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How to budget: Five budget plans for every-budgeting-body

28th September 2022

You can’t escape it: your news app pings, Alexa’s flash briefings, chitter-chatter at work, your bank balance…

Constant reminders that inflation’s increasing, costs are climbing and salaries are slipping behind. Money is on our minds. How to spend it. How to save it. How to not worry about it too much.

If your cash feels like it’s veering off track, implementing a budget plan can be the simplest way of getting back in control. We’ve listed five popular budget plans to get you back in your financial driving seat and give your balance sheet a boost.

1. The zero-sum budget

What is it?

Based on the principle that every pound has a purpose, the zero-sum budget plan works by one simple rule, every month your income minus your expenditure should equal zero.

How it works

For this budget plan to work it’s vital you’re meticulous with every penny so no money goes to waste. Start with your net monthly income, including money from other sources such as investment or government help.

Next, plan your outgoings for the month. Start off with essentials like rent, utility bills, basic food shopping and travel expenses. Check over your credit card and bank statements to ensure you aren’t missing anything. Then you calculate discretionary spend, things such as entertainment, clothes shopping, and socialising. As this is variable expenditure, put a realistic budget against what you plan to spend. There may luxuries you want to cut spend on so this is a perfect time to revisit budgets in this area.

Once you have this total, the remaining balance will then go towards debt repayment and savings. Make sure some of your savings includes a small emergency fund so you can plan for irregular expenses, such as unexpected vehicle repairs.

Who it’s best for

If you love detail, then the zero-sum budget plan could be a perfect fit. This type of budget plan requires a bit of TLC each month, reviewing any income changes, fixed and variable spending and resetting budget when needed. What’s great about the zero-sum budget plan is that you can gain a granular understanding of exactly where your money goes - which can help you adjust how you spend to match up with your financial goals.

2. 50/20/30 budget rule

What is it?

Popularised by US presidential candidate and bankruptcy expert Elizabeth Warren, the 50/20/30 rule is an easy budgeting method to help you manage your money. The basic formula is you divide you net income into three spending categories: 50% to needs, 30% to want and 20% to financial goals. By breaking down your income into these three primary areas, you could cut down on unnecessary spending and divert cash towards your highest priorities.

How it works

Of your overall monthly net income, allocate no more than 50% towards the things you need: mortgage, fixed bills, travel, minimum credit card payments, essential groceries. Everyone’s idea of a basic standard of living is different so make sure this works for you.

Next, apportion no more than 30% on things you want, this doesn’t mean grab that designer handbag you’ve been eyeing up just yet, there is a lot to you’ll want to fit into that percentage. Things such as meals out, concert tickets, holidays, trips away, make-up, phone upgrades... the list could go on!

The final 20% then can go towards what you need to pay back for debts, such as loans and credit cards above the minimum payment, as this will be covered in the ‘need’ category as well as savings.

The 50/30/20 ratio is fluid so, if you feel you spend more than 50% of your income on basic needs, then you can adjust the percentages accordingly.

Who it’s best for

This budgeting technique is great if you want to focus on improving your debt repayment and savings goals without needing to be too regimented about the detail of what exactly you spend your money on.

3. Pay yourself first budget

What is it?

This budget plan does what it says on the tin. Before you spend any income, you set aside an amount you are paying into savings and paying off debt, then you live off the remaining.

How it works

The amount you set aside each month needs to be worked out based on your average monthly outgoings. But, once you have committed and taken this from your monthly expenditure, it can prevent you from overspending or living beyond your means on a month-by-month basis.

Who it’s best for

The ‘pay yourself first budget’ plan is good if you have a savings goal in mind or a high-interest debt. It ensures you meet these goals first before spending money on basic living and fun stuff. It is also a straightforward way to budget if you are realistic with how much you skim off initially so that you don’t run out of money before the next pay day.

4. The envelope system budget

What is it?

An old-fashioned way of savings where physical envelopes appointed to each area of spending and filled with cash to cover spend – such as housing bills, clothing, food, savings. Today there are some helpful budgeting apps that use the principles of the envelope method but cuts the need for physical envelopes and carrying cash.

How it works

Once you have your monthly income and a robust list of monthly outgoings, figure out how much you need to give each area of spending and split your income into these amounts. Like the zero-sum budget, you can’t spend from one area without stealing from another, so it is a helpful way to prevent overspend in one area, unknowingly at least.

With the envelope system budget plan, every penny is accounted for, from your weekly food shop to your monthly savings pot. The idea is not that you spend any extra cash, but that you use it to pay off debt, save or invest.

Who it’s best for

This budget is good for those who don’t mind carrying cash or are happy to track spend on apps or in money pots. Like most budget plans, the first couple of months will take some getting used to and tracking is a must to make it work for you.

If you are willing to invest a little time into reviewing and allocating each month, then you could be investing a lot more into your financial goals. Being flexible with your budget is also necessary. It's a constant process of evaluating and adjusting which will ensure your money is being funnelled towards your highest priorities.

5. The ‘no budget’ method

What is it?

Don’t get too excited, this isn’t quite as good as it sounds. It’s about knowing the magic number you have left to spend on variables each month and saying no to any spend over this.

How it works

Once you ‘ve determined how much your bills and regular payments are each month, plus necessary variable spending (such as travel, haircuts, meals out with family) you can then see how much extra can be put towards debt/ saving and investing each month. You then need to stick to the baseline number without overspend.

Who it’s best for

People who aren’t great (or don’t want to be) at budgeting. The ‘no’ budget plan is all about tracking what you spend and making sure you are sticking to it. It’s a simple method where you don’t need to track your income and expenses in the same way you do with traditional methods, you just work out how much you take in each month and how much you pay out.

Some top tips to keep you a budgeting blue-chip!

Money worries are one of the UK’s biggest stress factors and improving your financial health can improve your mental health, so don’t give up as soon as you start. It takes at least three months to form a habit and budgeting is a habit. Once you’ve decided which method works for you, stick to it for few a months but don’t be afraid to test and change if needed. Remember, there are lots of useful budgeting apps to make budgeting easier, such as Money Dashboard, Emma and Plum. Read our helpful blog on budgeting apps for more!

Having a clear goal in mind, such as reducing debt or a saving sum, will keep you motivated. Simply by paying attention to where your money is being spent can mean you’re not paying for what you no longer need or want. You could find your financial goals align more closely with who you are and how you want to live.

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