How to Budget Your Money: Personal/Household Budget Plans Explained

How to Budget Your Money: Personal/Household Budget Plans Explained
04:46, 28 October 2021

Everyone who uses personal finance accounting gradually comes to budgeting. The reasons are probably different, but essentially, they all boil down to one thing: to make your financial accounting more efficient, that is, to have more money in your pocket, because that is why people start counting it.

If you want to achieve financial goals and spend money wisely, it is necessary to organize a personal and family income, but it’s not so simple. A lot of different types of budgeting models and tools with several difficult levels are in economics and are demanding more practice than others.

What type of budget is better for you? Are some tools different from one another? How do you control your budget? We’ll help with the answer to these questions below, describing current models of a budget with their tools and how to set it up, what types we need to consider and how to keep a new budget.

Personal Budgeting Models

Some different budgeting models exist on your choice and which will be better depends on your financial situation. Below we describe models and which is better for everyone.

The Envelope System

It’s a system based on cash and credit – avoiding, when you divide money into several envelopes or another can for various aims, for a mortgage, utility bills, shopping, entertainment, and c.t. You take your salary after paying taxes and divide it into these envelopes and spend money strongly by envelope until your next salary.

You can distribute your paycheck according to a payment schedule, such as weekly, monthly, or bi-weekly. You can also choose envelope categories based on your lifestyle and financial situation, which makes this method very customizable.


  • Easy to understand.
  • Flexible and customizable.
  • Once each envelope is empty, you stop spending in that category until the next pay period, making it easy to stick to savings goals.


  • Can be harder to track if you don't use physical cash, such as if you pay bills online (although there are online budgeting tools for this, discussed below).
  • Restrictive and requires a high level of discipline; once you have spent all the money in one designated category, you should not take money from another category or spend more in that category until you get paid.

Best for: People looking for a simple and straightforward budget; people who want to reduce their dependence on credit

The Incremental System

The system is a building a plan based on your last year's income and expenses. It's showing you how much money you spend on “wants” and the total amount you need to spend and your saving aims. If you don't expect your income to change much next year, you can use last year's spending, saving. And income to get a clear, realistic idea of how much you will spend and save, both monthly and before next year's budget update.


Relying on last year's numbers simplifies the budgeting process and gives you a clear, realistic starting point.


  • Inflexible; you typically only update it once a year to account for changes in your spending habits, cost of living, or income.
  • To start using this system, you either already have to track your spending and savings for one year or review your statements for the year (for all bank accounts, credit cards, investment accounts, etc.).

Best for: People who have a regular, stable income, established spending habits that should not change much over time.

The No-Budget System

The “no-budget” budget is a casual, flexible method of budgeting. With this system, you don't need a spreadsheet or an application. Your only tool will be your checking account. Using this type of budgeting, you will need to keep track of your checking account balance. In doing so, all automatic write-offs of your cash, regular loan payments, and all savings mentally. After all necessary payments have occurred, you will be left with an amount that you can spend as you wish, such as going to the movies, outings with friends, cafes, and vacations. It may be the calmest system, but it doesn't encourage saving because it doesn't teach you to say no to discretionary spending.


  • More flexible than other budgeting systems because you won't be rigidly adhering to expense categories.
  • You need minimal effort, unlike other systems.


  • Can be unorganized and hard to follow.
  • Not conducive to improving spending and saving habits.

Best for: Those who don’t like wasting time on budgeting as well as those who don't want to feel constrained by "fun" expenses.

The “Pay Yourself First” System

The system is also known as a "reverse budget" that means to pay for yourself first, prioritizes in the following order:

  • Savings.
  • Repayment of existing debts.
  • Necessary expenditures.
  • Discretionary spending.

By making saving money your top priority every time you receive your paycheck, you are "paying yourself"- that is, putting money aside for your future and financial goals. With each paycheck, you will first set aside money and then make payments to cover all debts (such as educational loans or mortgages), pay bills, or other necessities. And then, you can get on with your shopping after prioritizing the more important categories. By setting monthly savings amounts, you'll eliminate the necessity to keep records and calculations in that system. In addition, you can even do automatization all transfers to your savings account.


  • Encourages readiness, allows for a stable emergency situations fund.
  • Discourages discretionary spending until all of your more important financial needs are covered.
  • Easy to use, has a structure, no percentage calculations required.


  • Doesn’t suit if you have loans and credit cards with high interest.

Best for: people without loans, credits, etc., those who don’t like to make a time-consuming, itemized budget.

The system of proportion

Basically, there are 3 proportional models in the system, but you can use any one or choose your own percentages.

1) 50/30/20 model:

  • 50% - for your needs (housing, food, etc.);
  • 30% -for your wishes (cinema, festivals, vacations, etc.);
  • 20% - for the payment of debts.

