Budgeting Strategies for your personal finances

In today’s world, the option to finance various kinds of purchases has become increasingly common. And most of the time, this financing is on a monthly basis.

As your monthly expenses vary and grow, it can get a bit messy to accurately track where your money goes at the end of every month.

There are different budgeting strategies that exist to let you better track your spending, and you’re at the right place to learn more about those! 

Let’s start up with our three favorite strategies.

Budget splitting/slicing

The budget splitting strategy, also called budget slicing, became increasingly popular over the years, thanks to its simplicity. Why is it so popular you might ask? Because you basically split your budget in three main categories based on a percentage of your revenue. How these percentage amounts change depends on many factors; you can learn more on the budget splitting’s rules here.

First of all, most of the budget goes to the Essentials category (a.k.a. the Needs or “How am I supposed to live without that?” category). This is where you determine the things that are necessary for you to move forward with your life. For example, it’s in this category that you will allocate your housing, grocery (no restaurants though!), and transportation expenses.

Secondly, you only live one life, so of course the second biggest category is the Personal category (a.k.a. the Want or “It’s party time and I want to spoil myself” category). That’s the amount you’ll be budgeting for your personal purchases. Some examples are restaurants, clothing, activities, traveling and so on.

Lastly, we still want to be in good financial health throughout our life and reach personal goals. So, having said that, this budgeting strategy also takes into account a Savings category in which we allocate part of our income to either bigger purchases and/or retirement. This is as easy as just letting the monthly leftovers stack up or using saving accounts to better manage these savings.

This strategy is very simple to understand, and it’s even simpler when you use an app like Miza to do it all for you. You got that right; in our app, you just have to enter your transactions (expenses and revenue) and we’ll set up this whole strategy for you! 

Zero-based budgeting

The zero-based budgeting strategy is quite popular too, but a bit trickier to master. This budgeting strategy is very beneficial for people who like to know where all the money from their paycheck goes every time. It is actually easier to track when you have the proper tool and application.

This strategy requires high dedication to your personal finances, but once you get the hang of it, you’ll probably know more than anyone where your money goes. 

The strategy consists of giving a goal for every penny that you receive in your paycheck.

Let’s say you receive a $1000 paycheck, you need to figure out what are the expenses coming up until your next paycheck and what you’ll be able to do with that $1000. Whether it’s purchase oriented or saving for goals, you’ll have to determine exactly what will happen with that newly received money.

The good? Well, unlike your socks and the laundry machine paradox, you won’t lose track of any penny when applying this strategy and you will know exactly how much money went where and become more autonomous overtime. 

Want to use this strategy? YouNeedaBudget does it quite well and is known for their knowledge on this matter.

Envelope budgeting

The envelope budgeting strategy is truly the oldest budgeting strategy out there that was invented before digitization of money. People used to define specific expenses categories in envelopes and they would put a specific amount to be spent during the month.

This strategy enables better self-control because you could actually see the amount of tangible money decreasing as the month passes. Therefore, the potential lack of additional cash makes a person want to aim under the spending limit. It’s a bit harder to reproduce this feeling nowadays where we pay everything by card and we don't directly see what’s left after each expense.

We tried reproducing a similar scenario within our budget app, Miza. That way, if you want to create a budget by category, we’ll give you the monthly allowances per category based on your revenue. It’s not as effective, but at least you’ll see on screen if you’re about to overspend in a specific category.

Conclusion

There are more strategies out there that you can discover, but they are kind of similar to what was covered in this page. If you’re more into savings and stacking, you’ll definitely prefer the Pay-Yourself-First strategy where it prioritizes the ‘savings’ and ‘goals’ categories. We’ll definitely want to cover it up later in this blog, but in the meantime, we recommend playing around with these three budgeting strategies to see which one works best for you.