I have an embarrassing confession to make: I hate budgeting. I know, I know, as a financial advisor, all this stuff is all supposed to be my jam. But the truth of the matter is, while I love teaching people about it, my heart sometimes creeps into my throat when I think about creating a huge, in-depth spreadsheet or Mint account that only exists to make me feel bad about how much I’m spending on artisanal foodstuffs and plane tickets.

It wasn’t until I learned more about the various types of budgets that I realized I had been doing it wrong all along! You see, like so many things in life, there’s more than one way to get the job done—and more importantly, there’s sure to be a method out there that actually fits your unique needs and personality.

To help, I’ve created a handy flowchart to walk you through the style that might be right for you. Once you’ve figured out your budget style, keep reading to find out more about what it means and how to implement it. Good luck!


More About the Five Types of Budgets

Zero-Sum Budgeting

In a nutshell: Give every dollar a job by assigning all your income to various categories and then tracking your spending to make sure you stay within those category limits.

Perfect for: People who get excited about spreadsheets and numbers, people who enjoy getting granular with the types of purchases they make.

When you think about budgeting, the zero-sum budget is probably what you’re imagining. In the most basic sense, you take all your available income, and then decide in advance where you’re going to spend it. Whether that’s long-term savings such as an emergency fund or retirement, paying down debt, covering your basic expenses, or fun money, the goal is to plan for each spending category.

The good thing about a zero-sum budget is that your spending categories can be as detailed or as granular as you want. For example, you might want to keep things broad and allocate money to categories such as Groceries and Dining Out. However, you could also break the Dining Out category into more specific types, such as Fast Food, Coffee Shops, Bars/Alcohol, and Restaurants.

Once you’ve got your categories figured out, set a budget for each of those categories. At the end of the exercise, your income minus planned expenses should sum to zero. This means that you’ve “given every dollar a job,” and that you know exactly where all your money is going. But let’s say for example, you find that you have income of $2300 per month and expenses of $2000, you’ve got $300 that’s completely unaccounted for, money that might sneak away into the “brunches and booze” category before you know it! If that’s the case, your zero-sum budget needs more work, and you should consider increasing some of your categories (might we recommend credit card debt?) so that you get to that zero number.

Then, over the course of the month, you’ll need to track your expenses and make sure you’re staying within each of the category limits. Using a software such as You Need a Budget or Mint can help you stay on track, or you can do the old-fashioned spreadsheet method. As time goes on, you may need to adjust your categories, but make sure that you’re sticking to that Income Minus Expenses Equals Zero rule!

The Cash Only Budget

In a nutshell: Figure out what you want to spend your money on each month, and then withdraw cash from your account and divide it up for each of those purposes. 

Perfect for: People who have difficulty controlling themselves with credit and debit cards, but are always extra careful when they physically hand over cash for a purchase.

If you’ve ever heard of “the envelope system,” then you’re familiar with the cash only budget. For this type, you’ll want to figure out what types of transactions you’ll need to do online, and plan on paying for everything else in cash. Let’s say for example you have $2000 in income each month. If $800 goes towards rent and utilities, $300 towards health insurance, and you want to put aside $100 each month for a new car and $100 for your emergency fund, that leaves you with $700 for everything else, which represents your cash allowance for the month.

From there, you’ll want to sub-divide the cash into your main spending categories: gas, groceries, bars/restaurants, and anything else you might buy regularly. You can also give yourself an category for “everything else,” in case something doesn’t fit one of your pre-determined categories. Then, get an actual paper envelope (Like people use to mail stuff, before email. You know the kind…), label it with the category name, and put your cash allowance for that category in the designated envelope. For instance, you might put $150 in your Gas Money envelope, $250 in your Groceries envelope, $100 in your Clothes/Shopping envelope, and $200 in your Going Out envelope.

The good thing about this type of budget is that all the accounting for transactions takes care of itself—because you can actually hold the cash in your hands, you can instantly see how much you have left in your budget once you buy something. Every month, repeat the process, adjusting your numbers if you need to!

The Survival Budget

In a nutshell: This isn’t so much a traditional budget, as a way of cutting expenses, prioritizing your expenses, and possibly seeking additional income.

Perfect for: People who are anticipating a major drop in income due to job loss, health issues, or those who are already broke.

To be completely honest, the Survival Budget is the most difficult of all the budgeting types. If you feel like you’re barely scraping by, it’s hard to make ends meet, much less worry about things like an emergency fund or saving for retirement. However, there are a few things you can do to build awareness about your money is going and make sure that you’re building sound financial habits now for when your money situation does improve.

The first step, regardless of your current financial state, is to figure out where your money is going. If you’re using a debit or checking account, consider getting an account with Mint.com. If you enter in your bank information, it will automatically download all your expenses and let you see all the pre-determined categories. If you’re working outside a traditional banking system, start a spreadsheet or grab a pen and paper and jot down everything you spend money on going forward.

Then, divide your expenses into two big categories – your Must Haves (rent, utilities, basic groceries and toiletries, and the minimum payments on any outstanding debt), and everything else. In theory, you could cut out the “everything else category”—but the real world so frequently doesn’t work like that. If we had absolutely zero daily luxuries, it gets easy to make bad financial decisions such as blowing your budget on something nice out of pent up stress and frustration.

