Personal Budgeting Strategies

What are Personal Budgeting Strategies & How much should you be spending in each category of your budget? The answer is that there is no right amount to spend in any category for any one person. It’s your call as to what works for you. There are many different budgeting philosophies. 

Here are just a few. These are some popular ones, but that does not mean they will work best for you. We encourage you to try them out if you like them, but remember that budgeting is an individualized process and you should be prepared to identify when a change needs to be made.


The 50/30/20 rule

Allocate 50% of your income to necessities, 30% to wants, and 20% to savings or debt repayment.

Pay Yourself First

Pay Yourself First: Set aside a portion of your income for savings or debt repayment before allocating it towards other expenses.

Zero-based budgeting

Assign every dollar a purpose, ensuring that your income minus expenses equals zero.

Envelope system

Use cash envelopes for different spending categories to visually track and limit your spending. Pay yourself first: Prioritize saving by automatically transferring a portion of your income to a separate savings account before allocating funds for expenses.

The 80/20 rule

Dedicate 80% of your income towards necessary expenses and savings, and use the remaining 20% for discretionary spending.

Sinking Funds

Set aside money each month for irregular expenses or future goals, such as vacations, car repairs, or holiday shopping.

The 50/20/30 Budget

In the 50/20/30 budget, 50% of your net income should go toward your needs, 20% toward savings, and 30% toward your wants.

Since you’ve likely read through Essentials of Budgeting, you’re probably familiar with the distinction between wants and needs. This budget suggests a particular balance for your spending on wants and needs. It also stresses the importance of saving money for later. 
Pay Yourself First

Pay Yourself First:

The “Pay Yourself First” rule puts your savings first, transferring a set amount directly into your savings account at the beginning of each month.  After you pay yourself, you should pay your bills, then you can spend the remaining money however you want.

This method can easily be used alongside others on this page. However, this method can also be used to simply track a very simple budget, where you pay for what you have to, and then disregard the rest. 

Zero-Based Budget

With a zero-based budget, every single dollar of your income is allocated toward a specific expense, leaving you with a balance of $0. This rule requires you to predict all the money that will leave your hands in the upcoming month so you have a plan on where to allocate your income.

Make sure to account for saving in your plan too; if you don’t plan to “spend” all of your money, you can assign what’s left as a “savings expense.” This rule guarantees that you have a plan for every dollar and won’t make impulse purchases. 

Envelope Budget

In the envelope system, you budget specific amounts of your money into envelopes, whether that is with physical cash or electronically with an app or spreadsheet, for different budget categories. Once the money in an envelope is spent, you cannot spend out of that envelope category anymore until the next month. If you have leftover money in your envelope at the end of the month, there are a few things you can do:

Push the overage to the same envelope next month

Move the overage to another envelope

Use the overage to go to savings for the future

The 80/20 rule: 

Automatically move a portion of your income to a separate savings account before you begin dividing money up among your spending categories. Allocate 80% of your income toward necessary spending and savings and use the remaining 20% on discretionary spending. In the 50/20/30 budget, 50% of your net income should go to your needs, 20% should go to your savings, and 30% should go to your wants. This budget suggests a particular balance for your spending on your wants and needs and promotes saving money for future use.
Sinking Funds: Move money each month for irregular spending or long-term goals, such as vacations, car repairs, or holiday shopping.

Sinking funds:

This is one of the rules of budgeting in which 80 percent of your money should be put toward your necessary expenses and your savings, and the remaining 20 percent put toward your optional buying.
50/20/30 rule: This is a popular variation on the above rule of budgeting in which 50 percent of your net income should go toward your necessary expenses, 20 percent toward your savings, and 30 percent toward your optional buying. This version of budgeting places extra emphasis on the saving of money for future purposes or irregular expenses through the use of sinking funds.

Put aside money each month for irregular expenses or future goals, such as vacations, car repairs, or holiday shopping.

Essentials of Personal Budgeting Strategies

Before you start a budget, it is important to understand some key essential budgeting concepts.

It is essential to know and to monitor your income and expenses in making a budget. Accounting for your spending habits will easily show you ways to reduce spending, hence saving you money. A realistic setting of financial goals will be very motivating and will serve to give you direction in your efforts to budget. A real budget is the key to long-term financial stability. Reviewing your budget regularly and correcting it on time will ensure that you are headed on the right path toward your financial goals.

Setting Financial Goals

Identify what you desire to accomplish financially and construct a plan to achieve it.

Set specific and measurable financial goals, which are fine-tuned to your long-term aspirations. Reduce large goals into smaller steps, which are easier to accomplish. Periodically track your progress towards your financial goals and make modifications accordingly. Stay focused and disciplined in implementing your financial plan to raise the chances of success.

