You’ve asked for budgeting tips. There isn’t one budget to rule them all, so instead let’s dig into three styles that are helpful for different personality types. Watch video or read more below!
#1 Tracking Every Penny for when you’re so forgetful that you’re just not sure where your money goes
Tracking Every Penny, or TEP, is exactly like it sounds. Each time you make a purchase or pay a bill — you write down exactly how much you spent and, more importantly, what you spent it on. You can use notes in your phone, a physical notebook, an excel spreadsheet — it doesn’t really matter as long as each day you write down how much you spent and what you purchased.
The point of TEP is to be able to look back after a few weeks and notice trends of which you may not have been aware. If your purchases don’t align with your values or are mindless and habitual — then it’s time to nix them!
My old roommate used this method to uncover that she was spending $3 on bottled water during her daily Starbucks trips to get out of the office. Not even a latte — bottled water. She nixed the Starbucks habit and started going on a walk each day instead. It put $60 back in her monthly budget.
#2 The Envelope Method: You like or need strict rules and structure
This is the style I used to take control when I was only earning $23,000 my first year in New York.
The Envelope Method is perfect for trying to aggressively pay down debt or curb impulse purchases because it sets very strict spending categories for you each month. In the traditional version, you use actual envelopes to represent each of your main spending categories. For example: Rent + Utilities, Debts, Savings, Food, Transportation, and Household items. Then you consider your net-income and decide how much should go into each envelope to meet your needs.
To really do it right, you’re supposed to put actual cash in each envelope and then pull the cash out when you’re making a purchase from said category. When the money is gone it’s gone and you can’t dip into another envelope to make up for the shortfall. I’d challenge you to actually try the cash version for at least two months, but if that gets to be too much then apps like Mvelopes and Good Budget are modern ways to use the envelope system.
#3 The Zero-Sum Budget: The Unpredictable Makes You Anxious
The goal of the Zero-Sum budget is to be living off of last month’s income. It can take a while to really get the hang of it, but once you do it gives you a lot of control and it’s great for anyone earning a variable income.
There are 4 rules from the popular Zero-Sum budgeting software: You Need a Budget.
- Give every dollar a job – Each dollar you earn per month should be directed to a specific category, similar to the envelope style — except it doesn’t have to be in cash in envelopes and instead written out on your budgeting spreadsheet.
- Embrace your true expenses — Write down your annual expenses, like renter’s insurance, and divide the total by 12. Then you put that amount aside each month so you’ll be ready to make your annual payment when the time comes.
- Roll with the punches – Be flexible about your categories because change happens. If you overspend on food or get an unexpected invitation to an event, then look to reallocate funds from another category to compensate for the shortfall.
- Age your money – The goal is to be spending last month’s income for this month’s expenses, so that you’re breaking out of the paycheck to paycheck cycle and freelancers can handle changes in variable income.
This style is obviously easier said than done, which is why software like YNAB can be helpful or reading articles or joining forums like Reddit’s about zero-sum budgeting.