You might be asking yourself how much you should spend in each part of your budget. The truth is, there is no single answer that works for everyone. It depends on your personal situation and goals. There are many different approaches to budgeting, and you can decide which one fits you best.
Here are just a few examples of popular budgeting methods. These may work well for some people, but that doesn’t mean they are right for you. Feel free to try any of them that interest you, but keep in mind that budgeting is personal. Be ready to adjust your plan if needed.
The 50/20/30 Budget
With the 50/20/30 method, you divide your take-home pay like this: 50% goes to needs, 20% to savings, and 30% to wants.
If you’ve read about the basics of budgeting, you already know the difference between wants and needs. This budget gives you a clear idea of how much to spend in each area and reminds you to save a portion of your income.
Pay Yourself First
The “Pay Yourself First” method means the first thing you do each month is put a set amount of money into your savings account. You do this before paying bills or other expenses. After you save, you can then pay your bills and use what’s left however you want.
This method can be used along with other budgeting styles. It also works well as a simple approach: save first, pay what you must, and use the rest freely.
Zero-Based Budget
With a zero-based budget, you plan exactly how you will use every dollar you earn, so your budget balances out to zero. This means each dollar has a purpose, whether it’s for a bill, food, savings, or another cost.
Be sure to include saving in your budget. If you don’t have a plan for leftover money, you can treat it as a savings amount. This method helps prevent impulse spending because you know ahead of time where every dollar will go.
Envelope Budget
In the envelope budget method, you place set amounts of money into different “envelopes” for each spending category. This can be done with physical cash, an app, or a spreadsheet. Once the money in an envelope is used up, you stop spending in that area until the next month.
If you have money left in any envelope at the end of the month, you can do a few things:
- Keep it in the same envelope for next month
- Move it to a different envelope
- Add it to your savings for the future
