There are a number of ways to approach the task, but personal budgeting, at the most basic level, is simply making sure you have more money coming in than going out. The form, or approach, you use depends entirely on what you're most comfortable with, and what your budgeting goals are.
Zero Based Budgeting
Zero-based budgeting is a form of budgeting that allocates every penny earned to a budget category. Some call this "assigning every dollar a job," while others say you're "giving every dollar a name." No matter what you call it, the goal of zero-based budgeting is to have no unassigned income after you've created the budget -- and no negative balance, either. If you earn $1,000 in one week, but all of the bills are paid, you don't just leave the money sitting there until new bills come due. Instead, you allocate all of it to pre-fund future bills, so the money is already available when needed, and you're not tempted to blow it on an impromptu shopping spree.
Incremental budgeting is budgeting as you go, with what you've got. This is a common form of budgeting when you first start out, and don't have a month's worth of money to set aside all at once. Each time you get paid, you divide up the income amongst your most pressing bills and needs. Large expenses often need to be partially funded as you go: a $1,000 mortgage payment, for example, may require setting aside $250 each week in an incremental budget.
Putting aside extra money for larger purposes or goals is a common reason to use the future budgeting form. Future budgeting can be combined with both the zero-based and incremental forms of budgeting. In both cases, small amounts of money are purposely set aside to accumulate so that a larger purchase can be made, such as putting a down payment on a home, or buying a new car. This form of budgeting can also be helpful for getting ahead on everyday bills, by setting aside enough money over time to completely fund a new month's budget before it even starts.
Debt reduction, or debt payoff, is another common form of personal budgeting. Made popular by the Dave Ramsey snowball system, debt payoff budgeting focuses on allocating every bit of spare change to paying off different types of debt. Once one debt is paid off, the budgeted funds for that bill are added to the budgeted amount for the next, so that it can be paid off faster.
- The Total Money Makeover: A Proven Plan for Financial Fitness; Dave Ramsey; 2007
- The Digirati Life: How To Make A Budget In 10 Easy Steps
Kathy Burns-Millyard has been a professional writer since 1997. Originally specializing in business, technology, environment and health topics, Burns now focuses on home, garden and hobby interest articles. Her garden work has appeared on GardenGuides.com and other publications. She enjoys practicing Permaculture in her home garden near Tucson, Ariz.