7 Best Types of Personal Budgets You Should Know About

young couple creating their budget together at home

Setting and following a budget can help you control excess spending. It also makes it easier for you to achieve financial goals.

However, the challenge is that not everyone uses them, and only 47% of Americans utilize budgeting methods. One of the benefits of having a budget is that it gives you more control over your money.

Without it, you won’t know where your money is going and cannot create measures to control it from the source. There are several types of personal budgets that you can apply to your personal life.

These are easy to do and manage, only taking a little bit of your time.


The Benefits of a Personal Budget

Before getting into more detail about the personal budget types, we first need to see the benefits it brings those who apply them.


“A budget tells us what we can’t afford, but it doesn’t keep us from buying it.” — William Feather


Many people attest to a budget being a crucial component of financial independence. Here are some of the reasons why you should implement one:

  • Start and increase your savings: Having a budget means that you can steadily grow an emergency fund. It’s also a way to save for an expense, like a vacation or a big-ticket item. From the start, you’ll set a plan and begin working towards each savings goal.
  • Fulfill financial goals: With a budget, you can decide how much money you can place towards goals. You can also adjust if you expect to spend more. Alternatively, you can set aside money for essentials like bills and rent.
  • Helps pay off debt: With a budget, you can set aside the money you can use to begin paying debts. You open up more cash and regain financial control by knocking out debts. You can start small, from paying off credit card debt to tackling long-term debt like student loans.


The Basics of a Personal Budget

It's time to look at the components of a personal budget. There are three things you need to think about when creating one. These are:

  1. Essentials: Mortgage/rent, groceries, utilities, and other needs.
  2. Expenses: These are more for wants rather than needs. It’s for that extra coffee you buy or movie tickets. Anything from entertainment to hobbies and even impulsive spending.
  3. Savings: These are for your long-term goals and liquidity. This includes your emergency fund, investments, financial goals, and other things that will require time to build up the money you need.


1. The Spend First Budget

This budget operates on the idea that you prioritize all you need to spend first, intending to have something left over. You’ll prioritize essentials and expenses first.

You don’t have to put any allotments or limitations yet. You spend the money and then log in each spending as necessary.

Once you have two weeks or a month's worth of expenses, you can then tally them, figure out how much you spend, and make adjustments as necessary.

It will sacrifice your savings at first but gets more comfortable over time.

However, this isn’t the most optimal way to budget your money. This method is only for those uncomfortable with sitting down to plan their budget.

It’s a lot more flexible, but you may not reach your financial goals as fast.


2. The Savings First Budget

Here is the polar opposite of the spend first budget. Instead of focusing on all you need to pay and other expenses, you prioritize saving.

You set money aside for savings and investments, pay yourself first, and anything left behind can be placed to your needs and wants.

While this is a great way to remain consistent with your savings, it may mean significant sacrifices with your lifestyle. You may find yourself in a situation where you have just enough to fulfill your essentials but nothing for extra expenses. 

There may even be situations where you won’t have enough to put into necessities.

This is a budget for someone willing to make sacrifices to prioritize saving. It can be uncomfortable at first, and you might not like it — it isn't for everyone. However, you may try it to see if it works for you.


3. The 80/20 Budget

A stress-free option for budgeting has been termed as 80/20, though in reality, it has more flexibility than that. 

At the core of this personal budget, you allot a percentage towards savings, and you can spend the rest freely. The example that many people point to is the 80/20, where you save 20% of your income and then spend the remaining 80%.

It sounds simple, but it can work. You’re essentially removing the contributions needed for your long-term savings and investments. 

From there, everything from your essentials to non-essentials can work within 80%. Of course, the more you can allot towards saving, the faster you’ll reach your financial goals.

The number can vary as others want more to spend while others want to save more. It can be a good starting point for anyone wanting to dip their toes into budgeting.

The biggest issue here is that it can become challenging when you’re managing the household's budget. You’ll also have to account for things like inflation. 

You can also spend too much on non-essentials because there is no limit to both within 80%. At the very least, there is the assurance of saved money every time you get income.


4. The 50/30/20 Budget

The 50/30/20 is a personal budget type that resonates with many people, which is why you’ll often see it recommended. Like the 80/20, you’re dividing your money, this time into three categories. These are:

  1. 50% of income for your essentials: This includes food, rent, and utilities.
  2. 30% for your discretionary spending: These are non-essentials, meaning more wants than needs. Examples include entertainment or clothes.
  3. 20% for your savings and long-term goals: These include investments, emergency funds, and other things that require you to save.


