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Are you overwhelmed by all the types of personal budgets out there?
Feeling stuck and feeling like you’re going nowhere?
I know what it’s like. Finding the right budget fit for your personality and financial situation can be a little tricky. Plus, it can also be frustrating to find out that the budget you’ve been using for the past few months isn’t the right fit.
But don’t worry.
Here, I’ll be going through the different types of personal budgets to help you find the perfect fit.
So, let’s dive right in.
What Is a Personal Budget
A personal budget is a financial plan.
It’s a financial plan in which you allocate your income to meet your needs, wants, and financial goals.
Here’s an example of how it works:
- Your Money In (Income): This is all the income you expect from your salary, bonuses, investments, and side hustles.
- Your Money Out(Expenses): Some are fixed expenses, like rent or car payments, while others vary, like your dining out or utilities.
- Savings, Investment, and Debt Repayment: After considering your income and expenses, the money left over can go toward your savings and investments or paying off any debt.
It’s a crucial tool for living within your means and preparing for your future.
Now, let’s jump in and go through the different types of personal budgets to find one that fits you.
Budgets for Beginners or Individuals Seeking Simplicity
If you’re new to budgeting or prefer a straightforward approach, these budgets provide easy-to-follow guidelines:
1. The 50 30 20 Rule Budget
The 50 30 20 rule is a straightforward and easy-to-follow budgeting plan.
It breaks your after-tax income into three parts: 50% for Needs, 30% for Wants, and 20% for Savings.
50% for Needs: This goes to your essentials, like rent or mortgage, car payments, minimum debt payments, mobile phone bills, insurance, utilities, transportation, medicines, groceries, and other necessities.
30% for Wants: For non-essential things like dining out, vacations, watching movies or concerts, subscribing to services, etc.
20% for Savings, Investments, and Debt Repayments: This part is saved for emergencies, education, additional debt repayments, starting a business, saving for a house, investing, and planning for retirement.
Who’s It Best For
The 50 30 20 rule budget is fantastic for people new to budgeting. If you like a simple, structured approach to managing your finances, this could work well.
What Are the Pros and Cons
The Pros:
- Easy to Use: This method is simple and gives you a structure for managing your finances.
- Financial Disciple and Habits: It instills good financial habits and discipline by ensuring you consistently set aside for your financial goals and debt repayments.
- Limits Your Discretionary Spending: By maintaining a 30% limit on non-essential spending, you avoid overspending while enjoying the fruits of your labor.
The Cons:
- Not Suitable for Individuals with High Living Expenses: For those living paycheck to paycheck or with high living expenses, limiting 80% of your income for Needs and Wants may not be sufficient.
- Tough for Irregular Incomes: Freelancers or self-employed people with fluctuating earnings will find it difficult to keep up with the fixed percentage allocations.
- Unnecessary Spending: With 30% of your income for Wants, you’ll naturally spend money unnecessarily just because the rule allows it.
- Debt Challenges: If you’re deep in debt, you might need more than 20% for debt repayment to make a real dent in your debt.
- May Not Be Suitable for High Earners: Earning more means more money goes into each category. This can lead to not using your funds efficiently and potentially increasing your spending, a side effect of the rule’s fixed percentages.
Nevertheless, the 50 30 20 rule budget is a great starting point, especially for beginners and individuals who want an easy-to-implement budgeting method.
2. The 60 30 10 Rule Budget
The 60 30 10 rule budget puts a big emphasis on saving rather than spending.
It breaks down your after-tax income into three parts: 60% for Savings, 30% for Needs, and 10% for Wants.
60% for Savings: This chunk could go towards saving for education, buying a new home, planning for retirement, emergency funds, paying off debt faster, and other financial goals.
30% for Needs: This is for essential expenses like rent or mortgage payments, car payments, minimum debt payments, mobile phone bills, insurance, utilities, transportation, medications, groceries, and other must-haves.
10% for Wants: This is for non-essential expenses, like eating out, going on vacation, going to movies or concerts, and subscribing to services.
