Budget Smarter Not Harder

There’s no one “right” way to budget because everyone manages money differently. Some people thrive under structure and limits while others prefer flexibility and big-picture planning. Fortunately, there are several proven budgeting methods to help you take control of your finances. From old-school cash envelopes to modern percentage-based systems, different methods will work better for you based on your personality and habits. When you budget smarter and not harder, you can effectively manage your finances to cover your current needs, wants, and future.

Four Budgeting Methods

At Alltru, we encourage members to try a budgeting strategy so there’s a clear method to the madness. Depending on your needs, personality, and habits, you may find that one method works better for you than the others. If you can’t decide which one to use, try one for a couple of months and see how it goes. If it’s not for you, try a different method.

1. The Envelope Method

The Envelope Method is a great method for budgeting if you struggle with overspending, whether it’s in general, on fun money, or even on groceries. Even though this is an old-school method, it’s still popular because it works. It’s great for those just starting to budget so they can get used to having a limit.

Here’s How:

1. Label envelopes for each monthly expense (rent, groceries, entertainment, etc.).
2. Put the amount of cash you’ll need for each category in the appropriate envelope.
3. Spend only what’s in the envelope. Once it’s gone, you’ve reached your limit in that category of your budget.

This hands-on method helps you visualize your spending and retrain your brain to stay disciplined.

Example:
James earns $3,750 a month and divides it into envelopes such as:

• Rent: $1,125
• Utilities: $225
• Groceries: $525
• Insurance: $450
• Transportation: $300
• Loans: $375
• Savings: $750

If money is tight and you can’t afford to put an entire month’s worth of money in each envelope, you can adjust this method. Divide what you can in half and stuff envelopes with the money from your other paycheck closer to when your payment is due.

Here’s a breakdown for James if he earns $1,875 each paycheck:

• Paycheck 1
  • Rent: $1,125
  • Utilities: $162.50
  • Groceries: $262.50
  • Insurance: $175
  • Transportation: $150
  • Loans: $0
  • Savings: $0
• Paycheck 2
  • Rent: $0
  • Utilities: $62.50
  • Groceries: $262.50
  • Insurance: $275
  • Transportation: $150
  • Loans: $375
  • Savings: $750

2. The 50/30/20 Budget

This budgeting method divides your after-tax income into three categories: needs, wants and goals. This budgeting method is a great option for those who don’t thrive tracking every penny. These groups help you keep your priorities intact and allow you some wiggle room. 

• 50% Needs: rent, groceries, insurance, transportation
• 30% Wants: entertainment, travel, hobbies
• 20% Goals: savings, debt payoff, investments

You might try (and fail) at new recipes, so your grocery budget might be $100 higher this month. With that in mind, try to find ways to save on your other needs so you can keep your total at the 50% threshold.

At the same time, you might have a cancelled date night and have an extra $50 in your pocket. You can still spend this on another want purchase without worrying about overspending.

Example:
With $3,750 in monthly income, James’s budget would break down like this:

• Needs: $1,875
• Wants: $1,125
• Goals: $750

If his needs exceed 50%, James can adjust temporarily or try another method like the Pay Yourself First method.

3. The Pay Yourself First Method

Prioritizing saving money while trying to pay your necessary bills and enjoy life can be difficult. With the Pay Yourself First method, you save 20% of your income before spending anything. This is easy with automatic transfers, and the other 80% of your income is used to pay for everything else, both your needs and wants.

Example:

With $3,750 in monthly income, James’s budget would break down like this:

• Savings: $750
• Spending: $3,000

As long as James saves $750, everything else can be spent how he sees fit, whether it be on needs like rent and insurance or wants like dining out and playing golf.

The Zero-Based Budget

In this method, income minus expenses equals zero. This means that every dollar is assigned to something in your budget, including savings.

Steps:

1. List income.
2. List expenses and goals.
3. Adjust until income – expenses = 0.
4. Track and revise monthly.

This method helps you stay intentional and accountable, ensuring no money is wasted. By adjusting your zero-based budget each month, you’re ensuring that every expense will be covered without pulling money out of savings.

This is the method that I’ve been using for the last few months and it’s worked well. Toward the end of last month, my family made plans to stay at my house for a weekend. Since I knew this trip was coming, I started the month with more money in my grocery category. To make this work, I put less in my transportation and entertainment categories. For this month, I can adjust my budget back to what it was a few months ago.

Which Budget Works Best for You?

The right method depends on your goals and personality. If you have trouble saving each month, the Pay Yourself First method is a good option. If you tend to overspend, the Envelope Method will help you develop the habit of following your budget. For people who need to focus on spending their money where it matters, the 50/30/20 method will work great. If you need some flexibility, try the Zero-Based Budget.

Plan Ahead with Better Budgeting

A good budget shows you how much you can afford to spend, how much you can save, and when you can start investing for the future. Sounds great, right? So why do so many people give up on budgeting? Because it feels impossible to predict the future.

In general, a good budget shows you how much to spend and save each month. Many give up because it feels impossible to plan ahead to set yourself up for the future. Too many are just focused on spending each paycheck to cover their expenses, enjoy life, and maybe plan into the near future.

While you can’t predict how much money you’ll need in the future, you can build a budget that gives you a strong starting point using this simple formula:

Knowledge of the Past + Knowledge of the Present = Assumptions about the Future

Budgeting might feel overwhelming, but it doesn’t have to be. Use these tips to make it easier.

Get Back to the Basics

Start with your everyday expenses. The little things that we buy regularly add up fast without us even realizing it.

