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How to choose the right budgeting strategy for you

So, you’re finding yourself on realestate.com.au more often than Instagram. Or turning your back on full-time work to turn your side hustle into a full-time business. Or perhaps you’re simply sick of living pay cycle to pay cycle, because that last day or two before pay day is getting harder and harder to stomach.

Whatever’s brought you here, you’re ready to get serious about your finances.

And where does any good financial plan start? A budget.

So, what’ll it be? 80/20, Bucket, Traditional or ZBB?

Yes, there’s been a lot of buzzwords, hacks, and ‘get rich quick’ schemes thrown around the financial world lately. How do you decipher the trends from the tried-and-true tactics?

You don’t. You just ask us! ????

We’ve read every book, listened to every podcast, and completed every course, so you don’t have to.

In this guide, we’ll take you through the pros and cons of some of the most popular ways to budget:

  1. The Traditional Budget
  2. The Bucket Budget
  3. The Zero-Based Budget
  4. The 50/30/20 Budget
  5. The 80/20 Budget
  6. The Values-Based Budget

1. The Traditional Budget

What is it?

This one takes last year’s budget and copies it. A few tweaks might be needed to allow for inflation or rising costs but basically, your expenses are based on whatever you spent last year.

The pros

Copy/Paste. Done. It’s incredibly time effective.

The cons

You might have guessed this… if you didn’t have one in place last year, making this year’s budget is going to be a bit bigger than your average copy/paste job. Outside of changes to living costs, it also doesn’t consider your changes—things like your mindset, values and you know, personal growth.

2. The Bucket Budget

What is it?

This one has been around since your grandparents’ days. The definition of tried-and-tested, right?

You label envelopes with your spending categories and separate your cash between them. Idea being that you have an envelope labelled ‘groceries’ with $350 in it, and you physically won’t be able to spend more than $350 on food shopping that month.

It works digitally too but requires a little more willpower. A quick login to your bank account at the counter makes it very easy to move a little extra money around… but if you can stay strong, you might try using a budgeting app to split funds into buckets, asking your bank to help you set up extra accounts within your account or signing up for separate cards or bank accounts entirely.

The pros

If you’ve only got a certain amount in your envelope or bucket, you can’t spend more than you budgeted for. (Only remember digitally you can. If your impulse power isn’t in check.)

The cons

You could get caught out with less than you need. Imagine ordering an extra coffee at brunch and not having the cash on hand. There’s also the added risk of misplacing an envelope full of cash, so it’s probably not one for the forgetful types.

3. The Zero-Based Budget (ZBB)

What is it?

Says what it does on the tin. A zero-based budget allocates every single dollar you make to a ‘job’ and leaves you with nothing but a nice fat $0 at the end.

It works like this: every pay day you send your funds to your categories—rent, bills, food, fuel, discretionary spending, and saving—until you hit zero. Get it? Every dollar has its job.

The pros

It’s automatic. If you set up direct debits for all your fixed expenses and another for your savings account, it’s done-for-you, out of sight/out of mind budgeting. You focus purely on making the remaining funds last until your next pay day.

The cons

There’s the potential here to put your account in the red. That $0 doesn’t leave you with much of a buffer, so if you haven’t allocated everything correctly or forgotten about a direct debit, you’ll overdraw your account. Not something we want on your banking record.

4. The 50/30/20 Budget

What is it?

This one is all about the ratios. You remember your percentages from school, right?

You spend 50% of your income on needs and 30% on wants, and 20% goes right into savings.

Needs are necessities, things you literally cannot live without. Things like rent or mortgage repayments, electricity bills, phone bills, fuel, and food.

Wants are things like new clothes, a night out, your Netflix subscription (yes, this is a want not a need) and your Friday night Uber Eats order (Groceries = need, Uber Eats = want).

The 20% you’re left with includes not just direct savings but things like extra super contributions and other investments.

The pros

That 20% that goes right into your savings every pay day (tick), and its simplicity. Narrowing all your expenses into three categories as opposed to 10+ makes this one nice and easy to follow (tick #2).

The cons

Most of us need to allocate more than 50% of our income towards real needs these days. You don’t need reminding that the cost of rent, fuel and even the most basic of groceries have skyrocketed. But if you like the sound of this one, you can still make it work with some customisations.

5. The 80/20 Budget

What is it?

The 50/30/20 rule, just even more consolidated.

80% of your income goes towards spending (wants and needs) and 20% goes into savings. Just like the example above.

The pros

Not very number heavy and even more simple than the strategy above. Even our not-so-mathematically-minded friends will like this one.

The cons

Is it too simple? We feel there’s a bit of room for error with this one… and the possibility of overspending and needing to pull money out of your savings (not what we want to be doing).

6. The Values-Based Budget

What is it?

This one works off the basis that you should spend your money on what you value.

This doesn’t necessarily mean material things and requires you to ask yourself some big questions.

What do you want more of in your life? Is it fashion, is it travel, is it a bigger backyard with an outdoor table big enough to fit your 20-strong family around it?

Review your expenses and if your spending doesn’t align with what you value, make the necessary changes. And here’s where it gets interesting: don’t place a restriction on the things you value—just the things that are keeping you from them.

The pros

Nail this one and a whole lot more than your budget is going to transform. If you can be honest about your values and make your money work towards them, your life and the numbers in your account are going to start to reflect them.

The cons

If you can’t be honest about it and do the work daily to pull yourself up on the valueless-based spending you’re doing, this one just isn’t going to work. Plain and simple.

Bonnie’s wrap

Any of the above strategies can work if you’ve done the inner work to tackle your spending habits and triggers. They’re really just tools to make the real work a little easier.

There are pros and cons to each but if we had to choose, we think the Values-Based Budget is the one to work towards when you’re ready. Because if your budget is aligned with your values, it’s going to run itself.

Until then, don’t be afraid to experiment and if the first strategy you choose isn’t doing it for you, try another. You got this.

And if you haven’t already…

  1. Make sure there’s a ‘why’ behind your new budgeting strategy. Read this.
  2. Make sure your relationship with your money is rock-solid. Read this.
  3. Make sure you’ve addressed your spending triggers. Learn how to control your impulse buying here, and if social media is a particular problem for you, go here.
Related to: All, Budget Basics
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