What Are Some Tips for Budgeting?

Melissa Griswold, Ph.D.:

The "best" budgeting strategy depends on the habits and challenges facing the consumer. Some consumers want and need a flexible budget, while others perform better with rigid guidelines. A fairly flexible strategy is the "50/30/20 Rule" in budgeting. With this method, the consumer spends no more than 50% of their income on "needs." Needs include housing, utilities, food and transportation. No more than 30% of their income is spent on "wants," such as eating out, entertainment and leisure. The remaining 20% or more balance is used to reduce debt and invest in the future.

Consumers who struggle to keep discretionary spending and credit card balances low may need to transition to the "envelope budgeting" strategy. With this method, cash is distributed into envelopes labeled by budget categories at the beginning of the month. Once the cash is depleted in an envelope, no more money can be spent in that budget category for the remainder of the month.

The strategy that may be helpful for consumers who want or need strict guidelines is "zero-based budgeting." This strategy involves methodically allocating every dollar earned into pre-determined categories and only spending up to the allotted amount as defined. Every dollar earned is assigned to a category, and every aspect of income is accounted for.

Inbar Madar:

Today, markets and industries change quickly, and adaptability is crucial, especially with regard to finances. I suggest a method called rolling budgeting. Instead of planning for a whole year, you update your budget regularly. This helps businesses quickly adjust to changes in the market. It's also important to keep an eye on how things are going and make adjustments when needed.

Nate Hansen:

A super simple budgeting strategy is first to set up all fixed monthly expenses to be automatically debited from your checking account, such as car payments, mortgage, insurance premiums and 5-10% of each paycheck to savings or investing. Then, you use one credit card for all discretionary spending: groceries, restaurants, gas, online shopping, etc. Then, you simply have to keep track of the total amount spent on this credit card to stay within your acceptable spending range.

Christina Todd, CDFA®, CFP®:

I like to refer to a "budget" as a "spending plan." The premise behind a spending plan is to help you manage your money so it can fuel your financial goals. It is an understanding of how you relate to money and the control you have over it. I always start by asking clients what their values are—or, besides money, what is important to them. That helps keep the objectives front and center as we create a realistic spending plan.

An example of a spending plan may include the following:

• 50% or less of necessary expenses (housing, transportation, groceries and utilities)
• 30% Financial Priorities (curveball fund, paying off debt, savings for retirement, home purchase, vacation and children's education)
• 20% allowance (discretionary lifestyle expenses like dining out, shopping and entertainment)

Jordan Patrick, CFP®:

Reverse budgeting is a strategy where you determine how much you need to save to reach your financial goals, establish systems and automation to make progress toward those goals without having to think about it, and then you can spend whatever is left over.

To get started with reverse budgeting:

• Review your spending over the past few months and determine an average monthly amount for each category (such as groceries, dining out, entertainment, etc.).
• Evaluate whether any changes should be made. As questions like, "Am I making progress toward my financial goals?" "Does my spending align with my values?" "Which categories would I like to decrease and which would I like to increase?" To help in your assessment, you can use the 50/30/20 rule, which says you should allocate less than 50% of your take-home pay to "needs," less than 30% to "wants," and 20% or more to saving and paying down debt.
• Establish systems to ensure that the identified changes take place. For example, you may want to establish automated monthly transfers into a savings account specifically earmarked for large purchases such as travel or set up automated contributions to your retirement accounts.

Kenneth Chavis IV:

In general, I recommend that people leave a cushion in their monthly budget for unexpected expenses. For example, if you bring home $4,000 per month and know that your rent/mortgage, transportation and food cost an average of $2,500 per month, I wouldn't recommend spending the remaining $1,500 every month. Instead, I would suggest leaving a $250 or $500 cushion if possible to grow your emergency fund and have wiggle room if there is an unexpected expense like a car repair.