There’s no one-size-fits-all approach to smart spending and saving. With so many ways to create a budget — it might just take some time to find one that works for you. Try these six strategies throughout the year to see which budgeting method works best for your lifestyle.
Proportional budgeting is when you divide your spending into separate categories — think housing, entertainment, bills, etc. One of the most popular ways to proportionally budget is to split your after-tax income up into three categories: 50% for needs, 30% for wants and 20% for savings and paying off debt.
Proportional budgeting allows you to be flexible with your budget. If you try one method of allocation one month, you can tweak it to better fit your needs and lifestyle the next. Maybe, instead of splitting your expenses into three categories, you split it into two — 80% for needs and wants, 20% for saving. This style of budgeting is great for people who have a concrete, time-bound savings goal they want to achieve.
Think of pay-yourself-first budgeting as the opposite of proportional budgeting — instead of covering your needs and wants, then putting money away, you prioritize adding funds to your savings first. Pay-yourself-first works well if you have a large, years-away goal like buying a house or retiring at a certain age.
The pay-yourself-first budgeting style works best if you first analyze your finances to see what you can afford to save. Consider all your needs, like rent, bills and groceries, then calculate the leftover money that you can consistently put into savings after receiving each paycheck. With pay-yourself-first, it’s important not to overextend. Make sure to choose an amount that gives you some flexibility with your spending now — your future self will understand.
Zero-based budgeting means every dollar you spend has a predetermined use or meaning that you plan ahead of time. You start with a “zero base,” then add up how much money you’ll need to cover each of your expenses for a set period of time. Add up categories from most important to least important, depending on your own set of values.
Zero-based budgeting can be a good option if you have a fluctuating income. Freelancers and service industry workers that rely on tips can use this type of budgeting to assess how much work they’ll have to do in a set time period to cover all their expenses. Those expenses could be needs, like rent or insurance copays, or wants, like vacations or new clothes — it’s up to you.
Using cash in an envelope instead of a credit or debit card can help people cut down on unnecessary spending. The idea is that you spend less when you see the money physically leaving your wallet. It’s the same with envelope budgeting — you deposit cash into envelopes for different categories of spending, and once the money for that month or pay period is gone, you’re done spending in that category.
If you’re a visual learner, envelope budgeting could be a good option to try. When you see that the money is gone, you won’t be tempted to add more to the wallet or charge things to a credit card.
Values-based budgeting is a more high-level approach to spending and saving: You simply let your life’s priorities dictate where you spend your money. For example, you could value travel more than living in an upscale home or rental. If you're a values-based budgeter, you might choose to live somewhere more affordable with fewer amenities, so you can set aside more money each month for your next vacation.
Values-based budgeting works well for people who think about things from a big-picture perspective. If you have a goal of retiring at 50, values-based budgeting and a tenacious attitude might be enough to get you there, but a more concrete, numbers-based budgeting style might get you there more efficiently.
Automatic budgeting is a set-it-and-forget-it budgeting style that relies on automatic deposits into predetermined accounts. All you have to do is decide how much money goes where, and set up your paycheck to be distributed accordingly. This could be as simple as splitting up deposits between a checking and savings account, or as complex as dividing funds between health savings accounts, Roth IRA retirement funds and more.
Automatic budgeting is a good way to build an emergency fund and contribute to retirement savings without putting too much energy into crunching numbers each month. If you don’t have any specific savings goal in mind right now, there’s nothing wrong with defaulting to automatic budgeting to take care of things. You can even use the U.S. Bank Mobile App to automatically transfer money from checking into savings in order to meet a time-bound goal.