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Are you looking to organize your personal finances? Your first step should be choosing the right budget for your needs. A budget is a summary of your expected income and expenses over a given time period. It allows you to track your money and minimize unnecessary spending. There’s no one-size-fits-all budget method—what works great for one person may not be the best approach for you.

The key to any successful personal budget is how well you manage your income and expenses.

Income: When looking at the income portion of your budget, make sure to include all sources (full-time work, part-time job, commissions, birthday money, etc.).

Expenses: Your household expenses generally include:

  • mortgage or rent
  • credit cards
  • other debts (e.g., auto loans, student loans, home equity loans)
  • utilities (e.g., water, power, telephone, internet, cable)
  • insurance (e.g., home, life, auto, health, disability, long-term care)
  • savings and investments (e.g., savings accounts, retirement plans, college funds)
  • groceries
  • clothing
  • entertainment (e.g., dining out, movies, sporting events)
  • child care
  • auto maintenance (e.g., fuel, oil changes, inspections, repairs)
  • charitable contributions
  • out-of-pocket medical expenses (e.g., procedures and visits not covered by insurance)
  • vacations
  • pet care (e.g., vet visits, boarding, grooming)

Everyone’s categories will be different. The important thing is to include the ones you need. You can do this in a snap by tracking your spending. You may be surprised to learn how much you’re spending in certain areas. The sooner you’re aware of increased spending, the sooner you can take steps to adjust if necessary.

So where should you start? Let’s look at five different methods of budgeting and the pros and cons of each.

Traditional Budgeting

Setting up a traditional budget requires some work up front, but it can help you get a detailed picture of where your money is going. The first step is making a list that breaks out income and expenses. You can do this by creating a spreadsheet to update monthly with your numbers. Use our monthly budget worksheet to see how your income and expenses stack up every month. This allows you to target areas to reduce spending and set savings goals. Each month, you can review and adjust the amounts budgeted for each of your spending and savings goals.

Pros: A traditional budget is great for putting your income and expenses under a magnifying glass to rein in spending.

Cons: The level of detail required to keep up this budget can be time-consuming and difficult to maintain.

50-20-30 Budgeting

One simple way to assign income is to divide it proportionally among three basic categories: essentials, financial obligations and “fun money.” This type of budget is known as proportional budgeting, or a 50-20-30 budget. The first 50 percent of your income goes to necessities (e.g., rent, food, utilities). The next 20 percent pays for expenses you should prioritize (e.g., getting out of debt, retirement savings). The final 30 percent is for non-essentials (e.g., shopping, travel, dining out).

Pros: This budgeting method is relatively easy and gives you some leeway to save money for the fun stuff.

Cons: Debt repayment and savings are lumped together in the smallest category, so you could fall behind in those areas, especially if you have a lot of debt.

Reverse Budgeting

Reverse budgeting is a technique that prioritizes your debt repayment and savings goals above everything else. With this method, you focus on one big goal every month—it might be paying $300 toward credit card debt or adding $500 to savings. You complete your monthly goal first, and then cover the rest of your monthly expenses with the money left over.

Pros: This is the simplest budgeting method since you don’t need to spend much time tracking your expenses, and it’s rewarding to accomplish one goal every month.

Cons: This method doesn’t provide much visibility into your spending, so you could overspend if you’re not careful.

Two Checking Account System Budgeting

This simple budgeting technique helps prioritize your fixed expenses like rent or mortgage payments, utility bills or child care. Setting up two checking accounts (one for fixed expenses and one for everything else) can be an easier way to stick to a budget. You can get started by making a list of monthly, quarterly and semi-annual fixed expenses. Then, set up automatic payments from this account to ensure payments are never late. After that, put all of the money you have left over in a separate checking account for entertainment, dining out, etc.

Pros: This budgeting method is easy to follow and helps you make better choices about how much you should be spending on things like entertainment or dining out.

Cons: It's easy to overlook the importance of an emergency savings account.

Value-Based Budgeting

This budgeting method helps you focus on saving for the things that you value most in life. You can get started by making a list of your passions ranked in order of importance. Every month, you pay all your bills and necessities first. Then, you put your disposable income toward your top priorities. If you have $500 left in your budget, for example, you might save $300 for a down payment on a home, $150 for travel and $50 for charitable giving.

Pros: This method works well if you want to focus on the big picture and stop spending money on things that don’t matter to you.

Cons: It’s easy to overlook less exciting, far-off goals like retirement savings with a value-based approach.

Something as simple as following a budget can help you get ahead financially. And, when you choose an approach that’s right for you, you’ll be more likely to stick with it in the long run. Learn more about how Navy Federal can help you set financial goals and create your budget.


This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.