Ways to budget

There are many different approaches to budgeting. First, consider what you want to achieve. Are you trying to save more to reach a specific goal, or do you need to balance your income and expenses because you’re spending more than you’re earning? Defining your goal will help you choose the budgeting method that suits you best.Here are the five effective budgeting methods:

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1. 50/30/20 Rule

The 50/30/20 rule is a popular way of budgeting because it is quite simple. That is why it is easy to stick to. You divide your monthly income into three categories. 50% goes toward fixed expenses like rent/mortgage, groceries, and subscriptions. You can spend 30% on things you enjoy, like dining out, movies, or clothes. The remaining 20% goes towards savings, investments, or paying off debt.

❇️ Advantage: Simple and clear structure for dividing your income.

🔻 Disadvantage: The fixed percentages (50%, 30%, and 20%) can be too rigid and do not account for individual financial situations.

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2. Envelope Method

The envelope method focuses on limiting spending. You fill envelopes with cash, with each envelope assigned to a specific category, like clothing or food. Once the envelope is empty, the money for that category is gone.

❇️ Advantage: Makes expenses very visible, helping with mindful spending and preventing overspending.

🔻 Disadvantage: It can be cumbersome and time-consuming. Plus, cash is used less frequently these days.

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3. Pay Yourself First

The third budgeting method focuses on saving. You first set aside money for your savings or investments, and whatever is left can be spent however you like. This approach is helpful for people focused on reaching a savings goal or building a financial buffer. You determine the amount to set aside each month.

❇️ Advantage: Encourages saving or investing by prioritizing it right away.

🔻 Disadvantage: If you don’t account for your expenses properly, you might not have enough left for essential costs.

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4. 80/20 Rule

A simplified version of the 50/30/20 rule is the 80/20 rule. Twenty percent of your income goes to your savings or investments, while the remaining 80% covers all other expenses. This method is useful if you want a simple budget without getting into detailed categories, yet save adequately.

❇️ Advantage: Easy to follow, ideal for people who prefer not to budget in detail.

🔻 Disadvantage: Lack of specific categories makes it harder to gain insight into spending patterns.

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5. Zero-Based Budgeting

Each month starts with a “zero-based budget,” where every euro of income is allocated to a specific expense or savings goal. This ensures mindful planning of all your money and helps minimize unplanned expenses.

❇️ Advantage: Provides complete control over every euro.

🔻 Disadvantage: Can be complex and time-consuming to set up and track.

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When to budget

Once you have chosen a budgeting method, sticking to the rules mainly requires discipline. It is also important to evaluate regularly: are you staying within your budget each month?  Does your chosen budgeting method still work for you?

For more budgeting tips, check out ‘Budgeting for Beginners.’

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Budgeting: Not in Excel, but with Grassfeld

Now that you understand the budgeting methods and have chosen one, it is important to track where your money is going. You can categorize all expenses manually in Excel, but why spend hours doing that when you can use the Grassfeld app? With Grassfeld, you can set budgets and have all expenses automatically categorized. Download the app now from your app store and experience the convience for yourself!

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