5 Best Budgeting Strategies For Living A Balanced Life

There are several ways to a budget that depends on your lifestyle and preferences. Basically, knowing your own style of working will help to make the budgeting process as efficient and as painless as possible. 

When you understand yourself and how best you function, things run more smoothly and you react effectively. It’s easier, then, to make the tough decisions that will allow you to march more rapidly toward your financial freedom.

Here’s a simple summary to remind you of the elements that are required in every type of budget no matter your style. You need your savings accounts, and prioritize paying yourself first whenever you can. 

Consider your savings account a bill you owe yourself toward a future lifestyle. Housing, utilities, and transportation are all categories to include in your budget; don’t forget any fees or taxes that go along with these categories. 

Food, personal care, and any other living expenses go on your lists as well, and even the random trip to Starbucks counts. Your debts are an important part of your budgeting plan as you well know, but if you’re truly looking to get out of debt as quickly as possible, you really have to commit to the discontinued use of credit. 

If you wind up falling back on credit because you didn’t create an emergency or miscellaneous fund, or you simply can’t resist an unplanned purchase, then a lot of your work will have gone out the window. Any insurances or other healthcare expenses are worth researching once you’ve determined their role in your budget. 

This category can get pricey, but it’s often necessary. So make sure that you’ve got the right products for you, and that the premiums you pay are worth the value you receive. Finally, there are leisure and entertainment expenses to include in your budget. 

Keeping a miscellaneous category is the optional category, but the trick to determining its use in your budget would be to keep all of your receipts for the first few months, and then you’ll be better able to determine if you’re justified in creating the extra category.

Now, let’s take a look at the different budgeting strategies you can try. Think about your own habits and behaviors, as well as the way you think through solving a problem. This will help you determine what kind of budgeting style is right for you. 

Your budget is also your opportunity to watch yourself so to speak. You’ll get to know where your weak spots are, so trying various styles of budgeting might be worth the trial and error at the beginning. Give each style a chance.

Best Budgeting Strategies

1. Zero-Based Budgeting

What this strategy means is that every dollar in your budget has a purpose and must be used up for that purpose by the end of the month. Spending every single dollar you earn this month may sound fun if a bit reckless, but the roles you assign each of your dollars could have to do with saving or debt payments. 

The idea is that even if you find yourself with $2.63 extra in your bank account, you have to assign that exact amount somewhere based on your plan. The amount of money coming in is the exact same amount of money that’s going out. 

This method is best for someone who is extremely motivated to pay off their debts and begin saving as a long-term habit. Doing things in this way also takes a bit more effort than the other strategies we’ll look at, as well as a lot of time spent monitoring accounts and transactions. You’d need to set aside the time to do everything way in advance, and refer to your plan often before making any financial decisions. 

This way, you avoid making impulse purchases, ensuring that you always have enough for what you’ve planned for. You may choose to go with this style of budgeting for a variety of reasons. You may already be a very organized and no-nonsense kind of person when it comes to dealing with your personal affairs. 

On the other hand, you could also be someone who’s not organized at all and looking to create a bit of accountability for yourself. 

If you know that you need to have a bit more care with your finances and be more responsible, then you might also choose this method. This would be a big shift for you than for the person who’s already very strict with themselves, so be mindful of the transition to becoming more detail-oriented. You don’t want to give yourself a hard time, especially at the beginning of this new change.

2. Bucket Budget or the 50/30/20 Budget

Bucket budgeting entails placing your various categories into three different buckets. A bucket for your needs, another for your wants, and yet another for your savings and debts. Ideally, 50% of your income is going into the needs bucket, 30% into the bucket of wants, and the remaining 20% into the bucket designated for savings and debts. 

If you find that balance is crucial to your sanity, this budget is best suited for you! Sometimes being strict like with zero- based budgeting can only work for so long before you find yourself itching to “live a little.” Much like a strict diet, you may find that you can’t sustain that type of lifestyle, and so you snap, going on an eating binge. 

The same thing could happen financially. If you know you’re the type of person who needs a bit of comfort and ease to support you in the times when you’re extra vigilant with your money, then creating some space for indulgent spending is correct. 

Bucket budgeting in this way can help you to not feel guilty about the luxury items or impulses you’ve had this month. You get to have a little something for yourself now while still sticking to a plan for your future. Budgeting doesn’t have to be strict, but should instead mold itself to your lifestyle and way of being. 

