use cash envelopes for a few categories where you tend to overspend. You can play around with these combinations until you find one that fits your needs.
There is no one-size-fits-all with budgeting. The best budgeting system is the one that works for you and your family.