Who’s It Best For
The 60 30 10 budgeting method is perfect for people who prefer a straightforward way to manage their money, save more quickly, and pay off debts faster.
It’s an excellent fit for those who have a good handle on their spending, want to develop better money habits, and want to reach their financial goals quickly.
What Are the Pros and Cons
The Pros:
- Easy to Use: The 60 30 10 rule is simple to understand and implement, making it beginner-friendly.
- Prioritizes Goals With Some Flexibility: This rule allows for some spending on fun things while prioritizing progress towards your financial goals.
- Quick Results: By allocating 60% of your income towards financial priorities, you can build up savings, pay off your debts, and achieve your goals quickly.
The Cons:
- Tough for Irregular Income Earners: This method may not fit well if you have an irregular income due to the fixed percentages.
- Not Suitable for High Living Expenses: If you live in an area with a high cost of living or have an expensive lifestyle, keeping essential expenses under 30% of your income will be very challenging.
- Not for living Paycheck to Paycheck: This budgeting method isn’t ideal as the 40% allocation of income will not be possible.
The 60 30 10 budgeting method can be a good starting point for those eager to prioritize savings in their budgeting strategy.
3. The 70 20 10 Rule Budget
The 70 20 10 budgeting plan breaks down your after-tax income into three parts: 70% for Needs and Wants, 20% for Savings, and 10% for paying off debts or giving to charity.
70% for Needs & Wants: This includes everything you need and want, from rent or mortgage payments, groceries, and transportation to movie tickets, vacations, and restaurant meals.
20% for Savings: This chunk is put aside for emergencies, education, starting a business, buying a new house, investing, and retirement.
10% for Debts, Charity, or Savings: This portion goes towards paying off debts quicker. Or if you have no debts, it can go towards charity or savings.
Who’s It Best For
This plan is a great fit for beginners learning to manage their money. It’s simple, easy to follow, and works well.
What Are the Pros and Cons
The Pros:
- Easy to Use: The 70 20 10 plan is simple and easy to start with, especially if you’re new to budgeting.
- Instills Structure and Discipline: This plan establishes structure in your finances and encourages good saving habits and debt repayment.
The Cons:
- Not For Everyone: For someone living in an area with high living costs, an expensive lifestyle, or living paycheck to paycheck, the 70% allocated for daily expenses may still not be practical.
- Needs and Wants Mixed: Unlike other budgeting methods, this one combines needs and wants. It doesn’t encourage you to think carefully about what you’re spending, especially on things you want but don’t need.
- May Be Insufficient for Large Debts: If you have large, high-interest debts, like credit card debts, allocating just 10% might not make a significant dent. The interest incurred on these debts can accumulate quickly and negate all your efforts.
Still, the 70 20 10 budget rule can be a solid starting point for those just starting to learn budgeting.
4. The 60 40 Rule Budget
The 60 40 budget, conceived by financial journalist Richard Jenkins in 2002, divides your gross income (before tax) into two parts: 60% for spending and 40% for savings and fun things. (I suggest using your after-tax income instead.)
60% for Spending: This portion covers your usual living costs but excludes the occasional splurges like vacations.
40% for Savings and Fun: This slice is further divided into four equal parts, each representing 10% of your income. These are for short-term, long-term, retirement goals, and fun stuff (or debt repayments, if needed).
Who’s It Best For
The 60 40 rule works best for people who can comfortably live on 60% of their income and want a simple plan that balances saving for the future, reducing debt, and enjoying life right now.
What Are the Pros and Cons
The Pros:
- Clear Direction: This method gives you definite targets for saving, reducing debt, and entertainment.
- Easy to Implement: It’s straightforward to understand and put into action.
- Balanced Approach: The 60 40 rule promotes a healthy money management balance.
The Cons:
- Fixed Splits: The set percentages may not work for everyone, especially if you live in a pricier area where expenses might be more than 60% of your income.
- Not Ideal for High Earners: Similar to the 50 30 20 rule budget, the budget could lead to more spending on needs and wants than necessary.