You may find, in fact, that zero-based budgeting is what you need for at least the first two or three months of your game plan. Once you have your footing with budgeting, you can then transition into bucket budgeting for a bit more wiggle room and money to relax. 

Feel free to change up the percentages if need be; you may find you need to split the bucket differently. For example, 60% of your income goes into the needs bucket, while the remaining 40% is split equally between wants and savings and debts. 

Likewise, you can switch up the way the money is allocated by putting 30% of your income toward savings and debts, while the remaining 20% goes towards wants. This is up to you, and you’ll probably learn what percentages and categories are ideal for your situation after a few months of recording your expenses.

3. Envelope System

You may already have an idea as to what this strategy entails, and you may have very well seen your parents or grandparents live in this way. What you do is name an envelope for each category you’ve listed on your budget sheet. 

Then, you place the amount of money in cash that you’ve assigned for each category in its designated envelope. Once that envelope runs out of cash, spending in that category also ends for the month. If you have trouble controlling your use of credit cards, you might find this strategy helpful. 

In the world of credit and debit, money isn’t a sum of bills and coins anymore. It’s often too easy to swipe a card without really realizing how much we’re exchanging. The envelope system is a very tactile way of managing your budget. When you literally have to handle your money in your hands, you might be able to get a better sense of how much money you actually use on a monthly basis. 

It’s also very visual which could be helpful to you in the very first months of trying to follow a budget. When money becomes “out of sight, out of mind” like it often is today in the digital world, we often forget that we have financial goals to begin with. 

This system might also be a very helpful teaching tool if you have a young family. If you keep the envelopes in a place where your kids will see them, it’s an opportunity to let them know what you’re doing and why. They’ll see what you’re doing month after month, and might even hold you accountable to your goals if they notice you’ve neglected your envelopes. 

We all know that kids whether they’re toddlers or teenagers often don’t listen or do what you tell them. They do learn by mimicking, however, especially the youngest of toddlers. Even the oldest of teens will (much to their own chagrin) do what you do. 

If your kids see you doing something productive and progressive for yourself, they will follow suit and learn to also be productive and progressive for themselves. The best way to ensure your kids become all they can be is by first becoming all you can be yourself. 

Here’s an extra tip about the envelope system: Using cash for every kind of transaction or expense might be inconvenient or even impossible. In that case, use apps like Goodbudget or Mvelopes. With these apps, you can securely link up your bank accounts in order to create virtual envelopes just like you would with real ones.

4. Reverse Budget

With the reverse budgeting strategy, you truly have to start with the end in mind. The idea with this method is that you’re prioritizing your future or most important goals before anything else. 

That is your monthly spending budget is based on your savings plans and financial goals. How that works is you determine what goals you really want to achieve. You then have to figure out how much they’d each cost, as well as how much that would require you to save each month. 

If you have a retirement goal or you really want to make sure your kids have enough for college when the time comes, you’d pay the monthly requirements into your designated savings accounts each month first. 

Whatever money is remaining after that is the amount of money you’ll have to live on. You’re not neglecting the needs and responsibilities you have now, of course. You just don’t let the cost of your most immediate expenses eat into the cost of your long-term goals. This method really takes living within your means to a new level. 

This strategy tends to be for the type of person who’s already extremely motivated by their goals. The outcome they want is clear, and they don’t necessarily feel the need to live for now if it means potentially jeopardizing or even delaying their goals later. 

Once you become more disciplined and have a better idea of where you’d like your life to go, you may find it possible to try your hand at reverse budgeting. This type of budgeting system is definitely for the kind of person who’s focused with a long-term outlook. 

This strategy might also be best for someone who is out of debt and is already quite satisfied with their current lifestyle. If you have debt or are still struggling with meeting your basic needs, then this strategy might be too stressful for you at this time.

5. Five-Category Budget

If your head is spinning with any of the strategies we’ve talked about so far, then you might like the five-category budget as it’s more simple. You’ll be splitting your spending into five basic categories: housing, transportation, any other living expenses (including any discretionary spending), savings, and finally debt. 

If you feel you’re not sure where to start as a first-time budgeter, or you find large sheets with lines and lines of items and categories intimidating, then you’ll probably appreciate this kind of strategy. It’s easy to record and file away each of your expenses without having to think through every single detail. 

