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4 Types of Household Budget Methods (the How and Which Tools to Use)

Householding budgeting concept with a calculator, pen, paper charts, bills, and coins.

You’re at the checkout counter with a line piling up behind you. Your carefully chosen purchases sit already bagged and ready next to the cashier. You pull out that trusty plastic rectangle to pay for your purchases and swipe it with an air of authority; that’s when the trouble begins. Instead of handing you your receipt the cashier quietly informs you that your credit card was declined. At that moment the truth is painfully clear: You need a budget.

Keeping finances under control is one of the great struggles in American culture. It’s important to keep track of your money and where it’s going, but you don’t want to spend hours poring over numbers either. Luckily in this day and age, there are plenty of different options to suit every temperament. No matter the method you choose, and good budgeting tool should allow you to break down your expenses in a meaningful way that allows you to identify areas of overspending, plan for future changes your income or expenses, and evaluate your overall financial health. So choose a method, stick with it, adjust as needed, and get moving on your path to financial health.

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Automated Software

Laptop showing financial charts onscreen.

Two decades into the 21st century, most of us are used to machines doing a lot of our work for us. If you’d like to keep a detailed budget with as little effort as possible, an automated software program is a way to go.

In many cases, these programs connect directly to your bank and credit card accounts and pull in all of your numbers for you. There’s no need to go line by line through every purchase—they all show up for you in nice, neat categories.

It doesn’t take a genius to see that using a program is likely the simplest, most efficient way to manage your budget. The software does a lot of the work for you, saving time and eliminating human error. No math, no spreadsheets, and all of your numbers neatly presented for you on the screen. Using a budgeting program also gives you the ability to look at pretty, colorful graphs of your spending over time, helping you identify areas to cut back on and areas where you’re seeing success. Those metrics take a lot more time and brainpower to come up with on your own.

The key problem of automation is that you rely on the program categorizing your expenses accurately and synthesizing data in a way that accurately reflects your expenses. Computers are great, but they’re not foolproof. If you’re relying on an inanimate object to do your thinking for you, it’s possible it’ll miss something and give you an inaccurate view of your spending.

For example, say you order through your prescriptions through the pharmacy at your local grocery store. Automated software may not recognize that those should be categorized as a medical expense rather than grocery, making it look like you spend more on food and less on medical expenses than you actually do. Most programs do allow you to go through your transactions and categorize them yourself, but that takes time just as if you were managing your budget on your own. The good news is that with the right software you can make your categories as broad or as granular as you’d like, giving you control over how much detail you feel is necessary.

Some people choose to avoid software that connects to their financial accounts for security reasons. Having one program with account information for each of your accounts opens you up to the possibility of major heartburn if that program ever got hacked. The most risk-averse among us are simply not willing to take that chance. You could also just manually enter your expenses and take advantage of the analytical tools built into these programs without actually linking your accounts.

Some of the more robust budgeting applications cost money, so you’ll need to decide whether the cost is worth the benefit of better understanding your budget. There are also plenty of great free options out there though that should work just fine for any but the pickiest of budgeters.


Working on spreadsheets on a laptop.

The spreadsheet model of budgeting has been around as long as the personal computer. This model combines the computing power of a software program with the old-school tracking of a paper chart. Your expenses must be manually copied into the spreadsheet from your bank and credit card statements. That can be a pretty significant time commitment, and now that there are so many programs that will pull that info in for you. Still, there are benefits to going through each account line by line. You won’t miss anything, and you won’t be able to look the other way on any line items where you spent more than you should have.

If you’re spreadsheet-savvy, you can configure your tool to do some of the most important calculations that an automated program would do for you. Those calculations differentiate the spreadsheet model from other truly manual, pen and paper methods. You can even build graphs to provide a visual image of your spending, though they’ll likely be simpler than if you were using a full-blown software program.

If you’re less technologically inclined, setting up a spreadsheet can be less than intuitive. Plus they can break easily if you make any changes.


Envelope budgeting method using a calculator, a pen, and white envelopes to allocate the paper bills.

The envelope trend swept the nation several years ago and quickly gained popularity as a back-to-basics way of taming wild spending. The idea is to break your expenses into categories, and then create an envelope for each category. Each envelope gets a pre-determined amount of cash, which must last the entire month for each category. Disciples of this method swear off credit cards, believing that cards allow them to spend too easily without truly seeing where their money is going. Holding cash seems more concrete and more like “real” money, forcing them to be more cognizant of their money.

The envelope method has worked for many due to the psychological effect of holding real cash instead of a credit card. Sticking to the envelope method also keeps you from going into credit card debt or spending more than you planned. Using the envelope method enforces self-discipline and has been successful among those who previously found such discipline difficult to maintain. It also allows you to keep careful track of where your money is going since you’ll know exactly how much money you spent in each category for the month.

If you lack the discipline to sit down at the beginning of each month and organize your envelopes, you won’t last long with this method. You’ll need to go all-in and be willing to ditch the credit cards, withdraw large amounts of cash, and keep careful track of how much money you have left in each category. This isn’t a method that you can use if you’re lukewarm. It may be a great place to start if you need to get your spending in control, but it won’t necessarily help you strategize for the future or help you spot trends over time.

