Different budgeting methods make sense and work for different people’s lifestyles, so it’s always a good idea to look at the different kinds of budgeting before you begin to set up your first budget.
If you’ve been budgeting for a long time, it’s still a good idea to review your specific budgeting method from time to time and make sure it still works well for your lifestyle.
Here are some of the most common budgeting methods you’ll see around the personal finance community.
This is how I set up my budget. I know I get paid at least twice a month, but I still choose to set up my budget based on a month’s worth of my expenses. The reason I do it this way rather than by paycheck is because I have quite a few expenses that only happen once a month and a monthly budget gives me a good picture of how my monthly cash flow will go so I can ensure I don’t run out of money in between my paychecks. Monthly budgeting is usually the most popular type of budgeting.
Some people choose to budget based on each paycheck instead of by the month. This allows them to plan which paycheck will cover the rent or mortgage, and which one will cover the majority of the other expenses. Sometimes people on a monthly budget will also have a weekly or paycheck budget so they make sure they don’t run off and spend all of their grocery money during the first half of the month and are left with empty cabinets toward the end of the month.
Variable Income Budgeting
If you have a variable income, budgeting might seem very difficult because you never know how much money you’ll make. Of course, there are some non-negotiable expenses in your budget and you should definitely make sure those are covered, but other than that budgeting may seem very confusing. A lot of small business owners and people who are self-employed have taken to “living on last month’s income” so they know how much money they’ll have going into each month. To do this, you’ll need to start saving some money each month until you have at least a month’s worth of expenses saved up. Then the next month you’ll use that money to live (and budget) off of. Anything you make that month will be used for the budget the next month.
Zero Based Budgeting
Zero based budgeting is also a pretty popular way to budget. This means you give every dollar you earn a job in your budget. Anything you earn above and beyond what you’ve budgeted for at the beginning of the month will have to be adjusted for. I make a zero based budget with my known income and a percentage based budget for my variable income.
Percentage Based Budgeting
With percentage based budgeting, you don’t have a certain dollar amount allocated to each line item or expense in your budget. Rather than saying you’ll pay $X toward your student loans, instead you might say you want to pay X% toward student loans. Yes, you’ll still have to pay at least your minimum payment, but then a percentage of anything you earn above your “regular” income will have to put toward your student loans so your percentage based budget stays on track. This might be an option if you have irregular income.
Special Event Budgeting
Along with all the other kinds of budgeting that take into account your everyday expenses, sometimes you might need a separate budget for a special event. Things like weddings, big vacations, or another future life event, take planning and saving separately from your everyday budget. You might have a line item in your regular budget to help you put away money for your special event, but how you actually allocate that money will be specified in your special event budget.
How do you budget? Do you utilize more than one type of budgeting system?