2) 80/20 model:

  • 80% - for bills and all other living expenses;
  • 20% - for savings.

3) 60% solution:

  • 60%- for living expenses like mortgage, rent, groceries, utilities, etc.;
  • 10% - for amusement;
  • 30% - for savings (retirement, short-term goals, and long-term goals).

A proportional system is like the envelope system, but with fewer categories. Usually, it is a dividing of available funds into necessary spending, discretionary spending, and savings goals.


  • Easy to understand.
  • Highly customizable; you can choose from a wide range of proportions, from restrictive plans with aggressive savings to "live in the moment" models with great spending.


  • You must honestly distinguish between your wants and your needs. For those who have never tried using a budget, this can be difficult.

Best for: those just starting out on a budget and those who don't want to create a complex system; people who want a very customizable budget that can be easily followed and adapted as they progress through their careers.

The Traditional “Line-Item” System

A paper or spreadsheet is usually used in traditional budgeting for tracking monthly expenses. This system is usually used in business but it also can suit your personal budget as well.

Firstly, do a list of regular monthly expenses, savings, and investments.

For living without debt, you should plan to pay your debts more actively.


  • Easy to create, both on paper and in a spreadsheet.
  • Very detailed.
  • Since you'll be adjusting your budget manually each month, you can easily account for things like changes in income (if you work a shift schedule and get paid by the hour) or fluctuating expenses.


  • Need a lot of time and effort, especially if your expenses and spending change every month.
  • Help keeps track of expenses but doesn't provide guidance for achieving savings goals.

Best for: People who are just starting out in budgeting, who need an easy system with a clear understanding of their current financial situation.

The Values-Based System

In this system, prioritization is the main focus. This method is similar to the "pay yourself first" system. But there is a difference, in this system, you determine your own priorities rather than following an already established system. Firstly, you need to know what is more important for you.

For example:

  • If you want to live comfortably in retirement, but you are currently saving 10% of your salary each month into your retirement fund, you may want to cut other expenses and increase that monthly contribution.
  • If you want to live without debt, you should make a plan to pay off your debt more actively.
  • If traveling is very important for you, but basically, you spend most of your money on amusement and less on traveling, cut back on first, and create a travel fund.

You'll assess your actual spending habits, then determine how your spending habits match your priorities. If necessary, make adjustments to bring your budget in line with your values (but major expenditures such as housing and transportation remain a priority).


  • Focuses on your life values and priorities.
  • You always know your personal priorities and aims.
  • You will focus on your happiness and well-being.


  • Difficult at the beginning, especially if you don’t know your priorities.
  • There may be overspending on non-essential categories.

Best for: People who feel they don't have the money for what they really want or wish to make personal satisfaction a priority, as well as proper money management

The Zero-Based System

When expenses are subtracted from income to arrive at zero, it's zero-sum budgeting. When using this method of budgeting, all dollars you earn have a specific purpose. For example, money to pay all loans and debts, money to fulfill your wishes, money for your leisure and entertainment, and money to pay bills. Saving in this system is treated as a mandatory expense. Saving is mandatory every month. Because of this, you achieve progress toward your savings goals and do not spend mindlessly. You’ll be able to keep saving only what is leftover.


  • Opportunity to study a habit to keep money every time you receive a paycheck.
  • It studies to prevent excessive spending on “wants”.
  • Every dollar has a purpose, that makes the system organized and efficient.


  • Tough, without an opportunity to have extra money at the of the month.
  • Tracking every dollar makes the system energy-intensive.

Best for: those people who want to know where all the money is going. For people, who are ready to practice the intensive method of budgeting.

Making a Budget

After determining which method works best for you, you’ll want to take inventory of your finances. Then you need to set up a tracking system.

Below we give some advice and tools which help you with making a budget.

Elements of a Budget

Any budgeting system takes into account next elements:

  • Monthly income.
  • Monthly expenses on food, house.
  • Expenses on credits, loans, and mortgages.
  • Money on amusements.
  • Money on Investments.
  • Money which you want safe on some goals like vacation or renovation.
  • Money on your future.

Firstly, you choose a budgeting system.

And because you need to see your financial situation clearly, so you need to gather all the information about your expenses, take all the bank statements, receipts, and investments. This is all necessary for a proper understanding of your finance to be sure that budgeting will work properly.

Budgeting Tools

Additional tools can always be used when planning and budgeting. Several tools are some of the most popular. Here are the following:

  • Computer programs;
  • Mobile applications;
  • Various Web sites;
  • And of course, spreadsheets.


