In the beginning, it may not be easy, and, for example, the needs category might eat up more than 50% of your income. The idea is to divide your income between these 3 categories. Student loans, credit card loans, car payments, stuff like these.Īnd now back to the 50 / 30 / 20 Budgeting Strategy. Also paying out debt should be included in this category.

What does “savings” mean? In this category, we include the emergency fund.

In this category, we can also put new clothes/shopping, dining out, streaming services, and stuff like these. Yes, maybe it’s more inconvenient than going to the gym, but it is certainly not a need, meaning something you can’t live without. This is probably important for your fitness and well-being, but did you know that there are ways to train that don’t involve paying a subscription? Like, for example, calisthenics, running, or even yoga.

What does “wants” mean? Wants are basically stuff that causes minor inconveniences in your life, for example the gym membership.

We have to include here a few important spending categories like food, housing, transportation, and utilities. Or something that would greatly inconvenience you if you stopped having it.

What does “needs” mean? Needs are basically something that you can’t live without.

The next important part is to understand what each need, want and savings mean. The idea behind this budgeting strategy is also very simple: you should allocate All of it is distributed in the direction you want. Anyway, in the end, you should finish with zero money left. Maybe all those subscriptions are not necessary, or maybe you can cut the gym subscription and start doing some running. If it’s the other way around, and you have more expenses than your income, then you have to start cutting your expenses, starting from the less important ones.

If you’ve still got some money left, put it aside in a savings fund, so you end up with zero left.

List the rest of the expenses that you need, including subscriptions or holidays.

List all your expenses for that month that are mandatory expenses (meaning you can’t live without them).

List your income after taxes for the next month you want to budget.

This method has been popularized by Dave Ramsey, and it’s actually easier than it sounds.

This means (as Dave Ramsey put it) that you’ve told every penny exactly where it’s going to go. The idea behind the zero-based budget is simple: the money that comes in, minus the money that goes out should be equal to zero. If you don’t know which items are unnecessary or which ones ate a lot of the budget because they were expensive, how can you make cuts and save more? This works mostly for people who earn very well, and when it’s better for them just to spend their time on earning more than focusing on saving. For example, it’s very hard to reduce spending in the food department if you don’t know how much you spent in the previous months. And the fact that you can’t easily optimize and improve it. The most important disadvantage of this budget planning strategy is the lack of a plan. You take whatever you got, and you do the most possible out of it. You don’t have to create any plans, you don’t spend energy on thinking ahead a lot.

The advantage of this budget planning strategy is that it is pretty straightforward and simple. This strategy is more suited to people who like to improvise and who don’t do well following set plans and imposed constraints. Basically, you don’t have a clearly defined plan. It goes like this: you calculate your income and necessary expenses and the difference you set aside for entertainment and saving. This budget planning strategy is very plain and simple. Below I will try to explain each one, with its advantages and disadvantages, and by the end of the article, you will be able to choose the one that fits your needs.

These strategies are just a small fraction of the available possibilities, these ones are among the most popular ones. Some people use budgeting strategies to purchase a new car, pay off debt, and make sure their expenses don’t exceed their income. If you set up a goal that you want to reach by the end of the year, the budget planning strategy is a plan that you have to follow to reach that goal. A budget planning strategy is an approach to managing the money you earn each month.

Budget planning examples