5 Types Of Budgeting

The concept of budgeting as we know it today emerged during the Industrial Revolution. With the growth of economies and businesses, the need for financial planning became increasingly evident. Budgeting became essential for managing income and expenses. 

However, with the idea of budgeting comes methods. The business world is ever-evolving and changing, and with this change comes methods to planning your budget. The truth is, there isn't one universally acceptable way to budget but there are many strategies to help you succeed, so it’s important to choose one which is important for you/your business. 

In this article, we'll discuss five types of budgeting styles to help you find the perfect fit for your financial journey. From simple to detailed and structured, there's a budgeting method for everyone. Let's dive in and discover how to create a budget that works for you!

What Is Budgeting

Budgeting is the process, budget is the document. A budget is essentially a financial plan that outlines how you will spend your money. It involves estimating your income and expenses over a specific period, such as a month or a year. By creating a budget, you gain control over your finances and can make informed decisions about how to allocate your money.

The key components of a budget include income, expenses, savings, and debt repayment. By carefully tracking your income and expenses, you can identify areas where you can cut back, save more, and work towards your financial goals.

Types Of Budgeting

There are various budgeting methods to suit different financial goals and personalities. Here are five common types:

50/30/20 Budget

This portion-based budget stands out because it offers a concrete starting point for your financial journey without much complexity. A 50/30/20 budget allocates 50% of your income to needs, 30% to wants, and 20% to savings. It's more detailed than an 80/20 budget but more flexible than a zero-based budget. It’s so simple and effective that you only need to track these categories without racking your head. It provides a clear framework for spending and saving. 

Consider these guidelines before going ahead with it:

• What are your current spending and saving priorities?
• What bigger goals do you want to accomplish in years to come?
• How do you imagine spending your time in retirement?

By closely examining this, it can help you better identify what you need, what you want, and how much you should probably be saving. Then, you'll have the foundation to help you allocate your money wisely based on your values and goals.

Pay Yourself/80/20 Rule

This type of budgeting is best known for prioritizing savings. This budgeting type is also called ‘Pay yourself first’ which means you put a portion of your salary into your retirement, emergency, or other goal-based savings account before you spend any of it. It’s believed that When you save immediately after getting paid, your monthly spending naturally adjusts to what's left. The 80/20 rule encourages disciplined savings habits. 

How to do this:

• Decide the percentage of income to save
• Decide where to save the money
• Make it seamless by setting automatic transfers

Employing the 80/20 type of budgeting into action is pretty straightforward. But before starting, consider if paying yourself first will work for you and how it might affect other financial goals that you have.

Zero Based Budgeting

This type of budgeting is fantastic for detailed awareness. A zero-based budget promotes mindful spending by assigning a purpose to every money you earn so that your income minus your savings and expenses equals zero. This budgeting method helps you get a firm grip on your earnings and spending so that there’s nothing left in your account, but all has been allocated. It works particularly well if you're focused on planning ahead for certain savings goals. Although it can take time to manage, but it can help you be very intentional with your money. It's easier to use if you have consistent income and expenses each month, but you can use it even if that’s not the case. 

Envelope System

In this budgeting method, you can literally see where your money is going. The envelope method of budgeting is a cash-based method that gives you an effective way to divide what you have to meet your goals. Howbeit traditional, however, it involves labeling envelopes into categories - savings, spending, and expenses. You take cash from your salary and distribute it among the envelopes. 

Here’s how you can start:

• Create a Budget
• Assign Envelope Budget Categories
• Fill the Envelopes and stick to your spending limits

No-Budget Budget

This type of budgeting is suitable for those who are financially disciplined. It can be considered the opposite of a zero-based budget. The no-budget budget requires the least planning and allows the most flexibility, by adapting to changing financial situations. It encourages intuitive spending where you can track your expenses without strict categories. 

In the no-budget budget method, all you need to do is calculate your monthly income and subtract your necessary expenses and essential savings. The rest is yours to spend or save however you wish.

In Conclusion

Although we have outlined 5 budgeting types for you, we cannot choose which is best for you. The best budgeting method depends on your financial goals, spending habits, and personality. Experiment with different approaches to find what works best for you.

On the bitnob App, you can set spending limits on your Bitnob virtual card to control your spending habits and monitor your card transactions to track how much you're spending in different categories.

You can start your savings with as little as a dollar a day. Seemingly small but consistency ensures its growth. With Bitnob, you can easily automate these daily or weekly Bitcoin purchases, putting your savings on autopilot. Ready to take control of your financial future? Download Bitnob today and start building your Bitcoin savings plan, one dollar at a time!