How To Create a Budgeting Strategy: 7 Easy Methods

Spending your income blindly without a plan is a sure recipe for disaster. I lived this way for many years. Living paycheck to paycheck is a common lifestyle for many people these days, especially with the rise in costs.

Creating a budgeting strategy that works for your individual goals and sticking to it is not only beneficial but absolutely necessary if you want to improve your financial well-being.

In this article, I will go over 7 easy and effective budgeting strategies and strategy methods that will not only help to lead you out of debt but get you to stop living in that endless paycheck-to-paycheck cycle while staying true to your values.

What Are Methods For Creating a Budgeting Strategy?

Here are 7 easy budgeting strategies you can start now.

1. Zero-Based Budgeting

Zero-based budgeting is a method of budgeting personal expenses that starts fresh every budget cycle, such as on a monthly basis, meaning that all expenses must be evaluated and prioritized regardless of the previous year’s budget or after-tax income.

This process begins by taking a look at each expense category and assessing its importance, with the highest priority expenses receiving funding first.

This is extremely important if you have debt payments that need to be regularly tended to every month to avoid late payments and fees.

The budget is then created from the bottom up, with other expenses added in order of priority until the available funds are fully allocated.

The zero-based budget is useful for folks with limited resources or who may have fluctuating income month to month, as it ensures every dollar is used effectively and efficiently.

This method can also identify unnecessary expenses that might be overlooked in traditional budgeting strategies.

2. Envelope Budgeting

Envelope budgeting is a personal budgeting method that involves dividing cash into separate envelopes for different categories of monthly expenses, such as groceries, rent, and entertainment.

This method reminds me of the days of being a kid and using my allowance money to save for particular items such as video games, clothes, and CDs. I would keep these envelopes in my sock drawer and use them as needed.

With the envelope budget, the amount of cash allocated to each envelope is based on the individual’s budget, and once the money in an envelope is spent, no more spending is allowed in that category until the next budget period.

This takes a lot of self-discipline and was one of the first ways I learned about the value of the money I was making from chores and summer jobs versus what I was spending.

This system helps people keep track of their spending in an old-school simplified manner and helps them stay within their budget in a very visual and hands-on way.

Providing a visual representation of their money is an effective way of eliminating their spending in each category. Once you see the money depleting before your eyes, you are less likely to keep spending it.

Overall, Envelope budgeting is a simple and effective way to manage personal finances and has been used by many people to improve their financial situation.

3. Pay Yourself First Budgeting

The pay-yourself-first budgeting method emphasizes saving and investing money before paying expenses.

This method allows you to set a savings goal and determine how much money you need to save each month to reach that goal.

Once you’ve determined your savings goal, you automatically transfer that money to a savings or investment account before spending any money on your daily needs.

Be careful! You want to make realistic and doable goals with this method so you make sure that you aren’t shorting yourself on your basic bills and necessities each month.

I personally had great success with this method once my debt was paid off by setting up direct deposit with my employer. Once I had a grip on how much my “must pay” bills were every month, I was able to set a realistic amount to be allocated out of my paycheck every pay period.

This allowed me to only see the money on my paycheck I allocated for my main bills and entertainment expenses while growing my online savings account and 401k accounts in the background. I looked at it in the way of “what you don’t see you don’t spend” and it worked well in my case.

This is one of my favorite approaches on this list because it helps you prioritize your financial goals and take advantage of compound interest through proper investing. This leads to significant growth in your savings and retirement portfolio over time with minimal effort and acts as an auto-pilot method of building your funds.

4. Values Based Budgeting

Values-based budgeting is a strategic approach to allocating funds based on specific values in your life. It enables you to prioritize your spending based on what is most important to you.

Maybe you have a favorite organization that you like to donate to or maybe you enjoy contributing to your local church or school. This method is specifically for those folks that hold these values dear to them and want to keep true to their values.

When you spend money on things that align with your values, you are more likely to feel a sense of purpose and fulfillment. This can lead to greater happiness and well-being over time while improving your financial mindset. It can provide a fresh outlook on money as a way to contribute to an important cause rather than spending it frivolously on things you truly don’t need.

By taking a deliberate and thoughtful approach to spending, you can avoid impulse purchases or spending money on things that do not bring you lasting satisfaction.

Values-based budgeting is also a flexible approach that can adapt to changing circumstances. As your values or priorities shift over time, you can adjust your budget to reflect those changes.

Maybe you just paid off a car payment or have recently become debt free and have some extra funds to allocate to something of importance.

This method enables you to stay true to your values while still being responsive to changes in your life.

5. Proportional Budgeting

Proportional budgeting is a financial approach that involves allocating a certain amount of money toward each of your expense categories based on a percentage of your total income.

This method is often used by folks with a variable income or for those who want more financial flexibility.

Proportional budgeting involves identifying personal income streams, setting priorities for your expenses, and allocating money based on the funds coming in from each income stream.