Nevertheless, the 60 40 rule can be helpful, especially for those seeking a structured and straightforward way to balance enjoying the present and preparing for the future.
5. The 80 20 Rule Budget
Picture the 50 30 20 budget plan, but simpler.
With the 80 20 rule, you split your after-tax income into two straightforward parts: 80% for Needs & Wants and 20% for Savings.
80% is for Needs & Wants: This covers the essentials like rent, car loans, groceries, and medications. But it also includes the fun stuff – dining out, vacations, concerts, and subscriptions.
20% goes to Savings: Your safety net for emergencies, future investments, a new house, or your next big venture.
Who’s It Best For
The 80 20 rule is great for those who want a simple budgeting structure.
If you’d rather not spend hours tracking expenses and have consistent income and expenses that won’t typically eat up more than 80% of your income, this could be your ideal budgeting method.
What Are the Pros and Cons
The Pros:
- Simple and Easy: The 80 20 rule is all about simplicity. It’s easy to grasp and implement.
- Saves Time: As your Needs and Wants are mixed together, not much detailed expense tracking is needed as long as you limit it to 80%.
- Promotes Saving: The 80 20 rule helps foster saving habits by encouraging you to put aside 20% of your income.
The Cons:
- Not Detail-Oriented: This method won’t help pinpoint areas of overspending and unnecessary spending, as it lacks a detailed breakdown.
- Not for Tight Budgets: Keeping living expenses within 80% of income could be challenging if you live paycheck to paycheck or are overwhelmed by debts.
- Less Discipline: The 80 20 rule might not foster as much financial discipline as other budgeting methods.
Despite its drawbacks, the 80 20 rule is an easy-to-use budgeting method, helping you manage your finances.
Budgets for Detailed Money Managers
If you like keeping a close eye on every dollar, these methods are suitable:
6. The Envelope System Budget
The envelope system budget, or Cash Stuffing on TikTok, is a hands-on, cash-based budgeting plan.
It entails splitting your income among different cash envelopes, each for a different spending category. For example, groceries, rent, utilities, entertainment, or transportation have their own envelope.
Who’s It Best For
The envelope system benefits those needing a more hands-on approach to managing their spending. It works well for people who prefer using cash and who need help with overspending or sticking to a budget. It’s also suitable for individuals who want to know where their money is going.
What Are the Pros and Cons
The Pros:
- Simple and Clear: There is no need for complicated spreadsheets or apps here; it’s as straightforward as budgeting gets.
- Visible Spending Limit: Physically handing over cash makes you think twice about every purchase you make.
- Promotes Discipline: Once the cash in an envelope is gone, that’s it. This system encourages you to stick to your budget limits.
- Limits Card Spending: As you’re strictly using cash only for spending, you’re less likely to use your credit cards and get into new debts.
The Cons:
- Safety Concerns: Carrying a lot of cash around could be risky. If you lose an envelope, you lose that cash.
- Missing Out on Card Perks: Using cash means waving goodbye to credit and debit card rewards, cash back, points, and other rewards.
- Rigidity: The envelope system can be unforgiving if unexpected expenses crop up, as the budget is divided strictly.
- Inconvenient: This system is a little outdated in a world increasingly ditching physical cash.
- No Interest from Your Cash: Keeping your money in envelopes does not earn any interest.
- Watch Out for Overspending: If you end up with leftovers in your envelopes at the end of the month, you might be tempted to spend it on stuff you don’t need.
- A Hassle and Time-Consuming: Sorting cash into those envelopes can be time-consuming.
The envelope system budget can work wonders if you’re struggling to keep your spending in check and cannot control your credit card spending.
7. The Zero-Based Budgeting
Zero-based budgeting works with a simple goal: by month’s end, your income matches your expenses.
But don’t get fooled – here, “expenses” cover not just what you spend but also what you save.
Who’s It Best For
If you have a target, such as buying a house or paying off debt, and want a specific purpose for every dollar, this method is your best bet.
Plus, if you’re up for tweaking your budget often, this is the plan for you.
What Are the Pros and Cons
The Pros:
- Total Control: This budgeting method offers a bird’s eye view of your income and expenses, helping you make informed spending decisions.