Make a list before you shop and stick to it. I also use a digital shopping list to support my healthy-eating goals. (Before heading to the store, check your grocery app or rewards programs for digital coupons to squeeze in extra savings too.)

Once you understand your daily spending, organize it into budget categories such as groceries, dining out, transportation, or personal care. Your categories can be as detailed or simple as you like. Just make sure every expense has a place.

Here’s how I organize some of my expenses:

• Groceries: Any food from grocery stores like Schnucks, Aldi, etc. or snacks from Target and Walmart.
• Personal Care: Any item related to hygiene, beauty, or clothing. I include things like toothpaste, shampoo, vitamins, shirts, and feminine products.
• Daily Living: Essential household items that don’t fit elsewhere like laundry detergent, aluminum foil, cooking spray, and paper products.

Revisit Your Household Budget

If it’s been a while since you reviewed your budget, now is the perfect time. Look at all your current bills and see how much you’re spending. Sometimes when insurance plans renew, the price changes but we don’t notice at first.

Example categories:

• Mortgage
• HOA fees
• Internet
• Utilities
• Auto loan
• Insurance

I like to use the “ask nicely” approach to see if I can decrease the cost of some of my bills. I talked to my insurance company and they allowed me to bundle my homeowner’s insurance with my mortgage payment and gave me a discount for doing so.

Use Technology to Help

If you’re like me, you might panic if you can’t remember where you set your phone. Since we carry it everywhere, we can use our phones to help us track spending.

• Use the Alltru app to track your spending in real time and transfer money to your checking and savings accounts.
• Review your online statements to see what comes out each month.
• Download a budgeting app so your plan is always with you. I use EveryDollar, but you can try different apps to find what fits you best.

With all these tools at our fingertips, there’s really no excuse not to stay organized.

Make It a Team Effort

Budgeting works best when everyone in your home is on the same page. This starts with your partner, especially if you combine finances. I can stay on track with our budget by using the app. My husband really struggles with this. If he plans to run errands, I’ll give him cash to ensure he doesn’t overspend.

One great strategy is giving each family member a “fun money” category. They can spend it however they want. As long as everyone stays within their allowance, extra purchases won’t destroy your hard work and planning. Also, looping friends in helps them support you and understand why you may need to turn down an invitation from time to time.

Remember: It’s Okay to Slip Up

When you budget for the first time, you’ll probably find that you overspent in some areas and underspent in others. You may have success for one month and then flop the next month. Consistency is key with trying anything new. The longer you do it, the easier it’ll become.

A Bird’s-Eye View of Budgets

Building a better budget doesn’t have to feel overwhelming. A thoughtful budget shows you exactly where your money is going, highlights opportunities to save, and keeps you on track for future goals. By taking a step back and thinking about budget as a concept and then in basic steps, it can help you get a different approach. Let’s talk about tips for building a better budget.

Step 1: Review the Past Year

Take a look at where your money went, what changes you can make, and how to plan for the upcoming year. Compare your household income to your spending by reviewing your online account statements. Knowing how much you spent last year will help you see how much you actually need to set aside each month.

But just knowing the numbers isn’t enough. You have to take action. Start grouping regular purchases into categories such as food, entertainment, and transportation. Then, look at how much you spent in the past few months on these purchases and assign a monetary amount to it. Next, flag expenses that surprised you or felt unnecessary and create space for those miscellaneous purchases.

Step 2: Predict the Future

Now add in upcoming expenses you know are coming that you didn’t have last year. This can include a wedding, vacations, and school tuition. By budgeting for these expenses before you need to pay for them, you can save ahead of time and avoid credit card debt.

I know that next year, I’m going on vacation in early April and will have college expenses to pay in August. With this in mind, I want to save $1,500 for my vacation and $2,000 for my college expenses. I’m going to open dedicated savings accounts for these expenses at the beginning of the year. Starting in January, I’ll save $500 each month for my vacation and $286 each month for my college expenses.

Step 3: Adjust as Necessary

After reviewing your past and future spending, you’ll quickly see whether your cash flow is heading in the right direction. You might notice that expenses are higher than income (a budgeting red flag), or that you’re spending too much on wants and not enough on savings.

If so, start making adjustments. Reduce your allowance in categories where you can to shift money toward your goals. By asking if something is a need or a want, you can place it in your budget where it fits best and cut it out if you can live without it.

Step 4: Know Your Goals

Budgeting isn’t just about paying bills. It’s about preparing for your long-term future. That future includes big expenses like a new car or a home, as well as ongoing commitments such as college costs and retirement.

Now that your bills are covered, make room for your long-term goals. If your budget is tight, you can still start saving a little each month to make your future more comfortable.

Step 5: Practice Your Budget with Grace

Like I mentioned earlier, you’ll have some wins and some losses when trying to implement a budget. To ease the transition, you can stary slowly by adding new categories each month until you are using your entire plan.

Here’s an example of how to slowly implement your budget:

Month 1

• Groceries
• Transportation
• Rent

Month 2

• Groceries
• Transportation
• Rent
• Credit card payment
• Emergency fund

Month 3

• Groceries
• Transportation
• Rent
• Credit card payment
• Emergency fund
• Entertainment
• Personal Care

Ready to Start?

The best budgeting method is the one you’ll actually stick with. Whether you need strict limits, clear spending priorities, or flexibility, there is a method that you can use to stay on track. Budgeting isn’t about restriction. It’s about being intentional with how you use your money so you can save and spend on what matters the most.

Alltru is here to help you open dedicated accounts and track your spending and balances with mobile banking. Ready to feel empowered and start budgeting?