Best Budget Management Techniques You Need to Consider

Often, they are associated with stripping all the fun out of spending money and complicated columns of numbers.
 

Budgeting is not about that—it’s about keeping your finances healthy. Overspending is only fun for a while. When the bills catch up to you, you’ll be in a world of worry. 

Budgeting helps you avoid such situations from ever happening, and in case you’re already having a hard time with your spending habits, it provides you with the much-needed structure that will stop you from overspending. 

We’ll be presenting you with seven great techniques on how to budget. Before we explain them, let’s start with some basics.

What’s a budget? 

A budget is a plan that aims to show how much money a person or organization will earn, and how much they plan to spend; it’s also the amount of money you have available to spend, as defined by the Cambridge Dictionary. 

With so many ways to spend money, it’s hard to keep track of where it all goes. 

A budget is a plan on how you’ll spend your money. You track the money coming in and going out, and you will know how much money you have at your disposal. 

Why Would I Want to Budget?

A budget gives you structure, and over time, it can improve your finances considerably. But it’s not just about improving your financial situation—budgeting it ripples towards every other aspect of your life. 

It can help you get a grip on pretty much every aspect of your life.

Here are just a few benefits of budgeting:

Reduces money-related stress – You will have peace of mind as you are in control of your finances 

Helps you save for expected costs – When you know you need a new set of tires, you can incorporate a savings fund for them into your budget.

Cushions unexpected costs – For all those times you have to deal with unexpected costs, you’ll have a much easier time taking the blow when you have money saved up on the side. This rainy day fund can make a true difference. 

Keeps you on top of your finances – A budget helps you be aware of what you are spending your money on. You can tweak and adjust your spending when you have insight where the money goes. 

Keeps you focused on financial goals – No matter what you are saving for (a house, vacation, or a car), it will be easier to control spending when you have a goal you want to reach.

Helps keep family relations healthy – A budget helps you communicate with your partner and family about money. Having a budget in a clear, easy to understand tangible format enables you to teach spending responsibility and accountability and the impact on overall financial goals, with your spouse and family members. 

It’s an early warning system – One glance at the budget can tell you if you run the risk of getting into financial difficulty. Budgeting requires you to take a big-picture view, which will help you spot potential money problems in advance and make necessary adjustments to mitigate them 

Helps you determine how much debt you can take on – If you’re considering mortgage or a personal loan, your monthly spending can see how much you can handle. 

Helps you make and save extra money – You will be able to identify unnecessary spending and payments such as late penalty fees and overdraft interest 

Imagine not worrying about money and having a system that works well for you. That’s what budgeting is all about.

Best budget management techniques 

While there are a variety of budgets out there, we have researched and narrowed down seven simple, yet effective budget management techniques to help you save way, but also have fun while you are at it. 

The Zero-based budget

The Zero-based budget is a rather straightforward technique. You assign every dollar to a budget category like bills or savings. If you don’t use all the dollars assigned to a specific category, you roll the funds over to a different category. 

The money you have coming in matches exactly what is going out of your account.

To make it work, you need to create a detailed plan for your spending and savings every month to allocate money to different categories. 

It’s a very hands-on approach to budgeting as you need to track every transaction, so you know you aren’t going over budget. 

It also naturally prepares your budget for increases in spending that occur around events such as the wedding season and holidays.

It’s quite time-consuming as there is a lot of planning and tracking involved.

The 50/30/20 budget 

The 50/30/20 budget was first introduced in the personal finance book “All Your Worth” written by Elizabeth Warren and Amelia Warren Tyagi. 

The budget involves you splitting your money into three main categories. From the total income, you should allocate 50% on essential expenses in your life (needs), 20% on savings and 30% on wants. 

The 50/20/30 technique is easy and simple to maintain since you only need to worry about the three main categories.