- Targeted Approach: With a job for every dollar, hitting specific goals is easier.
- Less Waste: Justifying each expense helps you weed out unnecessary spending.
The Cons:
- Time-Intensive: Be ready to invest time, as this method requires planning and justifying each expense.
- Frequent Adjustments Needed: Aiming for zero means adjusting your budget regularly to keep income and expenses in sync.
- Feeling Constrained: Some might find this method too tight, missing the joy of spontaneity in spending.
The zero-based budgeting method could be perfect for you, especially if you enjoy a disciplined approach and regular budget reviews.
8. The Sub-Savings Accounts Budget
Imagine your savings as a pie.
With a sub-savings account budget, you slice that pie into pieces, each for a different savings goal. For example, one slice could be for buying a home, a new car, an emergency fund, or your retirement fund.
For example, you want to save 20% of your income. You cut that 20% into smaller pieces – 5% for your vacation, 5% for a new car, and the remaining 10% for a house down payment.
Who’s It Best For
This could be for you if you have multiple savings goals and want to monitor each separately. It’s also a good fit if you can’t resist spending money if it’s not set aside for something specific.
What Are the Pros and Cons
The Pros:
- Neat and Tidy: Different accounts for different goals make managing and tracking your money goals easier.
- Goal-Focused: It helps you focus on specific saving goals, boosting your chances of reaching them.
- Instills Financial Discipline: By putting money in separate accounts, you’re less likely to splurge on stuff you don’t need.
The Cons:
- Can Get Complicated: If you’ve got loads of savings goals, managing all these accounts can become quite a hassle.
- Extra Costs Incurred: Depending on your bank, having many accounts could cost you more in terms of account fees.
The sub-savings accounts budget is excellent for goal-setters. But keep an eye on it regularly, and be sure to understand the fees or conditions of your bank(s).
9. The Spending Cap Budget
As its name suggests, the spending cap budget is a budgeting method where you set a spending limit for your income each month.
Let’s say, after taxes, you’re left with $4,000, and you decide to set a spending cap of $3,500. Once you hit that cap, that’s it—no more spending for the rest of the month.
Who’s It Best For
It’s great for you if you’ve got a good handle on your money and can keep your spending under control. It’s also helpful even if your income varies from month to month, as it gives you some wiggle room.
What Are the Pros and Cons
The Pros:
- Flexibility: It lets you adjust your spending, which is excellent if your income changes often.
- Simplicity: Once you’ve set your limit, you only have to make sure you don’t go over it.
- Savings Potential & Habits: Encourages you to live within your means and develops good saving habits.
The Cons:
- Need for Control: There’s always a temptation to overspend, so you need to stay strong and disciplined.
- Broad Strokes: Spending caps can be quite general, making it difficult to track specific spending habits.
- Risk of Bad Habits: If you’re not careful, you might start seeing your cap as a spending target, not a limit.
The spending cap budget can be a great way to handle your finances if you know your spending habits well and have the self-discipline to stay under your set limits.
Otherwise, a more structured budgeting style might be a better fit.
Budgets for Free Spirits
For those who find traditional budgeting restrictive, these options can provide flexibility:
10. The Reverse Budget
In a reverse budget, also known as the “pay-yourself-first” approach, you put aside your savings first.
You decide how much you want to put away and then spend the remaining on your essential and non-essential expenses.
Who’s It Best For
One of the most common habits of self-made millionaires is paying themselves first before spending. Thus, the reverse budget is best for people who are willing to go the extra mile to reach their financial goals, even if it means lowering their current lifestyle.
Also, if you’re earning well or your living costs are low, this budget can help you make the most of your extra money.
What Are the Pros and Cons
The Pros:
- Financial Goals is #1: Reverse budgeting puts saving and investing first. It’s a great way to build financial stability and grow your wealth over time.
- Simple and Straightforward: Tracking every little expense is unnecessary with reverse budgeting. Just focus on your savings and investing, then spend what’s left.
