Save 20% of Your Income This Month: 13 Budgets For MASSIVE Gains in 2021
To build anything, you need a foundation. And for building wealth, that foundation is budgeting.
Lucky for you, there’s a budgeting method that’s perfect for your situation. Even better, it’s somewhere in this article!
Keep reading to learn how you can start saving today, hassle-free.
In this article you will find:
Loose Budgets
Flexible Budgets
Strict Budgets
Extras
Loose Budgets
The Pay-Yourself-First Budget
Who do you pay first after you receive your paycheck? Is it your landlord? The electric company? Your car insurance?
Most people give their money to someone else right after they get their check. They pay bills first and then use the remainder to get what they want and need that month. Somewhere in there, they are supposed to save. But when you spend your money like this, you automatically set your savings/personal investment as your last priority. What if you changed this around?
Have you ever thought of paying yourself first?
Sure, “paying yourself” is kind of an abstract idea. After all, it’s your money, so haven’t you already been paid?
The answer is yes and no.
To pay yourself is to give yourself some money to keep. It means putting money into something that benefits you long-term. For most, this will be saving. But, it could also be paying down debt or investing.
Then, with the remaining money, you will pay your living expenses.
As I’m sure you’ve realized, you’ll need a rough estimate of how much money is needed for you to live on and how much you can save.
You might be saying, “but I don’t have enough money to save with and live on.”
But, when you pay yourself first, it can force you to show restraint with your spending. This can backfire, of course. But in general, this method can quickly show you what you actually need and what you can do without.
If you want to start saving but just don’t know where to start, the Pay-Yourself-First Budget might be a good option for you.
Reverse Budgeting
This method is similar to the Pay-Yourself-First approach.
For Reverse Budgeting, you’re going to want to set a goal each month. It could be to pay off $400 of credit card debt, invest $500, or maybe it’s to put $350 into your retirement account.
Whatever it is, set aside the money for that goal and use the rest for your living expenses.
This method is great if you’re having trouble finding the inspiration to budget. By breaking down your saving into incremental goals, it can seem more attainable. Then, once you’ve had a few small successes, you can use that momentum to keep going.
The Half-Payment Method
The Half-Payment Method is for people who get paid twice per month and pay most of the bills out of one paycheck. If you’re in this position, you might feel like you’re scraping by for half of the month just to have a cash surplus the other half.
The goal of the Half-Payment Method is to pay half of your bills out of each paycheck. That way, your finances will begin to stabilize, making it easier for you to start saving money.
To start, divide the total monthly cost of your bills by two. Then, set aside that amount from each paycheck. Finally, pay your bills as they come due.
The main drawback of this method is that you’ll need to get a half month ahead on saving before you begin. But, once you get there it will all be worth it!
The No-Budget Budget
The No-Budget Budget is for the rebels among us. Some people just will not follow any kind of routine. If you’re this kind of person, the No-Budget Budget can be a great way to stay safe and have relative control over your money.
Having no budget certainly isn’t the first thing that comes to mind when you say “financial stability.” That being said, it can be effective if you have the right personality.
First of all, you need some financial discipline to use this “budget.” You also need a strong memory and the ability to keep track of things mentally. If you’re the kind of person that’s often late or loses things, skip this budget. The same goes for people that get stressed out when too much is going on at once.
With this method, you’re going to automate your finances as much as possible. Set up your checking account so that a percentage of your direct deposits go into savings. Then, automate any other regular expenses such as your 401(k), health insurance, or car payment so that you don’t forget to pay them.
Finally, use your bank statements to keep track of your spending and balance. Always make sure you have enough for your bills to be paid.
You might even try using cash instead of a debit card. When using cash, you can see and feel your money making you less likely to spend it.
Anyone that uses the No-Budget Budget must be vigilant with their spending. This method is best suited for people with lots of experience in money management. However, it’s NOT for people trying to fix their financial habits.
Flexible Budgets
The 50/30/20 Rule
The idea for this budget is very simple. Out of your income, you want to spend:
- 50% on your needs
- 30% on your wants
- 20% on your savings
Needs: Your needs are any basic necessities for surviving and operating in your daily life. These do not cover upgrades, however. If you could take the bus or walk to work but instead opt to get a brand-new truck that gets 14 mpg, that does not count as a need. Neither does getting a brand-new Macbook Pro when all you really need is a $400 Dell laptop. Your needs include basic food, shelter, transportation, utilities, etc.
Wants: Your wants are the extras that help you enjoy your day-to-day life. Maybe you want cable, unlimited data, magazine subscriptions, or anything else you find helpful.
Savings: The remaining 20% should be allocated to some kind of long-term savings or debt repayment. This might include investing in your 401(k), saving for emergencies, paying off your mortgage, or anything else that will be best for your long-term financial well-being.
And that’s it. The 50/30/20 Rule. A simple yet effective way to keep track of your money and spend it responsibly.
The Envelope System (Dave Ramsey Budget)
The envelope system is great for people who prefer to use cash over cards. As we discussed earlier, using cash is a great way to connect with the money you’re spending as you spend it. It’s also much easier to keep track of for most people. So, if you have a problem with overspending, give the envelope system a shot.
For the envelope method, you’ll want to withdraw your paycheck in cash and then divvy up your money into separate envelopes. Each will be used for a different expense.
You can make this somewhat general (i.e. one envelope for utilities), or more detailed. It’s all up to you.