You may use one of the popular spreadsheets in Microsoft Excel or Google Sheets or the other, or use a template. It depends on your preferences, opportunity, and your personal time. A spreadsheet is the most time-consuming of all the tools for budgeting. All this saves a lot of time compared to traditional methods like working with paper and pen. you will be able to use automatic formulas; all calculations will be fast. All elements in the table can be easily copied, pasted, moved, and manipulated without much effort.

If you decide to create your own budgeting spreadsheet, don't forget the budget elements listed above. Don't forget to include all of your earnings and also all of your various expense categories, information from your savings accounts, investments, and all of your loans and credits. As an example, you can use the Federal Trade Commission worksheet to help you create a basic monthly budget.

Computer Software

Different companies create software for budgeting, which can be easy or not, but by using them and being able to link to all the financial accounting, you will be able to keep track of your budgeting without wasting time. Below are some budgeting programs to help you keep track of your budget.


  • Buddi (for people who know little or no financial expertise),
  • GnuCash.


  • Quicken ($35 to $100 per year, suit with iOS or Android, you can connect the credit card account and the bank that really make the process simpler),
  • Tiller ($60 per year, work with Microsoft Excel, Google Sheets.),
  • You Need a Budget ($12 monthly or $84 annually, work on iOS and Android).


If you'd rather be more mobile you can use app or websites, especially if you don’t like creating a spreadsheet. Using either app, you can choose configurable budgets after registration and make adjustments at any time.

Famous apps and websites include:

1) Paid:

  • Mvelopes ($6 to $60 per month);
  • Qapital ($3 to $12 per month);
  • Simplifi by Quicken ($4 monthly or $40 annually).

2) Free:

  • Clarity Money;
  • Albert (or starting around $4 per month for Albert Genius with financial training);
  • EveryDollar (about $130 per year for connection with bank account);
  • Goodbudget (Free for a basic account or from $6 to $50 for an extended account);
  • Mint;
  • PocketGuard (Free for a basic account and from $5 to $35 for an advanced enhanced account);
  • Simple (banking without minimum deposit);
  • Wally.

Stay on budget

As you set a budget, you should adapt your habits so that you stay within your budget. Eventually, by saving more money, you spend less, and you will develop a habit of monitoring your expenses and saving. There are some tips you can use to help below.

Use modern technology

Use spreadsheets instead of simple paper with a pen. It makes the process easy. We live in the modern world and its so many opportunities to make our life more comfortable. Every year, everyday technology is developing fast, and there are big programs, apps, websites, paid and also free, it makes accessible set upping budgeting for every person.

Use pc programs or mobile apps, it can help you to save time. (There is information about free budgeting tools above). Also, you can link your bank account with computer software.

Be realistic

Don't expect your budget to be perfect immediately. If your savings goals require you to reduce expenses, it may take time to adapt to these changes and start meeting your monthly benchmarks. If your primary aim is to save money, it will probably mean cutting costs for you. it will take time to get used to the changes and meet your benchmarks regularly. Also, if you start budgeting strictly for your current expenses, it will make you stop. The key for avoid that is, to be honest with your goals and opportunity. Don’t forget about unexpected expenses (repairs, emergency, etc.). Sometimes maybe you take money from saving, for covering it. Recognizing the possibility of such expenses early in the process and being mentally prepared for them will help you keep the rest of your budget on track, even if you have to make small changes to cope with such circumstances.

Understanding early on that such expenses are possible and your preparedness for them will help keep you on track financially, despite certain changes.

Know Your Limits

Be realistic not only about your money but also about yourself. If you don't have enough time to set and maintain a budget, choose simpler budgeting tools. If math calculations are not for you — use a model without difficult calculations. Or maybe you are interested in budgeting and you are interested in doing personal finance, then a more personalized method will work for you, you can create your own spreadsheets and charts to visually understand your progress.

Budgeting is a very personal activity and keeping your own needs and interests in mind when budgeting will help you maintain it in the long run.

In conclusion

There are many models and tools for using budget easy and understandable. There are several models of personal budgets:

  • First, simple budgets like the envelope system, the no-budget system, and the proportional system.
  • Second, there are more practical budgeting systems, such as incremental or value-based systems.
  • Third, a group of more detailed budgeting systems, such as the traditional line-item system.

Despite the model you choose, any budget will include all of your income, all sorts of expenses, loans, installments, and all debts, and of course savings. If you are ready to put in the effort, and you know your financial goals, any budgeting model would work well.

The key to successful budgeting in all systems is to be realistic, understand your financial capabilities and use all modern budgeting tools: PC software, applications, the Internet, and, of course, a spreadsheet.

Having a budget helps you manage your finances in a way that moves you toward your financial goals and plans. You begin to be guided by a clear plan of action rather than intuition. This helps you both in making important financial decisions and in prioritizing day-to-day expenses.

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