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Creating a budget can be transformative for your finances. Budgeting can help you to keep on top of your income and outgoings each month, which can make you feel more in control of your money.
There are lots of different budgeting styles. Finding the right one for you may take some trial and error. It will also depend on how much money you have available and your personal financial goals.
For example, some people like to keep track of where every last penny of their income is going so they can better understand their spending. Others might like to focus on saving goals or using a budget to change their relationship with money.
Here we look at some of the best tried-and-tested budgeting styles to help you get the most out of your money.
The 50:30:20 method
With this budget, you allocate:
- 50% of your income to your necessary monthly costs, like rent, food, childcare and debt repayments.
- 30% of your income to things you want, like a meal out or clothes.
- 20% of your income to savings.
This budget method is great for people who have a sizeable income but aren't sure where to direct their money.
It allows you to have a clear idea of where your money's going without having to fuss over categories beyond wants/needs/savings. That means that you can enjoy an increased sense of financial freedom and quickly start saving some money.
This budget method is not so great for people with lower incomes.
Not everybody has the luxury of buying things they want or saving up, and it can be demoralising having to put your entire salary towards necessities.
Making it work for you
Remember that these percentage splits are not set in stone. You can adapt them to fit you and your personal situation. If, for example, you are in a lot of debt, your 'needs' category might be higher while your 'savings' category is reduced so that you give yourself the space to get on top of your debt.
Zero-based
The zero based method is where you assign a purpose for every last penny of your income.
This doesn't mean that you'll be left with a bank balance of 0 at the end of the month since you can allocate a certain amount of money towards savings. It just means that there'll be no money lying around at the end for you to fritter away.
Great for people who like having a lot of control over their spending.
This method also works really well for those who have a tendency to waste money on meaningless purchases instead of putting it towards things that could hold greater value, such as savings or investments.
Not so great for those who want a budget quick.
This method takes time to understand where your key spending is and requires you to stay on top of it regularly.
Kakeibo
Pronounced 'kah-keh-boh', Kakeibo is more than just a budgeting style — it's a reflective practice that brings mindfulness to money management.
Created in 1904 by Japan's first female journalist Hani Motoko, Kakeibo places the emphasis on spending well, rather than focusing on what you cannot spend.
It's a simple practice that first asks you to ponder four questions at the start of each month:
1. How much money do I have available?
This is your total income minus your fixed expenditure. This includes things fixed monthly costs like bills, rent or mortgage and debt repayments.
2. How much would I like to save?
Decide on a realistic amount that you can put away each month. It's a good idea to start small and work up. You’ll find that it becomes easier to put more away the more you practice the art of Kakeibo.
Subtract your savings amount from the remaining money you have available. This is the amount you have left to spend on non-fixed expenditures.
Divide the money left over by the number of weeks to your next payday to calculate your weekly expenditure budget.
3. How much am I spending?
This part asks you to write down everything (yes, everything!) that you spend each day. It's good practice to keep a little journal that you can carry about. Writing things down in real-time, pen to paper, helps you to slow down, focus on the present moment and ponder the effects of your spending.
Kakeibo traditionally divides spending into four categories:
- Survival: these are all the necessities that may fluctuate each month, like food, medical prescriptions and childcare.
- Culture: these are things like books, Netflix, cinema or concert tickets.
- Optional: these are things you don't need but choose to do, like meal out.
- Extra: all of the unforeseen expenses and surprises, like car repair or a vet's visit.
4. How can I improve?
Review and reflect upon your spending on a weekly and monthly basis. This allows you to identify areas where you can cut back and work out how you could put more money towards savings.
Great for people who want to bring mindfulness and intention to their spending. With a focus on quality rather than quantity, it's a good match for those who want to ensure their money goes towards things that will bring joy to their lives.
Not so great for people who find it difficult to stay organized. As soon as you start forgetting to write everything down, Kakeibo can become less peaceful and more painful. It's also not something that allows you to get in control of your money quickly. As a reflective process, it requires time and space to master.
The envelope method
This involves subtracting your priority spending (such as rent, bills, debt repayment and childcare) from your income to work out how much you have left over each month. You then take cash out and divide it equally into envelopes for the number of weeks in the month.
Some people also like to assign different envelopes for different categories, such as food, shopping, or gifts. Once the money's gone, it's gone.
Great for people who tend to overspend, especially on credit cards.
By having the physical money, it's easier to visualise how much you have left as well as how quickly you're getting through it.
Not so great for people who regularly shop online, or are prone to losing things.
If you misplace an envelope, that's your monthly spending gone.
Paper or digital?
Alongside choosing a budgeting style that works for you, you might want to consider whether using pen and paper or going digital will suit you best.
Some great free budgeting apps use Open Banking to link up all of your various accounts and analyse your spending automatically. Some of our favourites are:
Want to learn more about budgeting?
You can read more about:
- how to create a budget here
- how to pay off your debts while covering ongoing costs here.
