3 monthly budgeting options you can set and forget

Often times, “budgeting” can be a word that brings up a slew of questions. Who should have a budget? How detailed do I have to get? Which expenses should I place in each category? If you’re like me, you never received a budgeting lesson in college …or ever! But, at 23 years old, I decided I was tired of being totally blindsided by major car repairs that threw off my finances for months, and I dove into some budgeting research of my own.

There are three exceptional plans I’ve found that vary in detail to fit anyone’s lifestyle. From the budgeting novice to the most precise pro, we’ll explain how to get started on a monthly budget you can set and forget.

The 80/20 budget

Commonly referred to as the “Pay Yourself First Budget,” this is the easiest plan for those just beginning their budgeting journey. The first 20% of your post-tax income is transferred right into your savings account on payday, while the other 80% is left to spend freely without any additional math. It is recommended that 10%-15% of your savings be directed into your retirement account, while the other 5%-10% will serve as emergency savings, or funds for future big item purchases.

60% Solution

Only slightly more detailed, this plan simply allocates 60% of your after-tax income towards “committed expenses.” As you probably guessed, this includes necessities like food, clothes, transportation, insurance, monthly bills and regular expenses. Also falling under committed expenses are reoccurring monthly purchases such as music lessons you have “committed” to providing your children. While the lessons are not a necessity, they are a promised purchase that must be paid for regularly.

The leftover 40% of your income will then be split four ways into separate groups.

• 10% retirement (401(k), Traditional, Roth, or SEP IRA)
• 10% long term savings (emergency fund, down payment for a house or car, debt payments)
• 10% short term “irregular expenses” (think reoccurring predictable expenses such as holiday shopping, birthdays, back to school supplies and vacations)
• 10% fun money (funds to spend on anything you’d like such as dining out, monthly subscriptions or other hobbies)

The Zero Balance Budget

You may have heard of, or even used, the “Envelope Budget” popularized in the ‘90s by Dave Ramsey. While technology has long outgrown using envelopes to divide cash for monthly expenses, the overall formula still stands strong. In this budget, every last penny of your paycheck is accounted for. While this process may seem a little daunting, it can all be completely automated within your credit union or bank’s online and mobile applications.

1. Write down the average amount of your seven most costly monthly expenses. For example:

• Rent or mortgage payment
• Car payment
• Car insurance (plus health, vision and dental insurance, if not automatically withdrawn from your paycheck by your employer)
• Utilities
• Outstanding debt (student loans, credit cards)
• Subscriptions
• Cell phone bill

2. Determine how much you get paid every paycheck. By breaking your budget down into a bi-weekly timeline, you’ll ensure that you won’t be in a financial pinch at the end of every month.

3. Subtract your bi-weekly paycheck amount from the total of your seven expenses. This total will be the money you’ll use for food, transportation and any recreational spending.

4. Create seven sub-accounts in your credit union or bank account. At Alliant, you can open up to 19 supplemental savings accounts at no additional cost. Then, set up automatic transfers from your checking account after each paycheck to send half the cost of your rent, cell phone bill and other five expenses into each assigned sub-account.

5. What’s left in checking is yours to spend. When it comes time to make a payment for one of your seven expenses each month, simply transfer the funds to your checking account, and immediately make the payment so there is no chance of spending the money for your bill.

6. At the end of the month, if you have any leftover money in your checking account, transfer it into a high-yielding savings account. This is where the name Zero Balance Budget comes into play. On the very last day before you get your first paycheck of the month, take note of how much is in your checking. The morning you get paid, make sure to transfer that leftover amount into savings, so every penny from the previous month is accounted for.

Claire Hegstrom is an advocate of the credit union movement through and through. Passionate about financial education, she approaches money conversations from a candid and inclusive space focused on growth and awareness. As our credit union founding father, Ed Filene, once said, “Progress is the constant replacing of the best there is with something still better.” Claire hopes reading Money Mentor will help transform your life from the best to even better.