Needs consist of all costs you can’t live without: 

• mortgage payments
• rent
• utilities
• groceries
• transportation costs

Savings include: 

• debt repayments
• retirement funds
• emergency funds

Wants consist of lifestyle choices, and things that are not absolutely necessary, such as:

• fine dining
• cable
• shopping
• entertainment

The downside of this technique is that it’s rather easy to spend a little too much in one category since you aren’t budgeting for every single category, but you can still smooth it out by lowering spending in another category.

The Envelope budget 

This technique is also known as the “cash-only” budget. It’s a simplistic method of budgeting where you add up all your expenses and subtract it from your income— and then label and allocate each expense to a physical envelope. 

When you receive your salary, you withdraw cash from your bank account and put the exact amount of cash for each expense in its respective envelope. 

This method is great for those who are more visual and prefer seeing their expenses and costs. This requires you to leave your credit and debit cards at home. 

It can be risky because you might displace the money, or it could be lost or stolen.

The Snowball budget 

The snowball budget is good for those who are trying to get in control of their debt expenses. You calculate the overall amount of all your debts and decide on how much of your income you can afford to pay off your debts. 

It’s called snowball because you focus on paying off the smallest debt first, then proceed to the next, all the way until you reach the largest debt. 

The snowball budget is good for those who are struggling with debt and feeling demotivated. 

Tackling and overcoming the first small debt provides positive motivation to continue paying off the rest of the debt. You may still end up overspending on other expense categories.

Reverse Budgeting 

The reverse budget is also known as the pay-yourself-first budget. The reverse budget essentially works backward, towards savings goals. 

You calculate your savings goals first and allocate funds towards them. Once you’ve done that, you can use the remaining money to spend on expenses such as rent, groceries, etc.

Reverse budgeting is designed to hit aggressive savings goals. 

• As long as you contribute funds to your savings goals, you can spend the rest on whatever you choose
• This is good for those who are good at cutting down costs and being practical
• It’s also a low maintenance budget as you don’t have to keep a detailed record of your spending or categorize each expense.

The downside of this technique is that you run the risk of falling behind on essential expenses like rent if you don’t manage your costs properly.

The Values-Based Budget 

This type of budget prioritizes what you feel over numbers in your budget.

You list down your values from most important to least important, and then calculate the monthly costs of each value. 

You then have to determine how far down the list you can stretch your income. 

• This budget suits those in a higher income bracket as you spend money on your values rather than worrying about how much you are spending on specific categories.
• The focus shifts away from numbers and adds emotion to the budgeting process.
• It is useful for those who have trouble sticking to a budget.

If you can’t afford all your values, then you need to re-prioritize or reduce the expense associated with each value.

The downside of the values-based budget is that you risk following your emotions too much and spending money on all your wants instead of your needs and savings.

The Automated budget 

You can take a digital approach towards budgeting and automate payments for bills and utilities, expenses and savings accounts. 

For that, you’ll need a robust online banking system that also has functionality for automatic transfers. 

In case your banking system doesn’t really have that kind of thing, you can use apps that analyze your spending habits and automate extra savings to investment portfolios. 

The downside of this budget is if an unexpected cost happens or if a bill is suddenly larger than normal, it could create an imbalance in the automated system which may result in overdraft charges. 

You could mitigate this by linking an overdraft function to your savings so you won’t be negatively impacted by financial imbalances. Or you can avoid it altogether. 

Did you know that subscriptions are a common culprit behind overdraft charges? Most subscription services are set up in such a way that they automatically charge your card each month. 

If you don’t remember to opt-out, you’ll lose money and depending on when you’re charged for services, you might have to pay for overdrawing too. Suddenly, your Netflix subscription isn’t $15.99, but $50.99. 

You can stop this from happening with cards that require your approval for every single transaction. 

The Revuto card and app can help you here—it will save you money by blocking all recurring payments, subscriptions, or other charges to your Revuto Card unless you approve them. This allows you to be in control of your subscriptions and pay only to those you approve of.

Budgeting Tools That Make The Job Easier 

It can be hard to start budgeting even when reading all about the technique that seems to be suited well for your needs. Luckily, there are lots of tools that can help you with budgeting. 