- Freedom to Spend: Once you’ve saved and invested, you can spend the rest how you like. This budget can feel less restrictive than others in this aspect.
The Cons:
- Tight Budget: If you’re living paycheck to paycheck, saving and investing first can be hard without impacting your daily living.
- Lack of Detail: This budget doesn’t detail where your money is going. If you’re prone to overspending, it might not help you pinpoint the problem.
If you’re looking for a way to save money and accelerate your progress towards your financial goals, the reverse budget is a great budgeting method to consider.
11. The “Anti-Budget” Budget
The ‘Anti-Budget’ Budget is a simple way to manage your money.
It’s all about paying your essential bills and setting aside savings first. Then, you’re free to spend the rest of your income however you like. Unlike some other budget methods, you won’t need to limit your spending in different areas.
Who’s It Best For
If you dislike the restrictions of traditional budgets or get tired of tracking every dollar, the ‘Anti-Budget’ might be just what you need.
It’s great for those with a steady income and good spending habits. If you know how to manage your money but want to avoid the hassle of a detailed budget, this method could be a perfect fit.
What Are the Pros and Cons
The Pros:
- Simple and Easy: Once you’ve covered your bills and savings, the rest is yours to spend – no need to track every dollar.
- Flexible: There are no fixed spending limits, giving you plenty of freedom.
- Less Stress: Without the need for detailed tracking, budgeting feels less like a chore.
The Cons:
- Risk of Overspending: Without set limits on spending, it’s easy to overspend and run out of money before your next paycheck.
- No Detail: The ‘Anti-Budget’ doesn’t tell you where your money is going, making it hard to cut unnecessary spending or spot bad spending habits.
- Not for Everyone: A detailed budget might be better if your income is low or you have lots of debt.
If managing your money comes easy to you, and you’re looking for a low-hassle approach, give the ‘Anti-Budget’ Budget a shot. It offers you the financial freedom you desire.
Budgets for Goal-Oriented Individuals
If you seek to achieve a specific financial goal (like saving for a house) in the fastest possible way, these methods can help:
12. The Extreme Budgeting
Extreme budgeting is about saving as much as possible by cutting back on spending.
It’s about only buying what you need, nothing more. In short, this budget is all about fast-tracking your way to a specific financial goal.
Who’s It Best For
Extreme budgeting can be a great approach if you want to focus on and target a specific financial goal, such as saving a large amount of money quickly, purchasing a home, or retiring early.
It’s also a good option if you’re struggling with debt or going through a difficult financial period.
Additionally, it can work well for those who already embrace a frugal and thrifty lifestyle.
What Are the Pros and Cons
The Pros:
- Significant Savings: This approach cuts spending down to the bone. That means you can save a lot.
- Rapid Debt Reduction: If you’re in debt, extreme budgeting could help you get out of it quicker.
- Better Money Habits: Going through an extreme budgeting phase can teach you to be disciplined about your finances.
The Cons:
- Tough on Lifestyle: Extreme budgeting can be challenging. It needs enormous sacrifices that can take a toll on your mental and emotional well-being.
- Not for the Long Haul: Most find it difficult to sustain the sacrifices needed for extreme budgeting for too long. This method is best as a short-term solution for specific financial goals.
- The Danger of Splurging: After a period of extreme budgeting, you might feel deprived and tempted to spend, which could eat into your hard-earned savings.
Extreme budgeting is not for everyone.
It can be an effective method but needs a massive adjustment in behaviors and mindset. In my view, the best budget balances saving with living a life you enjoy. However, if you can handle the sacrifices and changes required, extreme budgeting can be a powerful way to reach your financial goals quickly.
13. The Values-Based Budget
The Values-Based Budget is a budgeting method that involves making spending decisions based on what truly matters to you.
Instead of just distributing your money based on needs and wants, this method lets you prioritize your spending based on your beliefs, values, and life goals.
Who’s It Best For
If you’re someone who wants their spending to reflect their values, this might be for you. It’s particularly helpful if you’re stressed about your finances or feel guilty about overspending.
