“Budgeting.” Just the word stresses some people out. We hear about budgeting and think that it means frustration, anxiety, micro-managing, and saying goodbye to our Starbucks grande caramel frappuccinos. Budgeting doesn’t have to be this way. If you haven’t read my Perspective & Budgeting post, please do. Once I had a budget, I felt more free to spend money on shopping, eating out, or entertainment because money was specifically set aside for that. It took away stress and replaced it with some guilt-free spending to keep up my motivation for saving and paying off debt.
What people don’t seem to understand is that there are so many budgeting systems out there to fit different preferences and personality types. I’m going to share five budgeting systems with you and you can decide for yourself what works for you. Although every system has it’s pros and cons, I’ll share what my husband and I use to make our budget easy to operate.
If you have heard much about Dave Ramsey, you’ve probably heard of his envelope system. The concept behind this budgeting style is simple and probably best for visual people who struggle to keep track of their spending on paper/digitally. Basically, you plan out budget categories for everything you spend, and write those categories and amounts on envelopes. Supposing you get paid bi-weekly, you put half of each monthly budgeted amount in cash in each envelope each time you get paid.
For example, let’s say you budget $200 per month for your family for personal care items. You write “Personal Care – $200” on an envelope. First payday of that month, you put $100 in your personal care envelope and buy some shampoo, razors, toilet paper, whatever. You can only buy personal care items with that money. If the cash isn’t on you when you think about buying shampoo, you wait until it is. Come second payday you put the other $100 in your envelope. That’s your $200 for the month. No more personal care spending until next month.
Pros: Very visual system, good for beginner budgeters, organized well
Cons: Not conducive to paying with a debit card, carrying envelopes around means having a lot of cash on hand with you
Paper and Pen
This system is the simplest to use, but also the most time consuming. This method is the tried and true paper method you used if you read my first post about budgeting. Here, you are completely accountable for everything you spend by writing it in a journal or on a notepad. Some people are more organized when they have some sort of printed chart to help them visualize their spending.
This method probably needs the least explanation because it is so simple. Keep a written record of every transaction. You may think twice about spending because you don’t want to have to pull out your journal.
Pros: Totally customizable, tactile, visual, easily fixable – just erase!
Cons: Manual entry, not always convenient, hard to stay accountable (tempting to leave things off)
Getting a little more tech-savvy, you can use this budgeting style is best done on a laptop, smartphone, or tablet. This is conceptually similar to the paper and pen method, but using an excel spreadsheet. Excel is completely customize-able, but learning to do so takes some googling and experimenting if you aren’t used to the program. Conceptually, each time you made a purchase, you would enter it into an Excel spreadsheet and your total spent in that category would adjust accordingly.
If your computer savvy and like to customize on Excel, creating a budgeting system this way may work well for you. This is what my husband and I used for the first three months of our marriage. If you’d like this system to be more accessible than on your home computer, you can upload your spreadsheet to online file-storage like Box.com or Google Drive and access it through any smart device.
Pros: Easy to keep records, customizable, somewhat portable
Cons: Manual entry, not always convenient, more difficult for non-techy budgeters
This method is sort of less of a system and more of a thought-process. My husband and I have adapted a version of this method alongside the next budgeting system I’m going to share. Basically, this divides your spending into three large categories before breaking it into sub-categories. The “50” category is fixed expenses that don’t really change much such as rent, car payment, insurance, Netflix subscriptions, etc. This method keeps your fixed expenses as close to fifty percent of your income as possible, and if you can go less, that’s a bonus.
The next category is the “20″. Twenty percent of your income should go toward financial goals. They label the biggest goals and debt payment, saving for retirement, and an emergency fund. Other goals might be purchasing a home or car or saving for your children’s future college bills.
The “30″ category ends up being your “flexible spending.” This would be expenses that vary from month to month such as eating out, clothing purchases, gas, groceries, or hobbies. This method allocates thirty percent of your earnings toward flexible spending.
While these categories are somewhat broad, they promote saving twenty percent of your income, which I think is fantastic. However, I prefer my percentages to be allocated a little differently. We like living on about fifty or sixty percent of our income and taking a more intense approach to saving and debt payments. These categories definitely help budgeters get a realistic comparison of how much of their budget they should be living on, compared to how much they are living on.
Pros: Helps you analyze overall percentages of budgeting income, customizeable, works with other systems
Cons: General, somewhat vague
Budgeting Apps: Mint
Like I mentioned earlier, my husband and I first started budgeting using spreadsheets. My husband enjoys math and likes using Excel. However, we soon ran into a few problems. We didn’t both have an equal understanding of the budget, because he was managing most of it on his laptop. He typically made all entries after I would text my spending to him or write it down, essentially recording it twice. This process also took a fair amount of time and left a lot of room for error.
I don’t even remember how we discovered Mint, but it was a life-saver. I recommend Mint to anyone who is interested in budgeting more successfully. Mint is a website by Intuit, and there is also a compatible app. Creating an account on Mint takes minutes, and then you can download the app to your smart device. You can then sync your bank accounts to Mint so that every time you write a check or purchase anything on a credit/debit card, your Mint budget reflects it.
Mint can connect to credit cards, loans, investments, and retirement savings plans. I could pull my phone out and give you exact numbers about how much we have left to pay on school loans, how much is in my emergency fund, and how much is in our retirement savings.
Mint allows you to completely customize each category of your budget to your specific dollar amount and tracks purchases for you. The only manual entries you will have to make are cash purchases, and entering them is easy to do. The awesome thing is the variety of charts you can see about your spending. Mint designs the individual categories like a tank. It’s empty at the beginning of the month, and each purchase fills the tank a little more. It’s green until half way full, then it turns yellow. It turns red when you have used that budget for the month. There are also trend graphs, line charts, and pie charts to identify how much of your spending goes to which category.
My husband and I both share one Mint account. This is really convenient because we both see recorded purchases immediately. This is also inconvenient because I can’t hide when I buy his birthday presents unless I spend cash only. It’s all good though.
Mint is free to use and doesn’t take mad tech skills to operate. It provides instant feedback on your spending and easy to adjust for your individual situation. As a busy millennial, I love that it’s always on my phone in my pocket. For me, Mint helped budgeting become somewhat of a game for me. No, they’re not paying me to say any of this. I’m not even a Mint affiliate. I really just like the system.
If you’d like to download Mint, go to www.mint.com.
Pros: Free, convenient, mobile, syncs with all online accounts
Cons: Must have a laptop/smart device to use
Budgeting does not have to be frustrating and painful. Pick one of the budgeting systems, work your system, and reap the rewards. When you have a system in place, you’ll see where your money goes and be more accountable about the spending choices you make.
Please share any other great ideas you have about budgeting systems. I’d love to read your feedback!