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11 Types of Effective Personal Budgets

Different Types of Budgets

Personal budgets includes the process of managing finances by allocating, forecasting expenses and saving money.  

Designing your finances requires one to be financially savvy and that requires various aspects such as research, budgeting, investing and truthfully, discipline. 

The form and process of budgeting have many components and thus making it challenging to maintain a successful working budget.  

Below are some different types of budgeting methods, tips, and strategies that can be easily implemented.

Actions Items

In order to successfully implement a budget, there are action items that one must conduct before choosing a budget that works for you.

Setting Budget Goals

You have to identify why you need to have a budget and state your objectives.  Is the budget targeted for a long-term goal or short term, what purpose is it going to serve, are you paying the debt off, saving for a house and or boosting your saving or investments?

Know Your True Income 

This is one of the questions many people have a hard time answering. How much is your gross and net income?  This should be a starting point, as it clearly provides you with the disposable income you have.  Additionally, this gives you a clearer picture of what your deductions are, knowing this information, will help immensely as you are able to adjust how much you are being taxed, which can ultimately increase your take home.  The objective is to not overpay in taxes, therefore, it is best to consult a tax accountant and find ways that can decrease your taxes. NB: Tax evasion and implementing methodologies that reduce your taxes are NOT the same thing. Do not break the law, that is why a tax accountant will be instrumental in assisting you in finding LEGAL SOLUTIONS.

How Much Your Debt Is 

This activity can be very stressful, especially when you have to itemize all your debt which can create a sense of being overwhelmed. Whether you itemize your debt by the lowest to highest interest rate, amount and or the number of payments, it is imperative to list all your debt and have an accurate amount of what you owe. This provides such a great blueprint, especially when you start paying off your debt, your action plan is halfway in motion.

Set Timeframes

For any goal to be successful, there have to be set realistic timeframes. Setting extremely demanding goals in a short amount of time is clearly the best way to sabotage your efforts, leading to being overwhelmed and failure. Know the exact amount of money you can allocate towards your debt each month. For a goal to be successful, it is best to follow a methodology that you can easily implement,  such as S.M.A.R.T Goals

Specific identify your goal, for instance, payoff credit cards, then the student loans
Measurable  be able to track your progress and set your milestones.
Attainable do not overstate your ability, as this may lead to disappointments. Set goals that you can achieve, such as payoff 1 credit card at a time.
Realistic  sometimes achieve your goal, you may need to think outside the box,  such as getting another job or starting a side hustle, all these contribute to creating realistic goals
Timely set dates, deadlines or milestones that allow you to succeed.

Time Budgets and Personal Budgets 

This type of budget is based on a specific timeframe such as a week, month or year and the goals vary from each time period to the other. Below are some examples, 

Weekly Budget 

This can be associated with weekly allowances which may include transactions that more frequent than the others such as, gas, groceries or getting your nails done. Having a weekly budget allows you to have some spending money and most importantly use only what is allocated.  

Monthly Budget 

Creating this budget focuses on transactions that are paid monthly. The budget normally includes expenses such as car note, mortgage, utilities. These expenses tend to be fixed and are on a set due date. This makes it much easier to create a budget because they hardly have any new surprises in the way they are formatted. 

Yearly Budgets

Yearly budgets are expenses that are paid once a year and or quarterly and need advance budget planning and enough money allocated to achieve the goal.  For instance, property taxes can fit into this category. Though some states pay property taxes more than once a year, it is surely a bill that you have to plan for. This bill is based on the value of your home, therefore, in some cases, it can increase over time. When you fail to adequately budget for this expense among others, this can surely, have a true financial burden which can lead to a tax lien.

Long Term (over a year)

Long term budgets are expenses that need more than a year of planning, funds allocation and or investing. Some of these expenses may be grouped either short or long term. When you define your expenses, it is best to accurately state your abilities. For instance, short term (though it may be longer than a year) can include expenses, such as saving for a down payment for a house or a wedding.  Usually, some experts define short term objectives as five years or less.

Long term budgets are expenses that need funds allocation of least 5 years and more. These expenses include retirement and or saving for college. These expenses are well funded and increase in value if contributed consistently and for a long time.  Every dollar counts, especially when setting up goals.

Due to the different types of time budgets, it is imperative that your planning and allocation process truly caters to all needs. The above-listed expenses in each category, are true expenses in any household and have to be carefully planned for. Regardless of your income level, we all have expenses that require true allocation management.


Cash Only 

What is a Cash Budget, how does it help with budgeting, how do you plan it? These are the questions that need to be answered before applying this method. 

