When it comes to building a budget, there’s no one-size-fits-all approach. But there are lots of strategies that will help you keep track of your money, spend it wisely, and save more.
Here are three budgets that will help you build your dream life by putting your savings first.
1. Saving First Budget
The Saving First Budget, or Pay Yourself First budget, is a spending plan built around your savings goals, like homeownership, retirement, or growing your wealth.
This is a reverse strategy from the typical budget, where savings generally come last on your checklist.
Luke Donnenworth from Bank Midwest’s Commercial Lending advised paying yourself first should be a top priority for anyone, regardless of where they’re at in their lives.
(Find more tips in the Dream, Plan, Live podcast: How to Build A Financial Fresh Start This Year.)
So how do you build a Savings First Budget? First, after assessing your typical spending, you’ll decide how much you want to pay yourself every month to put away into savings. Then you’ll decide what your savings goals are and pinpoint how much you want to save on your income every month.
Let’s say your annual income is $40,000, and you decide to put 10% of your annual income towards retirement. That means you would put $4,000 a year towards your retirement, or about $334 every month. That becomes the basis of your budget then you will be followed by your other expenses.
2. 50-30-20 Budget
The 50-30-20 plan is a popular budget that outlines how to spend your money for your essential expenses, your wants, and of course, your savings.
Under this guideline, 50% of your take-home pay goes towards essential expenses, like housing payments, utility bills, and groceries. 30% of your take-home pay will go to your wants, like going out to dinner or seeing a movie. Then 20% of your income will go towards your savings and debt repayment.
20% is a good general rule for savings, but of course, this isn’t possible for everyone. When it comes to saving, it’s best to start by becoming familiar with all of your expenses and put what’s leftover into your savings account.
Use this budget worksheet to help get started.
3. Zero Based Budgeting
The building block idea behind Zero Based Budgeting is that every cent you earn should have a purpose. In this system, you’re allocating every dollar you make to a specific place in your budget, like expenses, savings, and debt repayments. Your goal in Zero Based Budgeting is that your income minus your spending for the month should equal zero.
To be clear – this does not mean spending all your monthly income on a shopping spree. This method helps you know that the money you earn will go to a specific place to categorize your expenses and build your lifestyle.
Want more finance tips? Listen to Dream, Plan, Live: the Bank Midwest podcast to learn more about how you can live your best life by saving better.