7 different ways to manage your budget

When it comes to managing your income and outgoing expenses, without a budget you can quickly lose seven different ways to manage your budgettrack of where your money is being spent.

No-one enjoys living from one payday to the other, so the best way to get control of your finances is to start with a budget.

Even the mention of the word can make some people cringe. But it is important to know that there are lots of different budgeting methods, so finding the right one that gels with you could be the key to success.

In this blog, I take a look at the top 7 budgeting methods that are easy to follow. You are sure to find the right one that fits your personality and budgeting style.

The percentage or buckets method

This method of budgeting has been written about in a number of different finance books over the years. In essence, it is dividing your income into a number of different categories or buckets that are broken up into a percentage amount.

Here in Australia, the Barefoot Investor book suggests the following percentage splits

  • 60% to your Blow Bucket – which is for everyday expenses like rent, home loan repayments, food, and utilities.
  • 10% to your Splurge Bucket – which is for things that make you feel good like socialising or buying new clothes.
  • 10% to your Smile Bucket – used for saving for fun longer-term savings goals such as a holiday.
  • 20% to your Fire Extinguisher Bucket – which is also for your long-term savings, but less fun things. Such as a house deposit, paying off your mortgage quicker or paying off consumer debt.

There is another similar take on this that Elizabeth Warren and Amelia Tyagi first made popular, called the 50-20-30 method.

So the split, in this case, is that you spend 50% of your total income on your needs or necessities, 20% on saving or debt payments, and 30% on wants such as entertainment, travel, shopping and eating out.

In essence, the method is the same in both cases, it is just a case of working out what percentages are going to be able to work for you.

There are some people where a larger percentage of their income will be needed to cover their basic expenses and others where they are able to save a bit more.

The real point of this method is to not have to budget down to the nitty-gritty details but instead have buckets of funds to use for each of the categories.

If you can automate the process of sending the savings or debt payments to a different account on payday this can be a really effective method to ensure you are keeping up with saving a set percentage of your income.

There are however a few pitfalls of this method of budgeting. Because you are only budgeting in categories and not down to individual expenses, you could find yourself say spending more on food than you thought, leaving you short for your electricity bill.

To get around this, it is a good idea to build in a little bit of wiggle room into your budget. That way if you do happen to overspend one month, you could move some cash reserves from your ‘wants ’into your ‘needs category if you have to.

The Envelope System

The budgeting method is designed to be simple. I think is a great budget for a beginner, as it helps you to have a clear picture of just exactly where your money is being spent.

For this method, you add up all of your fixed and variable expenses. A good way to do this is to look at your bank statements from the previous year and work out when you spent in each area. Then subtract this from your income.

Withdraw the cash for your expenses and place them in individual envelopes labelled food, rent etc.

Whilst I think this can be a good method for things like food and groceries. Carrying around cash for your utility bills seems a little bit silly to me. You might as well have a bills account earning you interest and arrange direct debits of your bills from that account. So having virtual envelopes which you track through a spreadsheet can make much more sense here. Just make sure you keep a good eye on the account and what your bills come to. So you don’t get any surprise overdrawn fees.

So having virtual envelopes which you track through a spreadsheet can make much more sense here. Just make sure you keep a good eye on the account and what your bills come to. So you don’t get any surprise overdrawn fees.

This is a good budgeting technique if you have struggled in the past with overspending and need to get a handle on it. Basically because once the cash is gone, you need to wait to purchase anything else in that category until your next payday.

The pitfall of this method is that if you are carrying around cash there is a chance you might lose or misplace it. But for a lot of people, this can be a great starting budgeting style to get you in the habit of having more focus on where your money is spent.

Reverse Budget

The number one goal of this budget method is savings. So instead of setting up categories that cover your expenses, you instead focus on an ambitious savings goal.

Say you choose to save 20% of your income. This is saved first and foremost and is kept in a separate bank account. The leftover funds from your income can be allocated as you wish.

Whilst this can be a great approach to use when you have a set savings goal in mind (check out my savings plan calculator) it does leave you at risk of overspending the rest of your income and falling short when bills fall due.

Zero-based budgeting method

This budgeting style is where your income exactly matches what is going out of your account. Of course, this does not mean that you spend every cent you earn!

You simply transfer money into your savings accounts, retirement funds etc. In essence, you are paying those accounts (almost treating them like an expense).

This is sometimes referred to as a ‘’évery dollar has a job’’ budget. A portion of your money you’re giving the job of paying your food bill or rent and others you are giving it the job of funding your retirement or emergency fund. So every dollar is accounted for.

I don’t mind this method, I think if you have a consistent salary allocated your income to the different expenses and savings accounts is a good approach. You literally take your budget and bring it back to zero.

