Three Simple Approaches to Budgeting

by Jessica Sommerfield · 1 comment

There are three basic approaches to budgeting: the loose or no-numbers budget, the average budget, and the extensive budget.  As a rule, there are no right or wrong ways to budget, as long as you are doing it, and as long what you are doing works for your lifestyle and helps you achieve your personal and financial goals. Let’s take a look at these three budget types and the pros and cons of each.

The Loose Budget

The loose budget, sometimes referred to as a no-numbers budget or a non-budget, is a relaxed way of budgeting that is often critiqued by more conscientious budgeters. The truth is that any plan, no matter how loose, which limits the amount you spend or specifies the amount you save is a bona fide budget. Some people find this care-free approach suits their personality and their lifestyle just fine. Without feeling pressured to watch every penny spent, they are free to enjoy their spending. And, as long as there are guidelines such as a debt ceiling and a modest amount of savings occurring, this approach meets the minimal requirements for financial responsibility. If you follow this approach, however, you may find that you are not able to achieve your goals as quickly as with more regulated spending, and you may have considerably more debt.

The Average Budget

This is the budget approach popular with the largest number of people. It is more disciplined than the loose budget while still allowing for some freedom of choice and flexibility in discretionary spending. Some common types of the average budget are:

  • The pay-yourself-first budget
  • The flexible budget
  • The monthly allowance budget

Some people choose to save first, otherwise referred to as ‘paying yourself,’ and then allocate the remaining funds for discretionary spending. Arguably one of the best methods for achieving savings goals quickly and effectively, it is also viewed by some as too restrictive, turning savings into a chore or just another bill rather than a willful, rewarding activity. If you have difficulty saving spontaneously or willfully, this approach may help you be more disciplined while taking the pressure off your lack of willpower. In other words, if your savings money is not even considered part of your spending budget, you won’t have the chance to be tempted to blow it.

Flexible budgets allow for a framework of desired spending limits in various categories which serves as a guideline for spending. If the budget is exceeded in one area, it is simply reduced in another to accommodate. Monthly allowance budgets attempt to put a finger on how much discretionary spending you have while not restricting you to where and how you will spend it.

The Detailed Budget

The detailed approach to budgeting treats one’s personal finances as if they were a business’s, with no room for flexibility, and no excuses for not reaching financial goals. Although many people find this too hard, too time-consuming, or simply unnecessary, some find that it is the best and most effective way to take control of your finances and in a larger sense, your life. Detailed budgets often use a complex spreadsheet or envelope system which allocates each dollar of income to spending or savings categories. Those who have extensive or large-scale financial goals or don’t have the self-discipline for less structured budgets may find this method highly effective and satisfying.

Whatever approach you take to budgeting, it is important to do so. Taking control of your finances at any level is a step closer to financial freedom, achievement, and greater success in all areas of life.

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{ 1 comment… read it below or add one }

Prof Angela Miri July 19, 2013 at 11:37 am

Although the three approaches are not entirely new but I find the tips very refreshing, and if followed conscientiiously could actually take one out completely from financial quark mire.I believe I can learn a lot from more of such tips.
Angela Miri

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