Here’s just a few of them that will come in handy: 

• Spreadsheets
• Pen, paper, sticky notes
• Envelopes
• Revuto
• EveryDollar
• Acorns
• Goodbudget
• BudgetPulse

We’ll explain every one of them in detail below: 

Spreadsheets 

Use spreadsheets to get a user-friendly and free way to track your income and expenses. Both Google Sheets and Microsoft Excel work well, and both have free budget templates to fast track your setup.

The templates can be customized and color-coded according to your needs. 

You don’t have to stick to numbers only. Use pie charts or graphs if you prefer a more visual approach to budgeting. 

Microsoft offers free online training on its products, but you can also find plenty of tutorials on Youtube and personal finance blogs.

Pen, Paper, Sticky notes 

Despite the popularity of budgeting software, there is something to be said for a good old pen, paper, and colorful sticky notes. 

It allows you to write down your expenses and budget on the go while commuting or from a coffee shop. 

Budgeting itself can be an alien concept for some, so, using familiar easy-to-use tools can be a good way to ease into the budgeting process. Also, having the sticky notes up on the walls provides a reminder to keep on track with savings goals.

Envelopes 

Envelopes are necessary to utilize the Envelope Budget technique. It’s a low tech, simplistic approach to budgeting, which is useful to prevent overspending. You can’t spend any more money once the cash in the envelope has finished. 

Envelopes can also be used to store any food or discount coupons, which can help to reduce overall costs.

Revuto 

Revuto is an app that allows you to manage your money better by controlling all recurring payments with one service. It will also send you a notification to approve or block payments, even with recurring charges such as subscriptions. 

That way, you take full control of your subscriptions and pay only to those you approve of. It’s a proactive way to save money. 

In addition to the account and app, you can also get a card that opens up fully new ways to control your spending by setting up limits and requiring approvals. 

You can set up how and when to pay an ongoing payment and get an instant overview of your subscriptions and other recurring payments by category.

EveryDollar

EveryDollar is a service that lets users manually input income and expenses and sync them to their bank accounts for automated tracking. 

It reinforces the zero-based budget approach and encourages people to track and plan every penny.

Acorns 

Acorns help with micro-investing i.e. small investments for those who want to invest but don’t have large chunks for money. 

When you set up an Acorns account, you have to connect one or more debit and credit cards to the new account. Acorns will then round each purchase to the next dollar and save the change in the Acorns account. 

The change can then be invested in a selection of Acorns investment portfolios, which are a mix of exchange-traded funds (ETFs) and bonds.

Goodbudget 

Goodbudget is budgeting software that can be used by those who like the idea of the Envelope Budget but prefer a virtual approach. 

Goodbudget allows its users to fund virtual envelopes that are used to track expenses and share budget information across devices. It has a free version that includes 10 virtual envelopes. 

BudgetPulse 

If you are comfortable with using Microsoft Excel but are looking for something a bit fancier, you could try BudgetPulse. 

It is a free online program that allows you to input your financials on to its site and then manage your expenses, savings and cash flow. 

Budgeting and budget management techniques can be as simple and seamless as you want them to be. 

The key is to determine the reason you are budgeting and why you want to begin the budgeting process in the first place. 

Once done, you can then decide which budget management technique suits your circumstances and preferences. 

The tools recommended can help make the process as easy and interactive as possible.

Budget to Fast Track Your Goals 

Many see budgeting as a dreary process that sucks the fun out of anything money-related, but the real fun begins once you don’t have to worry about (not having) money. 

It can be hard when you’re starting out—it’s easier when you keep your goals in mind and stay motivated in the process. 

Pick a time of the month when you’ll be taking care of the budget, and make sure the people around you respect your budget. 

The budgeting approaches above cater to different types of people, so see which one would seem to be a good fit for you. 

Whichever you choose, remember to celebrate your budgeting victories and goals that you have reached. It really helps keep you motivated!