This approach helps to balance your spending and savings, providing a clear picture of where money is going, and ensuring that each expense is funded relative to its importance.

One popular method is the 50/30/20 rule. This method tells you to allocate 50% of your monthly income to toward necessities, 30% toward wants, and 20% toward savings.

While the 50/30/20 rule is a good starting point, you may want to make justifications based on your own individual needs.

At the beginning of my financial journey, I significantly reduced the “wants” category to around 10-15% so I could pay off debt and increase my emergency fund faster.

This will differ depending on the individual and can fluctuate, but it really depends on factors like your income, timeline, and personal priorities.

6. Incremental Budgeting

Incremental budgeting is a financial method where you make small changes to your existing budget each year.

This method allows you to look at how well your previous year’s budget met your financial goals, and then make gradual and minimal adjustments as necessary for the current year.

This can provide financial stability and consistency, which can be helpful for people on a fixed budget or who don’t want to stray too far from what has been working for them on a regular basis.

While an effective method it may lead to some issues when it comes to flexibility. Incremental budgeting can cause people to hold back on some important expenses such as learning a new skill, taking on a necessary car payment or mortgage, or adjusting for unexpected expenses that may arise.

This is one of the more conservative methods of budgeting and ideally, should be used in conjunction with other methods on this list, but if you find that your financial situation looks like it will remain relatively stable for the foreseeable future, then this can be an effective way to budget for your money goals.

7. Automatic Budgeting

Automatic budgeting is a financial planning approach where you set up automatic transfers or payments to your various bank accounts and monthly bill obligations.

This method ties into what I talked about in the section Pay Yourself First where I mentioned setting up direct deposit with my employer to immediately allocate funds for myself before receiving my final paycheck.

Automatic budgeting is a great way to help you stick to your financial plan.

It is ideal for anyone that doesn’t want to have to constantly figure out how to allocate their funds every pay period and just provide themselves with a “set it and forget it” solution to their finances.

Automatic budgeting saves you time and reduces stress by setting up these automatic transfers and allowing you to prioritize your savings and/or retirement goals, buy a house, or take a much-needed vacation.

While a hands-off approach, you should still stay on top of checking your accounts on a regular basis in case of any misallocations through software glitches, bank updates, or any electronic flaws that could cause mistakes with your accounts.

Ideally, this method is for someone that likes to check their accounts on a weekly or even daily basis to watch their progress while still being able to catch any possible errors so they can be resolved as soon as possible.

I personally think this method is great for anyone starting out or who needs to make sure that their monthly payments and savings contributions are made consistently and on time.

What Is a Budgeting Strategy?

A budgeting strategy is a plan or approach that helps you effectively manage your finances by allocating and controlling where your funds go and what they go to.

It involves setting goals, identifying expenses, prioritizing spending, using savings and debt repayment, and monitoring progress toward financial objectives.

Budgeting strategies can take different forms, depending on the needs and preferences of the person. For example, some budgeting strategies may involve tracking every expense, while others may focus on identifying and prioritizing essential expenses.

An effective budgeting process should consider your specific financial situation, goals, and priorities depending on the individual.

They should also be flexible enough to accommodate changes in income or expenses over time. By implementing a budgeting strategy, you can make more informed financial decisions, improve financial stability, and achieve your financial goals.

FAQ

What Is the Best Budgeting Strategy?

The best budgeting strategy will depend on how aggressive or conservative you want to make your approach to your finances.

While there is no “best” strategy, it may be beneficial to implement a few different strategies into your budget plan to most effectively reach your personal financial goals.

What Are Good Questions To Ask About Budgeting?

• What is my total income?
• How much debt repayment do I owe?
• What are my savings and retirement goals?
• In which areas can I cut spending and find ways to save money?
• How much should I save for an emergency fund?
• Am I moving closer to my financial goals?
• Should I use a budget planner or spreadsheet to track spending habits?

What Is the Biggest Challenge When Budgeting?

The biggest challenge to budgeting is your mindset.

If you aren’t dedicated to creating and sticking with a budgeting strategy, then you simply will not reach your financial goals.

Once you are in the mindset to take action on your financial future then you can pick a strategy or a combination of strategies that work best for your specific financial needs ensuring consistency and long-term success.

How Often Should I Update My Budget?

You should update your budget anytime your financial situation or personal goals change.

Things happen and your best approach is to make sure you have a plan in place in case of unexpected expenses or emergencies.

Keep adjusting your budget accordingly and you will be able to navigate your financial goals with greater success.

Conclusion

Having a solid budgeting strategy is crucial for achieving not only financial stability, but allowing you to meet your long-term financial goals.

By implementing one or a few of the strategies discussed in this article, you can gain greater control over your finances and make more informed decisions about how you use your money more wisely.

Budgeting is not just about reducing your spending, but also about finding ways to maximize your resources and leading you closer to achieving your goals such as contributing to a savings account or retirement savings fund.

With the right budgeting strategy, you will reduce stress, have more disposable income and build greater peace of mind for you and your family.