This simple strategy is best for the type of person who has a low income, or who appreciates living simply. They have simple needs and modest goals and are truly content with what they currently have going in their life. 

This might also be ideal for a young, single person who’s constantly working or studying or both. You likely have no dependents at this time, and so not many expenses that are variable or unexpected. This means you wouldn’t have to spend that much time budgeting, and can most likely record and organize everything on payday. 

After that, you can go back to focusing on your work and studies. Keep in mind, if you’re the busy type, you most likely aren’t an impulse buyer. That being said, if you worry about staying accountable to your budget but do want to keep things simple, then it might be worth adding a couple of sub-categories to the debt and other living expenses categories. 

You’ll still retain the simplicity of the five major categories, but can still strategize certain categories in a way that helps you manage your bad habits and get out of debt. For example, how you manage the categories of housing, transportation, and savings can remain simple, while you apply the zero-based strategy to the categories of other living expenses and debts.

6. 10% Buffer Budget

This budgeting strategy is a very flexible one and can also be complemented to other kinds of strategies. This method simply dictates that you budget 90% of your income, while leaving yourself a buffer with the remaining 10%. 

This 10% can be used as an emergency fund, or you can dip into it if you find you’re lacking funds in a few categories for the month. This is ideal for the person with a lot of variable expenses or income. This method is ideal for the type of person who has some trouble with keeping their impulsive spending in check. 

If you find you’re really struggling with debt or with the habit of saving, then you also might find this strategy ideal for you. If you can, then you might find it helpful to pretend that you actually only make 90% of what you take home. 

If you keep that 90% figure in mind, then you’re more likely to live within that amount of money. Rather than pretend, you might find it more effective to keep 10% of your income out of your grasp. This means automatically saving it into an account that would then make the money difficult to liquidate. 

That is, if you had to fill in paperwork or wait three to five business days every time you wanted to access this money, you might simply resign yourself to finding another way of getting the money, or simply waiting until you have the amount you need. 

In this case, you’d technically be budgeting the 10% away and essentially paying yourself first, but taking this kind of perspective of downgrading how much you actually make might help you with overspending. You can easily pair this strategy up with any of the other strategies. 

For example, you can choose to budget that 90% of your income using the bucket strategy. That is, of the 90%, 50% goes towards your needs, 30% to your wants, and then 20% to your debts and savings. You can likewise, manage 90% of your income in the zero-based way. The 10% buffer you give yourself will allow you the space to discover which strategy is best for you.

How Do You Choose Which Budget Is Right for You?

Before doing anything, it’s best to take a look at that initial assessment of your finances. It’d be hard to decide on the best course of action if you’re not exactly sure where you stand. 

After that assessment, determine where your weaknesses are; although, you may already have a good idea about those without the need of an assessment. Decide what your bad habits are, and if you’d like to change any of them, choose which ones you can afford to change right away. You might find there are some habits that might be better changed over time. A self-assessment doesn’t have to be all doom and gloom. 

Take a look at your good habits as well as your goals, and see if there’s a way to use them to offset the behaviors that are hurting you. You should also take into account your values. Does your child’s education really matter to you? Do you like living a certain lifestyle now? Do you prefer eating well over having material possessions? 

If you know these things about yourself, you’ll be better able to determine which type of strategy or combination of strategies is right for you. Consider also how ready and willing you are to change! Remember, if you feel you’re doing this simply because you know you should, then the likelihood of you staying consistent with your budget might decrease. 

Unless you have a real and meaningful reason for organizing your financial responsibilities, it’ll be difficult to stick to the budget. Do you find you need to use paper, or do you do everything on your phone anyway and so prefer an app? 

Maybe you’re a bit of an Excel sheet nerd, and could use a spreadsheet for your budgeting needs. Personalize your budget to accommodate the way you live and think, and customize your strategy to suit your goals and lifestyle. 

You’ll increase the likelihood of your consistency with the plan, and you’ll also feel like your needs are being met. For example, maybe you’re really good at planning and organizing, but you love eating out or frequenting new restaurants. In that case, instead of eating out whenever you’d like, plan a visit to a new restaurant you’d like to try whenever you’ve reached a milestone in your budget.