Your financial goals should be SMART. SMART goals give you a good definition of what you want to do and how you will do it. SMART goals are Specific, Measurable, Achievable, Relevant, and Time-bound.

Specific: What do you want to accomplish?

Measurable: How will you know you have achieved your goal?

Achievable: Is your goal feasible?

Relevant: Is your goal in line with your identity and needs as a person?

Time-bound: When would you like to have accomplished your goal?

  • Set a specific deadline for goal completion.

Tracking of Income and Expense

This will help you see your financial situation through monitoring income and expenses. Having recorded sources of income and expenses, you will be able to know where your money is coming from and where it will be going. This will allow you to have an unambiguous picture of your spending habits, which will give you the ability to make proper decisions on your finances. This can be achieved through manual observation of finances or through a budgeting application. Having said that, what is important is that you have a system that is going to give you the right way of monitoring and analysing your income and expenditures.

Document your income and expenses to get a better idea of where your money is coming from, where it is going, and your habits when it comes to your finances. You can do this by hand, using a spreadsheet or a notebook, or automatically using a budgeting application that will record your expenditures.

Make a note of all your income, including any refunds to your student account, any rewards, gifts, or interest you gain. Also document all your card money, both debit and credit, as well as any cash or Venmo (or any other similar applications).

Once you have your budget, track your income and expenditures so that you are working to meet your financial objectives and are not going over budget.

  • – Create a budget. – Monitor your income and expenses. – Work towards financial goals. – Avoid exceeding your budget.

Needs vs. Wants

To decide how to allocate your money, decide how your spending fits into the following two categories: needs and wants.

It will help you in deciding how to spend money—knowing the difference between needs and wants. Needs are basically the basic requirements to survive, which include housing, utilities, food, and transportation. Wants, on the other hand, are all those discretionary purchases not referring to basic needs to survive. If you are able to tell the difference between the two, you could prioritize your spending, so your needs are met and not having to spend money on those things that you don’t really need. It will allow you to make decisions in line with your budget.

Needs are things you could not live without. These may include rent, groceries, and health insurance.

Wants are things that you do not need but can make your life more pleasant. These may include dinners out, tickets to see a concert, and new clothes.

Needs and wants are not always distinct. Take, for example, your socks: they have all holes and you have to buy new ones. In most cases, clothes will definitely be considered a want, but in this example clothes turned into a need.

You establish what the expenses are a need and what the expenses are a want based on your life and financial priorities. After you have taken care of your needs, you should feel motivated to spend your money on your wants according to your priorities and financial capabilities. If your priorities include a new movie you look forward to, you should save money for the ticket after you pay your bills and find yourself a new pair of socks.

  • Determine your expenses as needs or wants based on your priorities. Prioritize your needs first, then allocate money for wants. After paying bills, save money for wants according to your priorities and financial situation.

Fixed vs. Variable Expenses

Your expenses can be divided into two further groups: fixed and variable expenses.

They are fixed expenses: consistent overhead costs that do not change from month to month—that is, they remain constant from month to month. Examples include rent or mortgage payments, premiums of insurance, or subscription fees. These are base expenses, that is, compulsory and overhead to maintain a stable living condition or to meet legal obligations. Variable expenses are variable costs that change from month to month depending on how often you use a product or your personal preference. Some of the variable expenses include groceries, entertainment costs, eating out, and discretionary purchases. They are much more flexible and discretionary. Only by separating fixed expenses from variable expenses can you try to direct your budget allocation or prioritize your spending. Separating these two types of expenses demonstrates that you can make intelligent financial decisions and satisfy your needs before you satisfy your wants.

Fixed expenses are expenses that you incur every month or at least on a regular basis, and may have a set amount. Some fixed expenses may vary from month to month – for example gas, electric and credit card bill – but should be pretty predictable. Other fixed expenses – like the rent, loan payments and subscriptions – are more or less constant.

Variable expenses fluctuate depending on your spending behaviour. Groceries, clothes and entertainment are all good examples.

Fixed vs. Variable Expenses distinction is important in estimating your expenses for a month. In case you have to change your spending habits, it is much more comfortable to change variable expenses than fixed expenses.

  • – Fixed vs. Variable Expenses – Important for estimating monthly expenses – Easier to change variable expenses than fixed expenses.

Other Budgeting Posts

1.Best Budgeting Apps of 2024
2.Top Personal Budgeting and Finance Apps for 2024
3. Personal Budgeting and Finance Apps-FAQ
Reference :

Forbes has some updated information in relation to NEW budgeting Apps

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