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5 Game-Changing Budgeting Methods To Take Control Of Your Finances

You know you’re an adult when you’re crunching numbers for a monthly budget! Ah yes, budgeting is one of those adulting milestones no one wants to celebrate. Sure, budgeting isn’t the most exciting thing (when it comes to adulting, getting your driver's license is probably way more exciting), but knowing how to draw up a budget that works for you is important.

An infographic about different budgeting methods

We all know the horror of checking our bank accounts only to realize that it’s dangerously close to zero with one or two more agonizing weeks to go till payday. Yikes! These are the situations we want to avoid and budgets can help with that. With a clear budget, you know where your money needs to go, and you can have better control over your finances.

Budgets are a lot like shoes; no one size fits all. There are many budgeting methods, so you’ll probably need to experiment a little to find what works best for you.

Here are 5 simple yet powerful ways to budget your money:

Line-Item Budgeting

This is basically a traditional budget where you list your various categories of spending and allocate different amounts to each category. You can do this in a notebook or spreadsheet.

A monthly budget planner with various categories of spending

Start with the figures you know for sure: your take-home pay and fixed expenses. Fixed expenses include your rental, cost of telephone plan and internet services, average cost of utilities, gas, and groceries. These are the priority items that you should allocate money to first.

Next, list your variable expenses such as entertainment, eating out, shopping, and others. Allocate amounts for each category. Don’t forget to add columns for savings and miscellaneous expenses as well. This gives you a little breathing room, just in case you have unexpected expenses on any given month.

If you’re a freelancer, your income may not be consistent, but that doesn’t mean budgeting isn’t for you. Take a look at your earnings and identify the lowest amount you’ve earned over the last year or so. Draw up a budget based on that amount. For months when you make more, divide the extra between savings (which will come in handy on tougher months) and variable expenses.

There are loads of budget templates available on Excel that you can use to get started! They have built-in functions and charts that make budgeting easier.

Paying Yourself First

A person putting a coin into a piggy bank

This is where you allocate money to savings and investments before you spend. You can go with an 80/20 split (where you save 20 percent and spend 80 percent), 70/30, or even 60/40 depending on your savings goals.

An easy way to do this is to automate your savings. If payday is on the 1st of each month, set a standing instruction to move a portion of your salary on the 2nd to another savings account. Spend only what remains.

This budgeting method prioritizes saving. If you’re struggling to build your savings, this could be worth a try. Start small with however much you can save, and build up slowly.

Cash Envelope System

A white envelope with gold polka dots with cash inside

This is where you allocate different amounts to each of your wants, for e.g. take out, entertainment, shopping, etc. You then keep these amounts in separate envelopes at home. You can only spend what’s in your envelopes, nothing more.

Admittedly, there are downsides to this system. It’s a hassle to make frequent trips to the bank, using cash means you miss out on credit card rewards, plus cashless payments are becoming increasingly popular with the ongoing pandemic.

Though I wouldn’t recommend using this method for all your spending, it could be useful to target specific areas of spending. If you enjoy eating out, but want to cut back, keep a limited amount of money in your ‘eating out’ envelope. When you go out to eat, just bring some cash from the envelope and leave your credit card behind. This will help you to be more conscious of your spending and save more.

Cashless Envelope System

A woman swiping her credit card, with a glass of orange juice nearby

This is a modern take on the classic cash envelope system. Instead of keeping cash, you can keep receipts and an expense tracker in each envelope. You can opt for cashless payment and jot down your expenses as they occur. Your expense trackers should have three columns: description, amount, and how much you have left to spend.

Alternatively, you can use an app like Goodbudget that allows you to create virtual envelopes for your spending categories. Assign different amounts to your envelopes, input your expenses regularly, and the app keeps track of how much you have left in each envelope. An envelope system for the modern age!

Zero-Based Budget

A man in a checkered shirt holding an empty wallet

With zero-based budgeting, you’re left with zero dollars at the end of the month. This doesn’t mean you spend everything, it just means every dollar is accounted for. You allocate all your money to expenses, savings, and investments. Thus, there’s no money lying idle tempting you to spend.

You assign purpose to each dollar you earn and when you deviate from your budget, you are essentially taking money away from a different purpose, for e.g. savings. Say you’re tempted to take $100 from your savings, try using an online compound interest calculator to work out how much you’ll have 30 years down the line if you save $100 each month. Even with a relatively low 2 percent per annum, that’s almost $50,000!

Assigning purpose to each dollar forces you to recognize the consequences of straying away from that purpose. In this case, you could be robbing your future self of $50,000 and that really helps to put things into perspective.

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Give these different budgeting methods a try and see which works best for you. When creating a budget, always remember that things don’t always go according to plan. Budgets that don’t leave room for unexpected expenses are impossible to stick to.

To leave some breathing room in your budget, make sure to allocate some money to miscellaneous expenses. As this amount accumulates over time, it will form an emergency fund for you to draw from in the event of emergencies.

For more personal finance tips, check out my blog post on practical ways to live within your means.

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Hi there!

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Hi, I’m Vidhya. I’m a freelance writer and millennial who often struggles with adulthood.

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