Like with almost anything in life, there are options when it comes to budgets.
There are different types of budgets that will work for different people. All the types of budgets will be explained below but it is important to be honest with yourself about which budget will suit your needs.
- The “No budget” budget
This kind of “budget” is for a very small percentage of people whose expenses are well below their income and don’t have to worry about finances at all. They are in a position that allows them to spend money as they wish without planning for the future.
- The “spending first” budget
This is contrary to a lot of advice that is given about budgeting as the idea with this budget is that you spend what you need to and then save whatever is left. This isn’t a good budget type to follow as there is no actual plan being followed and saving could just not take place at all.
- The “saving first” budget
This budget makes saving a priority and your first “expense”. The earlier you make saving part of your budget, the easier it will get to save and the quicker you will be able to achieve your goals and enjoy your money.
- The “Anti” budget
This budget is very simple and may work for some people for a season of their lives, but it is not a sustainable budget type when the number of expenses increase. This budget works on the basis of saving a certain percentage of your money (the higher the better) and then just spending the rest on whatever you need or want. This is a good option for naturally frugal people who don’t spend on unnecessary things.
- The “50/30/20” budget (also known as “The balanced money formula”)
This budget works on the basis of 50% is spent on necessities, 30% on wants and 20% is saved. This is a great budget to work towards as immediately saving 20% of your income may not be possible right now but if you start with 5% and slowly increase it every few months, it will become achievable and a way of living.
This budget is also based on only 3 categories (i.e. needs, wants and saving) so it is easier to track on a monthly basis, but can still lead to unnecessary spending or overspending on certain things and not having enough for other.
- The “60% solution” budget
This is similar to the “50/30/20” budget but it is based on the idea that 60% of your income is used for “committed expenses”, which includes mortgage, food, basic clothing, car payments, insurance, cell phone expenses etc.
The remaining 40% is then split into 4 categories, with 10% allocated to each, namely:
- Retirement: This is specific investments that are for retirement like pension funds, retirement annuities and other long-term low-risk investments.
- Long-term savings: This allocation is for your emergency fund and investments
- Short-term savings: This is used for vacations, irregular expenses and other bigger expenses.
- Fun money: This is for “wants” and things that you can go without, like eating out.
- The “zero-based” budget
This budget is based on the idea that you allocate all your money to a specific expense or expense category, so your income matches your expenses perfectly. This includes allocating money to savings or investments etc.
As you can see from the above, a lot of the types of budgets have similar aspects so the success of the budget can really depend on the type of person using the budget, the season that you are in or your goals.