Search

↑
colorful graphs and icons that represent spending categories

6 personal budgeting strategies that can help you manage your finances

By Shelley Sines

December 2023

Ever wonder where all your money goes? You’re not alone: 83% of Americans say they overspend, and many of them use credit cards to cover those expenses. Tracking and managing your personal finances is critical if you want to achieve financial stability and reach your long-term goals, like owning a home. One of the most effective things you can do to avoid overspending and start building savings is to create (and stick to) a thoughtful, purposeful budget.

A budget can help you track income, control discretionary spending and strategically allocate your financial resources. We’ve pinpointed 6 different personal financial budgeting methods that cater to different preferences and lifestyles. Read on to see which one might work for you and your goals!

1. Traditional budgeting

This method involves crafting a detailed plan for your income and expenses where you categorize your spending into fixed and variable expense categories. Fixed expenses include items like your rent or mortgage, utilities and insurance. Variable expenses include groceries, entertainment, dining out, travel and other recreational activities. By meticulously tracking each expense you incur in both categories, you’ll gain a clear understanding of your financial habits – and identify areas where adjustments may be needed.

2. 50/30/20 rule

This is a budgeting strategy that divides income into 3 categories: 50% for needs, 30% for wants and 20% for savings and debt repayment. It provides a simple yet effective framework for balancing essential expenses, discretionary spending and saving for the future. The 50/30/20 rule is a flexible method that can be adjusted for different income levels and financial goals.

3. Envelope system

This system is an inflexible, cash-based budgeting method that can help you curb superfluous spending. You set a specific amount of cash to spend in envelopes (real or figurative) labeled with different categories, like groceries, entertainment and transportation. Once an envelope is empty, you can’t spend any more in that category until the next budgeting period. This strategy can help you cut back on unnecessary purchases and encourages conscious decision-making.

4. Zero-based budgeting

Zero-based budgeting assigns every incoming dollar a specific purpose, ensuring that income minus expenses equals zero. If you’re using this method, you’ll allocate funds to various categories and leave no money unassigned. This approach encourages you to prioritize spending based on your needs and goals. It’s a proactive way to manage money and prevents unnecessary expenses while promoting intentional spending.

5. Automated budgeting

This method leverages technology, using apps and digital tools to streamline financial management. You can link your bank accounts to budgeting apps that categorize transactions, track spending patterns and provide real-time financial insights and expertise. Automation can help reduce manual efforts on your part and provide a convenient way to stay on top of your financial goals 24/7.

6. The anti-budget

The anti-budget is a less restrictive approach to personal finance compared to some of the other budgeting methods we’ve covered. Instead of tracking every expense, this method allows you to focus on your overarching financial goals and prioritize saving a certain percentage of your income. You’ll enjoy more flexibility in spending because the anti-budget emphasizes the importance of setting and achieving financial objectives without micromanaging daily expenses.

Choose a budget that fits your lifestyle

Choosing the right budgeting strategy depends on your individual preference, financial goals and lifestyle. Whether you prefer the traditional approach, zero-based budgeting or an automated solution, the key is to find a budgeting system that aligns with your personal habits. By adopting a structured method, it’ll be easier to gain control over your finances, reduce money-related stress and work toward achieving your long-term financial goals.

Want a deeper dive into different budget types and how you can put them to work for you? Read more on homeowner.com, NerdWallet or Indeed!

Related to This

Shelley

Read more articles by Shelley
Shelley Sines has been writing for MGIC since she graduated from college in 2007. Currently raising a sweet little family with her husband in the suburbs of Milwaukee. Happiest when cooking or gardening. Competitive Scrabble player. Enthusiastic about road trips, wine, good TV.
We use cookies on this site to enhance your experience. By continuing to use this site you agree with our use of cookies.    Privacy Policy    accept