Money Smarts Blog

Let’s just put it out there. Budgets aren’t fun.

But budgets get a far worse rap than they deserve because even if they aren't fun, budgets aren’t hard to create, maintain or follow.

You don’t need a spreadsheet to have a budget. You really don’t need a checkbook register to have a budget (c’mon, it’s 2021). You don’t even necessarily need a bank account to have a budget (but you really, really should have one).

So how do you create a budget? First you have to establish your own financial goals, then you just need to find a method that works for your lifestyle.

We rounded up what we think are the five easiest and most effective budget methods to make it even easier for you:

1. Zero based

Zero based budgeting is based on the concept of giving every dollar a job. Whatever comes into your account must go out – whether that’s through paying bills, spending, saving or investing, no dollar can be left behind.

You can do this manually: draw a line down a sheet of paper. Write all your income on the left (include everything, salary, child support, side hustles etc.), and all of your outgoing money on the right (including savings and investing). Adjust accordingly until your expenses are equal to your income.

Or do it electronically. You Need A Budget uses the zero based method and makes doing it yourself really easy. Plus, they offer some really helpful tips and educational resources.

2. 50/30/20

This is our favorite budget method, because it is very simple, very flexible and not very time consuming. It works like this:

• 50% of your income should go towards required expenses. This includes housing, food, utilities, transportation (including car payments), insurance, etc. These are NEEDS.
• 30% of your income goes towards optional expenses like clothing, vacations and gifts–the little things that help you enjoy life. These are WANTS.
• 20% of your income should be allocated for paying off debts (like student loans and credit cards) and saving/investing.

Read more about the 50/30/20 method in our blog, Why your budget isn’t working.

3. Cash only

This is based on the theory that spending is more strongly felt when you pay with cash, so you’re less likely to make frivolous extra purchases. This can be really flexible too, but it needs some prior knowledge of your general spending habits so you can set your limits.

Here’s what you do:
Set yourself a spending limit for the week or month (whichever works better for you) and withdraw only that much. If you don’t have enough cash to pay for it, you can’t have it. You can’t withdraw more money until the end of your established timeframe.

4. Reverse Budget

This strategy is perfect for those who just want to reach a primary goal, like saving a certain amount, and don’t really care to get an insight into their spending habits. It’s definitely the easiest method, but maybe not the most effective if you’re struggling to keep your spending in check.

Basically, you arrange for a portion of your paycheck to go directly into your savings account before you have a chance to access it. Spend everything else however you please.

Read more about Reverse Budgeting from Forbes.

5. Envelope budget

This is a lot like the cash only method, but a little more meticulous. Set limits for your monthly spending in major categories – like housing, groceries, gas and so on. Then, write each of those categories on an envelope and distribute cash accordingly.

If you run out of money in one envelope, you have to take money from another envelope – not your bank account.

If you want more details, Dave Ramsey has an excellent breakdown.

Once you find the right budget method for you, the most important thing is keeping up with it. It won’t matter which budget you choose if you don’t actually follow it.

Need more budgeting help? Visit our Financial Health page to learn more about how IHMVCU can help you on your journey to financial success.