What is a Cash Budget – this is a process where you only use cash for all your daily needs and if you run out of money, you DO NOT reallocate additional funds. A debit card can be used for this method, but this can really set you off if your debit card is attached to your savings or another account that has money in it.

How does it help with budgeting – the idea in any budgeting process is to stop excess spending and or incorrectly using your money.  You already work so hard for your money, have multiple deductions, it only helps if your money works harder than you do.  The most imperative aspect of this type of budgeting is to discipline spending habits by creating intended spending.

How Do You Plan for it – the best approach is to start small and then gradually increase your budgeting process.  The first step is to identify expenses and or categories that you can easily pay with cash, such as groceries, lunch, transportation.  Thereafter, you need to set a time-based approach such as, when you can withdraw your cash and how long the money should last. Tracking your progress is vitally important, therefore, constantly tallying your expenses is a big help.

TIP– use your debit cards, only if you are able to keep to your goal, as it may become hard to manage.


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The Envelope System

This method has the same setup as the cash budget but it is more detailed and can include a wide range of categories. All or most of your bills are paid through the envelope system.

How Do You Plan for it – the first step is to organize your expenses into categories, then allocating the funds to that category. For instance, your categories can include but not limited to, groceries, utilities, transportation and or clothing. Next step, is to aggregate the amount of each category that is going to last you till the next cash distribution in that category, for instance, you allocate funds into your envelopes every 15th of each month – that means no topping funds until the next due date, the 15th of next month. 

How to Succeed – by tracking your expenses and carefully allocating the correct amount. Usually, budget shortages occur when there is a mismanagement. You may need to reallocate more funds in one category than the norm because it might be a necessity. For instance, utilities usually go up in summer months and that is reflected in your bills. You may try to eliminate some expenses and or reducing other categories such as clothing.


Bare Budget

This type of budget is only for bare necessities. It does not include any additional expenses such as luxuries, fun or social. As the theme continues, the first step is to always list your exact expenses.

When to Use it – bare budgeting is an extreme form of “money discipline” it does not allow any room other than what is required to survive.  Usually, this form of budgeting is used when there is an aggressive goal and or limited timeframe, such as paying the debt off or saving for a down payment. Since it is extreme, it can be hard to maintain it in the long term.

Two forms of Bare Budget – personal finance is all about understanding and tracking where your money is being allocated. This is more enhanced with the Bare Budget, mainly because there are two forms, emergency budgeting or cutting back budgeting.  Emergency budgeting is trimming your budget to only survival necessities such as food, shelter. Cutting Back Budgeting is when you still cut down expenses but also have room to allow some of “luxuries” such as entertainment, maybe one vacation per year. Of course, with cutting back budgeting, it should be planned in advance.


The Debt Free Budget 

The above-listed requirements for the other budgets are the same for this one, listing your expenses first.  The Debt-Free Budget supports the theory of saving first and not getting to debt.

How it Works – the success of this type of budget is to save first the required amount and then purchase what you need. If you cannot buy it with cash, you cannot afford it. This type of budgeting works well with gifts, vacations. At the beginning of the year, you can fund your budget in small increments, this really helps as the contributions are much smaller compared to last-minute payments.

How to Succeed – the main purpose of this budget is NOT TO GET INTO DEBT. Usually, the justification of expenses is a major driving force of getting into debt.  For instance, if buying gifts or vacation, calculate the total cost, then divide into manageable installments.


Percentage Based Budget 

This budget is framed and calculated from a percentage-based basis. You allocate a certain percentage for each main category, the idea behind it is that you cannot go above your set percentage. For instance: 

Fifty percent – of your take-home goes toward needs and necessities such as shelter, food, utilities, debt repayment. It is better to have most of the allocation towards debt repayment and the reminder on other categories. 

Thirty percent – of your take-home is spent on wants, such as clothing, eating out, hobbies. The idea behind this type of budget is to also enjoy life and not be so strict with money. Unfortunately, most have fallen short when it comes to this portion because needs and wants are ever-growing and usually accompanied by a rationale to go above the allocated percentage.

Twenty-Five Percent – this amount of money is allocated to start an emergency fund, savings, and retirement goals. This section is mainly based on creating a solid financial foundation.



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Brenda | www.DesignYourFinances.com
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Personal Budget | Personal Finance | Debt Free

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2 Comments

  • zortilonrel

    Wow! This can be one particular of the most useful blogs We have ever arrive across on this subject. Basically Fantastic. I’m also a specialist in this topic therefore I can understand your hard work.

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