By Jennifer Tucker
September 12, 2024 | 2 Min. Read
There may be as many different types of budgets as there are unique financial goals, which means choosing the right one can be tricky. Here, we’re providing an overview of the most common budget types and budgeting rules to help you land on an approach that aligns with your needs.
A traditional budget is a good starting point for anyone just getting started with budgeting. With traditional budgeting, you’ll look at your past income and expenses as predictors of your future financial situation and use that information to create a new budget. You can make incremental adjustments as your income or expenses change throughout the year.
Instead of relying on your past income and expense trends, you may want to start your budget from scratch each year. With zero-based budgeting, you’ll assess your current financial situation and decide which expenses to keep or eliminate. Then, you’ll allocate your income between expenses, savings, and debt repayments. The goal is for your budget to balance to zero each month when calculating your income minus expenses/savings/debt pay-down.
Once you have a handle on budgeting, a flexible budget might be a good option for you. It allows for variation in income and lets you adjust expenses accordingly. So, if you bring in more or less money during one month, you can tweak your expenses to stay in balance.
The 50-30-20 budgeting rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. “Needs” might be defined as basic living expenses, like rent or utilities. “Wants” are considered discretionary spending, like eating out or going to concerts and sporting events. Your savings can help you achieve both short- and long-term goals.
The 40-30-20-10 budgeting rule suggests that you put 40% of your money toward your savings, 30% toward needs, 20% toward wants, and 10% toward contributions like donations to charity or important causes.
Whether you prefer the structure of traditional budgeting, the flexibility of a zero-based approach, or the simplicity of percentage-based rules, finding the right budgeting approach will empower you to take control of your finances and reach your goals.
Ready to start building your budget? Learn about the best budgeting tools and explore the free resources available from Marine Credit Union.