I’ve been an avid personal finance reader for some time. Whether it be books, blogs or magazines I feel like I’ve read it all. When I started my first budget in 2011 I kind of did my own thing. Since then I’ve learned all about the different types of personal budgets.
Lately I’ve touched on quite a few budgeting topics. Whether it be how to avoid overspending, some recommended budgeting tools, tips on budgeting as a couple, and even some monthly budget categories to consider.
All of that information is helpful, don’t get me wrong, but we haven’t considered the types of budgets out there. In this post I wanted to go over 7 different types of personal budgets or approaches to consider.
Some of these are extremely similar but each offer a different take on budgeting and how to approach it.
Types of Personal Budgets
If all you’re looking for are the 7 types of personal budgets I put together a quick list. More details can be found below.
- The No Budget Budget
- The Spending First Budget
- The Savings First Budet
- The Anti Budget
- The 50/30/20 Budget
- The Zero Based Budget
- The Spending Ceiling
Budget Type #1: The No Budget Budget
Ok this one is kind of a trick. If you don’t have a budget, then how can you call it a budget? Believe it or not there are some people out there that just dont need a budget.
Isn’t that kind of crazy? I know that my family could never do that. I’ve unknowingly tried it before for most of a Christmas shopping season. Without getting into too many embarrassing details, the spending got out of hand quickly that year.
If you are able to not track anything and still spend well below your means, congratulations. For all 99.9% of us, lets keep looking at this list.
Budget Type #2: Spending First Budget
While I use a few pieces of some of these I’d say I use this one. This goes contrary to a lot of budgeting advice. The idea here is that you just plan your spending each month and save whatever is left over.
I know it sounds crazy. I think this type of budget is when you know your spending is well below your earning. I’m fortunate to be in the position I am so merely just try to control my spending each month. I know the rest will work itself out.
Budget Type #3: Saving First Budget
Here we go. This it the bread and butter. This is the pay yourself first version. You know how everyone says you need to make sure you pay yourself first. I’m a big fan, especially when the difference between spending and earning is close.
Saving should be a priority. It should be a priority even if it means sacrificing in other areas. Getting that savings snowball rolling may be one of the keys to success in personal finance.
There are very few levers one can pull to achieve financial success. Time, savings rate and growth rate. The only two you have real control over is time and savings rate. Maximizing both of these is vitally important to success.
Budget Type #4: The Anti Budget
I truly wish I could operate like this. This budget is amazing because it is so easy and yet still checks all the personal finance check boxes.
Sure, it doesn’t optimize every last detail and collect a lot of data but it more than gets the job done.
The first time I heard about this budget was from Paula Pant. She explained it in a ton of detail. For the in depth version check this out.
In reality the concept is super simple. Set aside some set percentage of your income each month (FYI the higher the better) then you can just spend the rest. The best part about this one is you don’t need to track anything.
This budget is best for those that simply aren’t spenders. If you live by yourself and are just inherently frugal I’d go with this one.
Again, I could never do this. The ideal lifestyle between my household and myself doesn’t 100% align so I fight constantly to avoid lifestyle inflation. Its a constant battle but one that I proudly fight each day.
Budget Type #5: The 50/30/20 Budget
I don’t know the details of how my budget would compare to this but do think this is a good way to think about things. The idea is to spend 50% on needs, 30% on wants and save 20%.
If you want some more details on this budget I’d check this out.
20% is a great savings number to start out with. Its not amazing but its way above the average. If this is where you find yourself I’d start with 20% then every few months edge it up by 1%.
Even if you can’t start at 20% shoot for 5% or 10% and work your way up. Its not about where you start its about working towards that vision for yourself.
Have you ever heard how the frog got boiled? He got put in a warm bath then didn’t realize the temperature was gradually being heated up until it was too late.
Ok I may have completely butchered that story but you get the idea. Just start slow and make a little progress every day.
Budget Type #6: The Zero Based Budget
The best summary specific to personal finance on zero based budgeting comes from Millennial Money Man. Read more here, otherwise, here is the money quote:
” you take the amount that you earn each month and then allocate money for different budget categories until there’s nothing left, or you “zero out.”
Sounds pretty simple right? If you use an app like YNAB they follow this same concept with the idea that every dollar has a job.
Budget Type #7: The Spending Ceiling
The spending ceiling idea is something I came up with myself. No its not some magic budgeting pill you can take. It actually is similar to a few of the budgets we’ve already discussed.
The idea is that you have a hard cap on your spending. It takes away some of the stress on hitting the exact dollar amount on every single one of your budget categories and just allows you to watch a single number.
If you do take this approach I’d still highly recommend setting a budget each month. This will ensure that you have some buffer between your expected spending and your spending ceiling.
To me this takes the stress out of accounting for every last detail in our budget while also giving us a little breathing room.
Lets do a quick example. Lets say your budget, if you hit it perfectly, will have you spending about $4,000 most months. What if you planned on that but set a spending ceiling at $4,400 each month?
This would give you a 10% buffer and you’d know that, once you hit $4,400, you’d have to stop buying things immediately for the rest of the month.
It may not work for some but it sure helps me out.
What Budget To Choose
If you are new to budgeting I’d choose the budget type that makes the most sense logically and seems to fit your lifestyle best. For instance, I could never use the no budget budget or even the anti-budget.
Right now I use a combination of the spending first budget and the spending ceiling. Again, these allow me to know, at a worst case, what my savings rate will be. Frankly, if we only hit the minimum each month we are on track to hit our plans.