More Budgeting Tips

Here are a few more ideas for you to include in the execution of your budgeting game plan. If any of them resonate with you, use them at your own convenience. 

Making a habit of any one of these tips could help you to ease into the habit of budgeting, especially if you’ve always had trouble sticking to a plan, or if you have trouble believing that your plan could really make a difference for you. 

With all of the advice in this article, take what you will, and leave what doesn’t work. This isn’t about avoiding mistakes and bad habits, or following your plan to a tee. This is about developing in yourself a sense of self-confidence when it comes to your finances and an assurance that the goals you plan out will be achieved with the discipline to remain consistent.

A Miscellaneous Category

If this is your first real attempt at sticking to a budget, and you’re having trouble planning things out, you might want to create a category for miscellaneous spending no matter what kind of budgeting style you choose to start out with. 

Even if you’ve gone through all of your spending in the past few months or year in order to gather an idea of what your spending is like, it might still be tricky to get a true handle on what transactions to anticipate. 

You may do all of the planning you can, and still find a lot of unexpected items wind up in your budget that you didn’t foresee. This could be very frustrating to you, especially if budgeting gets you nervous or makes you doubt yourself. 

For the anxious first-timers, create a miscellaneous category in which you place that 10% buffer that we talked about in the last section as one of the budgeting strategies you can implement. 

After three or four months, if you notice that some of these purchases in the miscellaneous category keep showing up, then you can consider placing them in one of your established categories. You may even discover that you have to name a whole new category for these transactions. The idea behind this miscellaneous category is that it’ll help you get the hang of budgeting while giving you a bit more clarity on how you spend your lifestyle.

Automatic Payments

You likely already have certain bills or payments that are automatically deducted from your bank account. Consider doing this with every single one of your bills, especially those payments that have to do with your investment and saving priorities. 

If you make these commitments ahead of time, you’re more likely to take your personal priorities seriously. Be sure to also make automatic payments to your emergency and leisure and entertainment funds. If you’re being too strict with yourself, you may one day find yourself at your wits end of discipline, and indulge by taking money out of your investment and saving accounts. 

These kinds of moves are not only detrimental to developing your budgeting habits, but also to your long-term goals. If your long-term savings are being eaten away little by little over a period of time, the outcome you were expecting for your long-term goals could actually turn out to be very disappointing. 

Like with the alarms you may choose to set for yourself as reminders of when it’s time to log in purchases or to go over your budget, give yourself reminders of when you’ll have upcoming automatic withdrawals to your account. 

That way, you’ll be reminded of the next moves you’ll be making in your budget, and you can verify that you have the right amount of funds and that everything is going according to plan. This is especially important for payments towards credit cards and other debts as you’ll want to have those paid well before their due date. 

This is important for keeping a healthy credit score. For items in your budget that can’t really be placed on an automatic system, try making a list of those expenses that you’re certain of, as well as their cost. Grocery items, for example, are easy enough to list, and you can decide on them ahead of time. 

Once the time comes to make your purchases, head to the stores with just the right amount of money (use cash when you can). You can include a buffer or enough cash for miscellaneous purchases, but the idea is that you do your shopping with very specific instructions. This will lessen the chances of impulse buys or splurging. 

Your weakness for cookies and ice cream should be factored into your budget, and it might actually be unwise to try to exclude them, however healthier that option would be. Unless you’re simultaneously working on your health goals, it’s probably best to budget your areas of weakness instead of trying to deny them. 

Denying them will only almost guarantee an oncoming splurge. It’s important to note that the big habit shifts you’re trying to create are best done one at a time and gradually. 

You may be excited for your newly planned goals and the prospects of living a life that’s truer to what you imagine, but don’t forget that the secret to long-lasting change—as frustrating as it is—is to cultivate your new self a little bit at a time. 

The foundation is always the longest phase of building the house, but once it’s done right, the rest of the house comes together quickly and lasts for a long time. So, remember: Automatic payments are about helping you set up that foundation for permanently changing your habits.

Prioritize Purpose

People who live more purposeful lives tend to be happier and more fulfilled with who they are. Being at work day in and day out may cause us to lose sight of that purpose we’re trying to achieve. 

It may also feel like we don’t really have that big of a purpose, besides seeing our family through another round of monthly bills, making sure everything gets paid on time and everyone gets what they need. 

