Three Different Budgeting Methods
We want you to feel equipped to choose a budget that works for you. Budgeting does not have to be limiting in a bad way, but through boundaries and planning you can feel more financially free.
Here are three budgeting methods to consider and we’ll break down the pros and cons.
Zero-Based Method
The zero-based budget method involves deducting expenses from income to arrive at a zero balance. This is best for individuals with a steady income and some budgeting experience. However, it can be time-consuming and requires adjusting spending categories when one is exceeded, potentially throwing off the budget if a large expense is forgotten.
Envelope System
The envelope system budget, popularized by Dave Ramsey, operates similarly to the zero-based budget but uses cash for all expenses. This method can be useful for those looking to pay down debt and limit credit card usage, but it may not be suitable for individuals uncomfortable carrying large amounts of cash or preferring credit/debit cards. You can also use the Profit First method for budgeting - it's basically the virtual version of the Dave Ramsey method where it is a percentage basis so you're building yourself a cushion into your account so that you're always getting paid 5% of the sales, for example, rather than $1000/week. We don't structure that system for you, but HarQuin can help to move money once it's set up.
50/30/20 Budgeting
The 50/30/20 budget method breaks expenses into necessary expenses (50%), discretionary expenses (30%), and savings/debt payments (20%). This method is less time-consuming and suitable for those new to budgeting but may not be realistic for individuals with significant debt or large savings goals.
Knowing your numbers and understanding your reports will help you develop and maintain a budget. This is step one. Then you’re ready to rock! Get a free bookkeeping estimate today or if you're already a client, be proactive and seek to understand your reports - your bookkeeper and Success Team Member are there to help!