If you are well-organized and detail-oriented, you may want a zero-based budget. This finance strategy assigns every single dollar that you earn to a specific category. This even applies to entertainment spending and savings. Instead of a dollar amount, a zero-based budget could use a certain percentage of monthly income for each category. This will work as long as the percentages add up to exactly 100%.
For someone who needs flexibility, a zero-based budget might seem too restrictive.
Free-spirited and spontaneous people
People who need more flexibility might find that a zero-based budget does not give them enough freedom. They can, instead, rely on a ratio-based strategy such as the 60-40 budget or, better yet, the 50-30-20 budget.
With the 50-30-20 budget, 50% of your income goes to your necessities (housing, food, electricity/utilities and transportation). 20% goes to savings or, if necessary, paying off debt. 30% can then be used for flexible spending on entertainment, hobbies or anything else that a free-spirited person might value.
One of the advantages of this budget is that the 20% can be used to deal with unexpected expenses. For example, if you have to pay for a repair, you would get an online personal loan to cover the initial cost. Then, you could repay this online loan using the 20% of your income that is for savings and debt. When this online personal loan is paid off, you could return to using the 20% for savings.
This category can describe a lot of people. People with this kind of personality know that they need to budget, but they do not want to spend a lot of time on it. Luckily, modern financial tools make it possible to set up a budget and then, more or less, forget about it. You can establish automatic payments for your bills so that you can make sure that everything is paid on time. If you have extra money at the end of the month, you can make additional payments manually. You can even make automatic transfers to savings accounts so that you keep up with your savings goals without thinking about it.
What about variable spending? Non-budgeters could benefit from the “envelope” budget method. They will only have to visit a bank once per month. They will withdraw all the cash for the month and place it in envelopes marked for specific categories (food, entertainment, gas, etc.). They will then use that cash for ALL spending in the category for the month.