Traditional Paper Chart

Traditional Paper Chart Budgeting Method

For the most fastidious, old-school budgeters only a traditional paper budget will do. These types of budgets are getting less and less popular over time, but back in the daily paper was the only option available for tracking spending. Using a pen and paper to write out your budget takes more time than most any other method and lacks the bells and whistles of some modern alternatives, but it comes with some benefits of its own.

When you sit down and go through your accounts line by line, carefully categorizing them using a pen and paper, you force yourself to focus on each and every item. Nothing can be swept under the rug, and you can take time to truly consider whether each purchase was worth it in the long run.

A growing trend in the last few years has been maintaining a bullet journal, which requires users to keep track of every expenditure every day. Many bullet journals include a whole bunch of additional life details beyond just your budget, including to-do items, grocery lists, and tasks that make progress toward larger goals. These journals help make sure you slow down each day and take time to think about your money and big-picture goals.

Any paper budget tool will lack the automated graphs, charts, and multi-colored presentation of your budget (unless you break out the crayons). There won’t be anything fancy and it may be difficult to spot long term trends or calculate progress toward larger goals.

Frequently Asked Questions

Cost of Living and expenses listed on a notebook.

How Do I Choose the Right Budgeting Method for Me?

Some methods, like paper charts or the envelope system, work well for someone new to the budget game who is looking to get a better handle on their finances. These methods enforce daily discipline and careful tracking of each expenditure.

Automated software and spreadsheets are better suited for those with a basic handle on their budget who want a more advanced view of their spending and how it affects future goals. If you’re planning for a major expense or a change in income, the analytics available with some of the best software programs can be a huge help.

As you grow in your financial journey or your expenses get more complex, the right tool for you may change. Keep an open mind and be willing to try other methods if you’re a current tool isn’t working for you anymore.

Which Methods Should I Consider if my Income Varies?

If you’re not sure how much you’ll get paid every payday, or you’re not even sure when the next payday will be, a combination of tools can help you keep on track. First of all, it’ll be important for you to make sure not to spend more than you actually have since you can’t accurately plan for how much money will be coming in next. The envelope method will make sure you never overspend since you’re spending real cash instead of making transactions on a card to be figured out later.

Second, a software program that tracks trends over time can help you track income as well as expenditures, allowing you to spot trends you might miss on your own. If your expenses tend to be higher at the same time your income is higher, as is common with seasonal jobs, you may be in pretty good shape. If the opposite is true, you’ll need to be careful with your money in the most prosperous months to ensure you save for leaner times. It may take some time for the tool to get a grasp on how your income fluctuates, but once it does it will be a real asset to your financial planning.

How Do I Plan for Major One-Time Expenses?

We all run into huge expenditures that we didn’t expect—that’s what your emergency fund is for. But when you know a large check is in your future you can use your newfound budgeting prowess to make sure it doesn’t bring on financial ruin.

If you’re using budgeting software, you can enter details about the expense and let it help you keep track of your progress. Make your best guess about how much money you’ll need and when you’ll need it, and the tool will tell you how much you need to put aside each month to make sure you can cover the expense. It’ll let you know if you fall behind and adjust your goal if needed.

You don’t need a fancy tool to plan ahead though. And doing some planning by hand can be more accurate anyway since planning for big expenses isn’t always black and white. Make sure you take time to realistically estimate your expenses. If you’re planning for a wedding or a large vacation, make a list of all the items you’ll be spending on. Then break down your estimate by item to make sure you’re including everything. Don’t be afraid to guess high to make sure you’re covered.

If your expensive date has a definite deadline, such as a wedding, work backward from that date to determine how much extra you’ll need to save each month to hit your goal. If you have more flexibility like if you’re buying a car, you can determine how much you can save first and use that to decide when you should make the purchase. That also gives you more leeway if you miss your goal for a month or two.

The most important thing to remember when you see a big expense in your future is to sit down and come up with a plan. Whether you keep it simple and trust the software or write everything out and keep track by hand, making a plan and tracking your progress can prepare you for those majorly exciting and majorly expensive life moments.

How Do I Create an Emergency Fund?

When you’re living paycheck to paycheck, establishing an emergency fund can seem impossible. But it doesn’t have to be as daunting as it sounds. Once you’ve started tracking your expenses you’ll hopefully find places where you can cut back at least a small amount. Those small savings can form the beginnings of your emergency fund. Even if it’s only a few dollars a month, putting some money in an emergency fund is better than no money at all.

When you establish a budget, set aside your emergency fund money before considering other variable expenses, like groceries, clothing, and entertainment purchases. When you plan your savings first instead of last, you’ll change the way you think about its priority. Make a goal of saving 10% of your income each month. If that’s not reasonable under your current circumstances, come up with a number that is do-able and stick to it. Make a plan to increase it over time as you work to reduce other costs.

Traditional financial wisdom says that you should aim for about six months’ worth of expenses in your emergency fund. Once you’ve achieved that enviable goal, you can look at other ways to direct that money, such as investments or retirement accounts. Don’t assume that you now have free reign to just spend that money on entertainment–you’ve proven that you can live without it, so let the money work for you.