5 Different Types of Personal Budgets For Your Financial Goals

Budgeting is important because the reality is that I will not be able to save and spend money the same way that previous generations did. And neither will you

Budgeting is an essential part of personal finance. For a very long time, I did not have a personal budget because I always assumed I was “good” at saving money — which I was not.

As a young millennial or older Gen Z-er (depending on who you ask), the reality is that I will not be able to save and spend money the same way that previous generations did. And neither will you.

For example, according to the 2017 Generational Report from Financial Finesse, millennials alone owe $1.1 trillion USD of consumer debt out of $3.3 trillion. In Canada, it is a similar story. Based on a 2016 Statistics Canada infographic, the median debt millennials carry is $35,400. This is much higher than the baby boomer generation.

Now more than ever, it’s essential that we pay ourselves first in order to make sure that we can have a stable financial future and one that can account for exceptional circumstances — such as global epidemics. I am no expert, and honestly, I am still learning what type of budget fits my financial goals best, but here are some budgeting options that may work for you if you are unsure where to start.

Determining Your Financial Goals

First and foremost, before determining a budget, you need to figure out what your short-term and long-term financial goals are. For example, my short-term goals are to fund the majority of my Master’s program this upcoming year as well as pay off my student loan debt in five years. My long-term goals include the possibility of buying property and continue building my retirement funds.

However, this will look different for every single person. An example of short-term goals could include:

  • Emergency fund
  • Credit card payments
  • Rent and loan
  • Travel
  • Other personal expenses (i.e. tech equipment, weddings, etc…)

Long-term financial goals are your big picture goals, which can include:

  • Buying a rental or housing property
  • Retirement savings
  • Funds for opening a business
  • Funds for children (i.e. education)

Being able to envision your financial goals is a helpful way to determine a budget that works for your lifestyle.

5 Budgets for Personal Finance

Here are 5 budgets that I’ve either tried or have friends that use them. This is not an exhaustive list of personal budgeting systems that are out there, however, to stay true to this guide, I only want to speak to ones that I know.

No Budget System

A no budget system is exactly what it sounds like — a budget that does not exist. As personal finance becomes a more normalized topic, I feel as though this system is becoming less and less common. However, I do have friends who seem to be doing okay having no budget system in place since they still spend below their means.

This is not a budget I would recommend to anyone though because it’s easy to lose track of your spending and savings this way.

Who This Budget May Work For

  • Individuals who have minimal spending costs (i.e. live at home, financially supported, etc…).

Spend First, Save After

This is a budget system where an individual spends their money and then saves whatever is leftover at the end of the month. Personally, I think this method is a step-up from the no budget system, however, it doesn’t prioritize savings and doesn’t hold you accountable for your spending habits.

Who This Budget May Work For

  • Individuals who have minimal spending costs (i.e. live at home, financially supported, etc…).
  • Individuals who have very low expenses compared to income and have no big savings goals.

Save First, Spend After

This is a budget system where you put away money into a savings account before spending anything else such as rent, groceries, and other fixed and variable expenses. For example, let’s say every time you receive a paycheque, you put $200 into savings automatically. If you are paid bi-weekly, that means you will be putting in $400 every month into your savings.

This method is a great way to prioritize financial goals, especially surrounding growing your savings, such as starting an emergency fund.

Who This Budget May Work For

  • Individuals who are looking to grow their savings.
  • Individuals who have short-term saving goals they want to achieve in a year or so.

50/30/20

Essentially the 50/30/20 budget splits your income into 3 categories. 50% goes towards your necessary expenses, 30% towards your wants, and 20% towards your savings and paying off debts. For example, let’s say you make approximately $2000 a month.

$1,000 goes towards your necessary expenses such as rent, food, insurance payments, transportation, and minimum debt repayments.

$600 goes towards your wants which includes eating out, subscriptions, travel, and personal care such as make-up.

$400 goes towards your savings and remaining debts.

Personally, I think this is a really great way to begin framing your spending and savings. 20% is a really good amount to be saving especially for individuals in their 20's, so it can allow you to evaluate whether or not you’re spending too much in other categories.

Who This Budget May Work For

  • Individuals who are looking to save long-term such as for retirement or housing, even if they have debt.
  • Individuals who want to grow their savings without having to penny-pinch or jot down every single transaction.

Zero-based Budgeting

Zero-based budgeting is when all your expenses, income, and debt payments equal zero at the end of the month. For example, let’s say you make $2000 a month. A zero-based budget can look something like this:

Zero-based budgeting is detail-oriented in nature and every cent is going towards some type of expense, payment, or savings, which can help individuals cut-down on spending habits that are not serving you in any way.

Who This Budget May Work For

  • Individuals who are looking to be in complete control of their spending, since it’s a good way to monitor where money is going.
  • Individuals who have a set income and relatively fixed expenses who can easily allocate money to the needed categories.

So Which Budget Do I Use?

In the name of transparency, neither. Personally, I use a combination of 2–3 of the mentioned budgets above, which has worked out for me pretty well in the last few months.

I personally use a variation of the 50/30/20 and zero-based budgeting method. Before I had a savings account, I was using the save first, spend later method because my priority was growing my emergency fund.

Right now, I’m saving for a short-term goal so my current ratio is 25/5/70 because I am lucky enough where my expenses are covered by work or are very small compared to my income so I’ve been able to put the majority of it into my savings. This is quite extreme though, and I do not think everyone needs to do this — I will only be doing this in the short-term while my expenses are very low.

I am also extremely detail-oriented so I personally enjoy seeing where every dollar is going, which is where the zero-based budgeting system comes in. However, I personally don’t like being at $0 so I aim to have $100 left as a buffer.

Budgeting can be quite daunting for many people because it means we have to confront our financial realities — which is not always pleasant. However, it’s an important first step to take in order to make sure that you are prepared for the future.

We cannot predict what our lives are going to look like 5, 10, 15 years down the line, but budgeting can help develop a long-term habit that can help grow your wealth in a sustainable way.

Please note: I am not a financial expert or professional. The “advice” of this guide is for informational purposes only and should be treated as such.

Intersectional environmentalist 🌱✊🏼. Research Assistant. (She/her). Writing about climate change, love, health & fitness, personal development, etc...

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