What Are the Pros and Cons
The Pros:
- Feels Good: This method can boost your emotional well-being by aligning your spending with your beliefs, values, and goals.
- Keeps You Motivated: Tying your spending to your values can be more motivating than traditional budgets, giving you convincing reasons to save, invest, and spend wisely.
- Flexibility: This method can adapt to changes in your beliefs, values, goals, or financial situation.
The Cons:
- Needs Self-Reflection: This method requires understanding your core values, which can be challenging and time-consuming for some.
- Hard to Measure: Unlike traditional budgets that are easy to track, a values-based budget can be hard to measure. Deciding how much to assign to each value or goal can be tricky.
- Risk of Overspending: If not managed carefully, you could end up overspending on areas that matter the most to you, sacrificing other critical areas that are on a lower priority.
The values-based budget can be rewarding and effective if you’re willing to consider what you value most deeply.
14. The Goal-Based Budget
Goal-based budgeting is a way to plan your money with your dreams in mind.
You’ll be making financial choices based on your goals. These goals could be short-term, like buying a new phone or taking a trip abroad, or medium to long-term goals, like buying a home, retiring, or funding your child’s education.
Who’s It Best For
This budgeting style is fantastic if you have specific and clear financial goals you want to achieve. This could be for you if you get a kick out of seeing progress towards a goal.
What Are the Pros and Cons
The Pros:
- Get Motivated: Having clear goals can make sticking to a budget feel more rewarding.
- Flexible: You can tweak your goals as life changes.
- Forward Thinking: This budgeting method gets you planning for the future.
The Cons:
- Overlooking the Now: The focus is on saving for goals, which might mean less for immediate needs.
- Feeling Down: If your goals are too big or long-term, it can be difficult to maintain motivation when progress is slow.
- Constant Tweaking: You need to update your budget as goals are met or as you progress through life.
Goal-based budgeting needs patience and discipline.
How to Choose Your Ideal Budgeting Method
You know that feeling when your shoes don’t fit quite right?
It’s similar when your budget doesn’t match your personality, situation, and lifestyle. A budget that doesn’t fit can be frustrating as you’ll need to start over and create a new budget again.
So, after going through the 14 types of personal budgets, how do you choose the ideal budget?
There are two key areas to assess when choosing the budget method that will work best for you.
What’s Your Money Personality
Your personality is shaped by your attitudes, habits, and behaviors with money, which stem from your upbringing, life experiences, current financial situation, and personal beliefs about money.
Here’s how you can dive into understanding your personality:
- Your Spending Style: Consider your last five purchases – were they impulse buys or well-thought-out decisions?
- Your Risk Preference: How do you feel about financial risks? Are you a daring adventurer, or do you prefer to stay where it’s safe and predictable?
- Your Money Management: Do you know where every dollar goes, or do you often find yourself wondering where your money went at the end of the month?
- Your Emotional Response: How do you react when financial stress or unexpected expenses pop up? Do you face these situations with a cool head, or do they keep you up at night?
- Your Values: How important is money to you? Is it simply a tool for living, a security blanket, or a ticket to the high life?
Taking a moment to consider these questions can help you determine your money mindset and habits.
When you are aware of your money personality, you can make better choices regarding your finances, such as selecting a personal budgeting approach that suits you perfectly.
What Your Money Should Do For You
After identifying your money personality, it’s time to look closely at your financial needs.
Maybe you’re working hard to get out of debt. Or perhaps you’re saving for retirement, complete with a beach house. Or you might be managing the finances of a growing family.
Each situation requires a different budgeting approach.
For example, extreme budgeting might be suitable if you’re in deep financial trouble, while the 60 30 10 Rule Budget could be ideal if you’re aiming to accumulate your savings quickly.
Choose, Implement, And Prosper
The key is to identify a budgeting approach that aligns with your personality, your present situation, and your financial goals.
And I’m here to reassure you – there is a clear path ahead. Using one of these budgeting methods, you can craft a future that’s free from financial stress.
So, choose your budgeting approach, take control of your finances, and let’s conquer those financial hurdles together.
