When it comes to working out, lifting weights might be your exercise of choice, or maybe you prefer yoga, cycling, pilates, or running. None of these strategies for physical fitness is necessarily superior to the other, they are simply different methods that work for different people. Just like there are many different ways to get healthy, there are many different ways to budget. The key is to find what budgeting approach works for you, and your household based on your goals, personality type, time constraints, and interests. In this video, you'll learn about the most common ways to budget, and which one might be the best fit for you. Whichever way you go, it's important to look at your past spending, so that way you can get a sense of what might be reasonable for your budget. You also might want to consider setting aside some targets in your budget, like let's say, 50 bucks a month for coffee, or 20 bucks a month for restaurants. Then tracking against those targets to see if you're on pace. Number 1, a line-item budget. A line-item budget is what you first might imagine when you think of the typical budget. You know the kind that's in, let's say Excel or another spreadsheet that lists out each expense by category. To begin building your own line-item budget, you would list out each expense, or each category of expenses over a given period of time, let's say a month or a year, and then as you progress throughout that time period, you can compare what you actually spent to what your target was, to see if you're on track. Because a line-item budget is detailed, this could be a great option if you require more control of your spending, or if you're detail-oriented person. The downside of the detailed nature, is the amount of time it takes to setup, and maintain a line-item budget. A 50/30/20 budget. A 50/30/20 budget is a system where you divide up your monthly income, into three categories based on a percentage. Fifty percent towards needs, 30 percent towards wants, and arguably the most important, 20 percent towards savings and other money goals. A 50/30/20 budget can help you think about the big picture, and because it's a simple approach that doesn't get bogged [inaudible] in the details, this could be a great option, if you're busy, or simply not interested in the minutiae of spending. The downside here is that it might not be the best approach, if you really need help identifying problem areas in your spending. Three, a spending target. This is a no-nonsense approach to budgeting that evolves on one premise. Set money aside toward your goals, and whatever happens with the rest isn't important. Say you that you've decided either you want to save 20 percent of your take-home pay. The remaining 80 percent is your spending target for the month. You don't really need to worry about exactly where or how that money is being spent as long as it's below the spending target. Because the spending target is simple, it requires relatively little maintenance. This could be a great option if you're extremely busy, and you just need a simple target to track towards. The downside is this provides even less detail than a 50/30/20 approach, so it would not provide much insight if you need help with problems spending areas, and you might want to be careful that you're not using a credit card to go over your spending target. Number 4, envelope budgeting. The envelope budget as a hands-on way to budget money and control spending. With the envelope budget, you have a set amount of cash to spend in each category. The pools of money are kept in different envelopes, hence the name envelope budgeting. If you prefer digital payments, the same approach can be applied with separate accounts. Because the envelope budget is detailed and feels tangible, this could be a great option if you feel the need to be hands-on, and closely monitoring your spending, or if overspending has been an issue in the past. Number 5, zero-sum budgeting. The idea here is that you spend every dollar that you have. No, this doesn't mean you spend every dollar on whatever the heck you want. Instead, you would assign a specific purpose to each dollar that you earn, whether it's for savings or even discretionary spending. It's called zero-sum budget, because after you've picked the job for each dollar, you'll end with zero leftover dollars. This is an extremely detailed and time intensive approach to budgeting. If you're extremely hands-on, or if you need a lot of help controlling your spending, this could be a great option. The downside is that it takes quite a bit of work on an ongoing basis. It might not be the best approach, unless you're committed to spending a fair amount of time maintaining your budget both now and in the future. Now that you understand the most common ways to budget, along with the pros and cons of each option, take a step back and think about what approach makes the most sense for you. Consider your goals, past experience with spending, and the amount of time that you're willing to commit to budgeting on an ongoing basis. Once you've chosen an option, start setting up your budget.