Instead, consider the following tips:

  • Look for Must Haves that aren’t really must haves: cable TV, a data-heavy cellphone plan, heavy heating and air bills that could be reduced through some minor adjustments.
  • Consider ways to reduce your existing bills. This LifeHacker article has some great ways to do this, broken down by all the different types of bills.
  • Stretch your meals: cooking in bulk and portioning out food over the course of a few days can be a great way to free up typical grocery money, save time, and possibly give you more “fun food” money. Here’s some inexpensive meal planning ideas.
  • Consider getting a side hustle or part time job. This is not always good advice for people with health issues or major time constraints, but you’d be surprised at how many ways there are to make an extra buck or two. In fact, here are 99 ideas to get you started.
  • Don’t beat yourself up. I’m not gonna resort to bulls*** aphorisms here, but know this: it’s really, easy to take being broke personally. So as you’re going through the budgeting process, be kind to yourself, okay?

Reverse Budgeting

In a nutshell: Set up automatic transfers to reserve money for all your fixed expenses and savings goals, and then feel free to spend the rest.

Perfect for: People who don’t want to track all the minute details, or who have money to save but need help prioritizing it.

A lot of people have trouble sticking to a traditional budget because it requires so much tracking, and the categories can feel inflexible. A reverse budget, however, solves some of those problems. The idea behind the Reverse Budget is that there are really only three main categories of expenses: basic fixed expenses, future savings, and everything else. Once you know how much money you need for your fixed expenses and to meet your goals, you are free to spend everything else!

So how do you make sure you’re not overspending your everything else category? Well, the best way to accomplish that goal is to physically separate the money into separate accounts so that you always know how much is available to spend.

Let’s say for example you’ve got a monthly income of $3000. If you know that you have $1200 in recurring expenses (rent/insurance/car payments/etc.), you’ll want to create a new savings account for those expenses and automatically transfer the money out of your paycheck each month. That leaves $1800.

Now imagine that you’ve got a few savings goals you want to contribute to: $150/month to your European adventure fund, $100/month to save for the security deposit on a new apartment, $400/month to your retirement plan, and $150/month to your emergency fund. Each of these savings goals should get its own savings account as well, as well as its own automatic transfer. Not only does this allow you to pull the money aside before you start spending your paychecks, but it also gives you a clear sense of progress towards your goals as you start to see money add up in your various accounts.

The best part about the reverse budget system is that once you complete the process of setting up your various savings accounts and establishing automatic transfers, the rest takes care of itself. In our scenario above, the $3000 in monthly income is divided into three very separate categories and locations: $1200 to basic expenses and $800 in future savings goals leaves a solid $1000 to spend on whatever you want, no exceptions. As long as you make sure you’re only spending what’s in that particular account, you’ll be in good shape because your savings are already taken care of!

The Incremental Improvement Budget

In a nutshell: Figure out what you’re spending money on each month, and then choose a couple focus categories to help make incremental improvements to your spending habits. 

Perfect for: People who are generally good with money, but find that they’re spending too much money on a few key items.

Picture this: you’re generally doing alright, you’re paying your student loans on time, you manage to save a bit each month for retirement through your job, and you even have a small emergency fund saved up. And yet, you find that your debt isn’t going down as fast as you like, or you’re looking to free up a bit of extra money each month for an upcoming vacation.

If you find that your overall habits are good, but might need improvement here and there, the incremental improvement budget is for you. The best way to get started is to make sure you know where your money is actually going. If you’re using a debit or checking account, consider trying an online budgeting tool such as Mint. If you enter in your bank information, it will automatically download all your expenses and let you see all the pre-determined categories. You could also do a more traditional spreadsheet or pen/paper method, but that takes a lot of work.

As you start to analyze your spending habits, be on the lookout for the categories you’re spending the most money on. For example, I rarely buy new clothes or shoes; I’ve gotten really good at avoiding that type of spending. However, my grocery budget tends to be through the roof! When I feel flush with cash, I have no problem throwing down $20 for a week’s worth of Halo Top ice cream, buying too many of those expensive Blue Apron-type meal kits, and paying $10 for pre-portioned chicken when I could portion my own for half the price.

Everyone’s problem areas are different, so the goal is to scout your spending and identify yours. To make it easy on yourself, you can start with just a couple, knowing that once you have those areas under control, you can start to tackle other areas of your finances. Once you have those areas identified, you’ll want to do three things:

1. Figure out a way to control spending for those categories. For instance, if you have a problem with bars and restaurants, you may want to portion out cash in an envelope and make that your monthly allowance, rather than having one too many gin and tonics and whipping out your credit card.

2. Establish a way to measure your spending. If you’re using an online budget tool, it will be easy to track. You could also save your receipts, or use a spreadsheet, the sky’s the limit. Just be honest with yourself. None of that “well technically it was Domino’s pizza, but since I’ve got leftovers for a couple days, I’ll categorize it as groceries” type business. That’s cheating.

3. Decide in advance where you want your incremental savings to go. If you’ve been blowing $500 per month on brunch and alcohol and you want to cut it back to $250, figure out a plan for the rest of the money. For example, you might want to increase your grocery budget by $50 since you’ll be eating out less, but I’d also recommend putting the incremental savings towards any credit card debt or student loans you might have. Increasing your payments by $200/month will do wonders for the time it takes you to pay them down.


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