Giving and saving, therefore, often take a backseat to our budgeting plans. We may feel like the money we’d like to allot to those purposes could very well help pay off the debt we’re swimming in instead. The good we do with our money, however, can help encourage the other positive behaviors we’d like to establish with our spending. 

This isn’t to say that you should tithe when you actually have no disposable income, or give away extra cash when you could actually be accelerating debt. This is simply a call for you to make sure that what you are spending is intentional, purposeful, and powerful. 

The more purposeful you feel with your money, the more empowered you’ll be to continue executing the plan that’ll promote your wealth.

Stay Flexible

Don’t fall in love with your budgeting plan! Staying flexible around how you execute whatever it is that you plan is how you increase the likelihood of long- term success. Ironically enough, it may also come in handy to keep your expectations of your goals loose as well. 

While you’re probably looking to create financial independence, this will look different for everyone and might even change over time in your own eyes as well. 

How you go about achieving your goals will constantly change based on what you discover about yourself and how you operate, and also based on whatever life decides to throw at you. Be prepared. 

This is why you should be consistently reviewing your goals and budget, not only because you’re wanting to stay on track, but because that track may change on you, whether you see it coming or not. The more you can prepare for what’s to come, the more easily you can react in a way that benefits you.

Say “No”

As difficult as this may be to some, especially those who’re just starting out living on a budget, you’re going to have to get comfortable with saying the words, “It’s not in the budget.” Living on a budget can often feel like we’re living poor or at least in a way that is constricted. 

We may, at times, feel left out socially, or feel like others might be pitying us. At times like these, it’s important to remember those statistics of what the average American is going through financially. Your social circle is most likely going through the same struggles as you are. 

You, however, have chosen to do something proactive and practical about it. You’re not budgeting because you’re poor; you’re budgeting, because you have goals and are financially responsible. Remember the test in delayed gratification? 

This is also a moment for you to test your ability to resist impulse purchases and splurges in exchange for the reassurance that your future will be wealthier simply because you chose to resist wasteful spending today. Be willing to wait for something better.

Have Enthusiasm for Your Goals

In continuing with the practice of delayed gratification, keeping your eyes on your prize is a lot easier when you’re excited about your goals. Before you begin executing or even planning your budget, you may want to take some time to really determine what your financial independence truly means to you. What does it mean to be free with your money? 

What do you feel as a result of being free? What does a day of financial independence look like for you? From there, you can really get detailed about what it is you want, as well as how much it’ll cost. After that, get visual! 

Put pictures of your dreams on your fridge, on your bathroom mirror, or in your car. Create a vision board if you really want to have fun with it. Have a clear declaration of your goals on your budgeting sheet or notebook. If you’re using an app for keeping track of your budget, then try creating a profile picture or background image that has to do with your goals if you can. 

Cover your file folders with pictures of travel destinations or the future college of your choice. Give your online spreadsheets names that remind you of your various goals.

Imagine that financially free day: How do you feel when you wake up in the morning? What are your plans for that day? What do you get to do, have, give? As corny as visualizing can sound, this isn’t about wishful thinking. Seeing what you want in your mind’s eye brings what you are doing today into focus.

Only Increase Spending When…

Increasing your spending power would be wise only once you’re completely out of debt and on track for your savings goals. You have to be able to rest assured that you don’t need to depend on any kind of credit in order to live in the way you want. 

If you find yourself always going back to credit cards for the basic items in your expenditures list, then you’re most likely not ready to upgrade your lifestyle. 

More money isn’t going to solve every problem, and, in fact, the more money you have, the more problems you’ll create if you don’t learn to manage the money you already do possess.

Financial Literacy

During your allotted time for budgeting every week or two, spend an extra 20 or 30 minutes learning a new financial skill or concept. Had we all had a little literacy on personal finance in high school, it might be safe to say that the middle-income families of North America might not find themselves in the positions they are in today. 

Lack of knowledge in investing, a dense culture around using credit cards, the ever-increasing threat of student loan debt… Had we had a better education around our own finances, it might be that budgeting would be second nature to all of us. 

Expanding your knowledge around your own finances is an empowering practice that could help you to avoid expensive and long-term mistakes, as well as help you take seemingly daunting financial steps with more confidence. Honing your skills in this area can only help you build your wealth that much faster.

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