This hands-on approach works for those that can’t keep track of their purchases or tend to “impulse buy.” When you see that $50 bill get broken down into a $20, $10, and change, you tend to feel it more. The envelope method can also make it much easier to keep track of your “balance,” as it’s physically in front of you each day.
The main drawback is that you can’t afford to lose your envelopes. For that reason, you should stay away from this method if you’re disorganized or frequently misplace items.
But, if you don’t like the idea of using cash, all hope is not lost. In today’s age, there’s an app for everything. And this is no different.
There are several apps designed for you to use digital “envelopes” for budgeting. Two of the most popular are GoodBudget and Mvelopes.
A more comprehensive list of popular apps for all kinds of budgeting methods can be found at the bottom of this article.
Value-Based Budgeting
Also known as the priority-based budget, this method is centered around spending money on your priorities.
For the value-based budget, you’ll want to list out your expenses, then put them in order from most to least important. Then, you’ll want to focus your spending on the categories most valuable to you, and cut back on those that aren’t.
If you find your apartment to be high on the list, then leave it alone. But, if it’s not a huge priority consider downsizing. Duplicate this with your other expenses such as internet, cable, etc.
The fun part about the value-based budget is that you can free up money for your favorite things in life. Maybe that’s saving for retirement, hiring a personal trainer, or saving for a new car.
Overall, this budget is very flexible and offers the benefits of a traditional budget without the time requirements. While money can’t buy happiness, you can at least use it on the things that are important to you.
Strict Budgets
Traditional Budgeting
The traditional budget. This one’s not very difficult to understand. It’s what most of us think of when we hear the word “budget.”
For the traditional budget, first, jot down your income. Then, list out your expenses (health insurance, car payment, internet, etc.) Finally, find the difference and see how much you have leftover.
If this is in the negative, you’re in BIG trouble. Otherwise, you’ll see the money you’ve been spending without even realizing it. It’s your choice what to do with this money. But it’s best to put it in some kind of savings account or investment or use it to pay off debt.
Zero-Based Budgeting
Zero-Based Budgeting is a method for those who like to go the extra mile. The main idea for this budget is to track every dollar of yours. It’s great for people that want to fully optimize their spending and don’t mind putting hard work into doing that.
Overall, this method is very simple. It’s similar to the traditional budget except it requires that you allocate ALL of your money, not just expenses. Exactly how much do you want to put into your 401(k) each month? How about your emergency fund? Electricity bill?
The Zero-Based Budget is the most time-consuming of the budget plans covered in this post, but it’s also the most comprehensive.
With this budget, you’ll want to plan ahead for times when you must spend extra on expenses; as the Zero-Based Budgeting system can be rigid and inflexible. It can also be a good idea to budget in some “fun money” to keep yourself from going insane.
This budget might not work well for people with inconsistent incomes. If you fit into this category, you might want to choose a more flexible and forgiving budget. Otherwise, enjoy!
The 60% Solution
The 60% Solution is a wonderful approach if you like to live below your means or have a large expendable income. This time, you’re going to divide your income into 5 groups:
- 60% for “committed expenses.” These include anything that you regularly spend money on, from basic necessities to a Hulu subscription. However, they do not include spur-of-the-moment purchases such as date nights or trips to the mall.
- 10% for retirement savings. It’s best to put this into an account with some form of compound interest such as in a 401(k) or an IRA.
- 10% for long-term savings. This can be used for things like a down payment on a house, car, etc.
- 10% for short-term savings. This money is used for emergencies, vacations, etc.
- 10% for “play money.” This category comes naturally to us all.
Extras
Design Your Own Budget
Sometimes a one-size-fits-all budget isn’t the best for your unique circumstances. In this case, you’ll want to make your own from scratch or by combining some elements from other methods.
The drawbacks of making your own budget are that it’s time-consuming and takes more thought/effort than the other methods. Additionally, this budget will need to be restructured when your circumstances change, though that’s true for most budgets.
The positive aspects of this approach are that it can be tailored to your own unique situation. Whether you’re renting only a room, living in shared quarters, or house hacking, this can all be easily accounted for in a custom budget.
The Sub-Savings Account Method
The Sub-Savings Account Method isn’t really a month-to-month budget but more a way to optimize your savings.
With this system, you’re going to open multiple savings accounts for different purposes. Instead of just one savings account, you’ll make one for a vacation, one for a down payment, one for a new phone, etc. Then, you’ll use these accounts to attain your goals.
To do so, simply take the amount you need for a certain goal and divide it by the number of months it will take. This is how much you’re going to deposit each month.
Just make sure your bank doesn’t have fees associated with opening accounts as they can rack up quickly. Some banks offer subsets of one savings account while others don’t. Explore the options available through your bank and choose what’s right for you.
Overall, the Sub-Savings Account Method is a very pragmatic approach to achieving your goals.
Budgeting Apps/Software
There are many apps designed to make your budgeting easier. Some have premade budgets where you simply enter your expenses throughout the month. Others may be used to supplement your already-existing budget.
Whatever your goals, there’s likely an app that will save you time and energy throughout your journey.
While there are far too many to list here, below are some examples.
- Spreadsheets
- Mint
- Pocketguard
- GoodBudget
- Mvelopes
- EveryDollar
- YNAB (You Need A Budget)
- Digit
- Cleo
- Personal Capital
Conclusion
Budgeting is a crucial part of wealth building, no matter your situation. While we won’t all become Warren Buffett, we still need a big enough nest egg to be comfortable and secure throughout our life.
Luckily, you now have the tools to start saving money like never before. Kickstart your money management journey today with one of the budgets listed in this article!