This method is one that I have used in the past, as it allows you to be completely in control of your money. My epic spend tracker spreadsheet can be a great tool to use for this budgeting method.find the right budgeting style for you

The pitfall of this type of budget is that it can be quite time-consuming to keep track of where all of your money goes. So unless you a spreadsheet geek like me, you could find this approach a little cumbersome.

No budget budget

This is the most handoffs budgeting style. You do not track your expenses but you do need to pay attention to your bank balance.

Whilst I think this approach can be a risky one for most people, it does seem to work for some people.

Automation is the key to this method working. If you automate sending a certain amount of your wage to savings or automate your bill payments to save a certain amount each payday it can be a hands-off approach.

This budget is designed for those people that really hate to budget. If you can get all of the automation setup and ticking over (and not forget to include irregular expenses) then it can be a good time savings approach.

I do think though that this approach can be pretty risky, as the inclination to overspend is quite high with this approach. You really need to make sure you are making savings a priority and that you have a healthy emergency fund for anything unexpected that pops up.

Digital Apps

In recent times there has been a number of budgeting Apps that can help you to keep track of your finances.

The Apps generally allow you to link them to your bank accounts. So it eliminates the manual need to track your expenses in a spreadsheet.You can often set up savings goals as well as alerts to keep you on top of your budget.

Here in Australia some of the Apps includes Money Brilliant, PocketBook, YNAB and Money Smart’s TrackMyGOALS and TrackmySPEND.

In the US, popular Apps include Personal Capital and Mint.

Create your own budget

This is how I currently budget. I use a combination of the methods outlined above.

I don’t spend a lot of time tracking individual expenses these days (but I have in the past). So I guess the buckets approach is the closest to what I use.

But I don’t have a bunch of bank accounts all set up with separate names. We just keep all of our money in our mortgage offset account and I keep track of what money is allocated to what via a spreadsheet.

You might find that you read up on a few different methods and then adapt them to what works best for you.

What budgeting method do you like to use? Are there any that you don’t like? What do you do to make budgeting easier?

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  1. Great post! Budgeting definitely needs more than a one-size-fits-all approach. This is a great outline of the various options available. I’ve found one of the most successful starting points with my clients has been to automate a manageable amount to the most important goal. E.g. If funds are available for the next big trip then focus it on the mortgage, super or other investment. Review and increase whenever possible.

    1. Sounds like a great approach for your clients. I am such a fan of automation finances as much as you can.

  2. Some great ideas here Cath! Hopefully everyone can find something here that works for them. I use a bit of a mix like yourself, I use some buckets and don’t track my spending to the dollar. As long as i know my savings goals are met and my bills are paid I’m very realxed about the rest.

    1. I have in the past tracked every cent. Whilst it was a good exercise after a while it became a bit much to keep up with. So once I had a fair idea of where our money was going I changed it up to be a bit more relaxed about it.

  3. Back in the day when we needed real cash to pay for things, I used the paper envelope system, and it worked really well. These days I use YNAB’s app with the zero based budget. It gives me a sense of peace because I can see that we have the next three months fully covered if anything were to happen. Those dollars are waiting to do their assigned jobs at their assigned time.

      1. I don’t sync it with my bank, because we still need the “awareness” of manually entering each transaction, but I did have a go for a week, and it worked. I synced it with UBank. I don’t know if there’s a problem with any others, but it worked fine for me…

  4. Interesting!
    Never knew there was so many ways to budget. I personally think the bucket approach is a bit ridiculous. A friend of mine has 7 bank accounts and ends up not saving very much at all. I don’t like that money builds up to be spent on things you don’t need, no matter how pleasant the name of the bucket is lol. Our happiness shouldn’t really come from spending. It shouldn’t be exciting to be wasteful.

    We don’t budget at all but I know roughly what our expenses are and where it goes. I think it’s best to just focusing on minimising expenses, making it efficient and spending on anything else that is deemed to be truly ‘worthwhile’, as long as we still have low spending overall.
    People seem to have an ever increasing bucket of ‘necessities’ which I think is the problem. If we recognised how optional most things were, there’d be no need for a budget, as we’d know to cut things out if we aren’t saving!

    It worked for us. Everyone is different though 🙂

  5. Thank you for this. My motto is that budgets don’t work, but that they are essential. Doing an overall budget helps you to see very clearly whether you have a big problem – for example, if you are honest with yourself about the cost of housing and utilities and general expenses you can see pretty quickly if you are living beyond your means or not. I prefer to focus on the positives of savings as a motivator, and to do that I need to track spending. Which I do. I like the mindfulnes s of it. but I admit it isn’t for everyone.

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