This method is ideal for someone who doesn’t want to go to extreme lengths to adjust their budget. Your lifestyle won’t be affected as much, yet you’ll still be able to save money before your next paycheck arrives.

50% is enough to handle your necessary spending, leaving you some left over. The only way you’ll exceed this is if you have a significantly higher debt to income.

The 50/30/20 budget acts as a spending ceiling. Think of it more as a guideline rather than a strict rule (though strictness is sometimes a necessity).

Some people who want to save more may even switch the allocation between long-term and non-essential percentages.

When you save extra from a category, you can spread it out among others. For example, if you didn’t go out this week, the money you save can be put into savings, accelerating your goals. 

Many of the other budgets base their framework on the 50/30/20.

The basics are the same. You get an allotment for essential, non-essential, and savings.


5. The No Spending Budget

The no-spending budget goes extreme, wherein you try your best to remove all non-essentials from the equation. It can be difficult to execute and will require you to make drastic lifestyle changes to accommodate it.

The payoff is that you’ll have more money allotted to other things. You can do this if you want to accelerate savings or debt payments.

Taking the 50/30/20 example, you can instead make things 50/50, focusing exclusively on needs and savings. The alternative is to have more allotted for essentials and then have the remaining flow over into your savings.


Pay your bills, and save everything else is the mindset.


Some people may tackle this as a challenge for a month or two. However, keeping at it for a long time requires a lot of discipline and willpower. 

Some may burn out too quickly before they even reach their goals. You want to avoid the risk of going on a revenge shopping spree once you break.

The no-spend budget helps when you want to see results for a big-ticket item. For example, if you want to buy a house or a car. 

You can also use it to minimize debt or boost your emergency fund. It can also be beneficial to resort to these strategies during a month when you expect to spend a lot of money, like December.

Many people love the no-spend budget because it allows you to reset. Sometimes we may need it to get things back on track.


6. The Zero Budget

Not to be mistaken with having no budget, the zero budget focuses on the number instead. You want to allot every part of your income to something until you have nothing left, or zero. 

You list down all spending categories and set a number for them. Everything has to go somewhere.

That doesn’t mean that you neglect savings at all. You instead allocate a specific number to savings and try to remain as consistent as possible. 

Think of it as being more specific than a standard percentage budget. You can do it if you’re into details or want to control spending even further.

The biggest challenge is adding to your budget once you have it set. There will be times when an unexpected expense occurs.

You have no control over it and will have to look back at your spending to see what you can take away.

Overall, the zero budget is best if you have a consistent source of income. It’s easier to set the money when you know how much you’ll get, like paychecks. 

When you have irregular income, the zero budget may not be efficient as it takes time to create.


7. The Debt First Budget

As the name implies, you’re working towards prioritizing debt overall. Once you have income, you make the necessary allotment to ensure you fulfill your needs.

After all, you do not want to end up paying the debt and have nothing to eat for the month. Once the budget is adjusted to your needs, you can use the rest of the money towards paying off your debt.

This is an extreme budgeting method where you put everything else aside. You don’t prioritize saving first, as you still have debt, and have to avoid making non-essential expenses. 

However, it can be a way to ensure that you get out of debt as fast as possible. This action can cascade because the more debt you pay, the more money you free up for the next. 

There are two ways you can tackle your debt with this method:

  1. Focus on interest rate
  2. Focus on the lowest debt

Both strategies work for different reasons. By tackling a low debt first, you simplify money management by having fewer things to ponder. 

In the other case, removing debt with a higher interest rate lowers the minimum you pay each month. You free up more money and also accelerate debt payment.


Putting It All Together

There are many ways to approach a personal budget, and the same method may not work for you. Some people have the same amount to spend each month, while others may have different income sources.

Some people love to spend more, and others may have enough willpower to go through more extreme budgeting methods.

Establishing a budget is the first step towards having more control over your finances. Allotting money for essentials, savings, and other expenses helps you limit unnecessary spending.

You can place the money you save within an account at 121 Financial Credit Union or contact our specialists for investment questions. Our goal is to help our members find the financial solutions they need within a local community that cares for their well-being. 

Contact us today to learn more about how we can help you.

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