In the most basic form of creating a personal budget the person needs to calculate their
net income, track their
spending over a set period of time, set goals based on the information previously gathered, make a plan to achieve these goals, and adjust their spending based on the plan.
Pay yourself first method (80/20 budget) In the pay yourself first budget people first save at least 20% of their net income, and then freely spend the remaining 80%. They can also choose a 70/30, 60/40, or 50/50 budget for more savings. The most important part of this method is to put one's savings apart before spending on anything else.
Sub-savings accounts method This method is a variation of the pay yourself first budget, in which people create multiple
savings accounts, each for one specific goal (such as a vacation or a new car), and each with an amount of money that should be reached by a specific date. They then divide the amount of money needed by the timeline to calculate how much they should save each month.
Envelope method (cash-only budgeting) of labelled plastic envelopes For this method, people need to use
cash instead of
debit or
credit cards. They need to allocate their net income into categories (such as groceries), withdraw the cash allocated for each category, and put them into envelopes. Any time they want to buy something in one of the categories, they only take the designated envelope so that they cannot overspend.
Zero-based budgeting In zero-based budgeting, all of one's net income must be allocated ahead of spending. Zero-based budgeting involves dividing income into different expense categories, ensuring that all funds have been assigned a purpose, and at the end of the month there is a zero balance in the budget.
Kakeibo (Household financial ledger) In this method, users keep a paper notebook or digital ledger in which all take-home earnings are logged along outgoing expenses. Users determine how much money they have to spend, log fixed expenses, determine how much is left for discretionary (variable amount) spending, and track that discretionary spending into four broad categories: needs, wants, cultural, unexpected. Users also set themselves a savings goal for the month and note how they intend to achieve the goal. All discretionary spending transactions are promptly logged. Each week finishes with an accounting of spending, and the end of the month finishes with a final accounting, and notes about lessons learned and/or ways to improve. The prompt logging of expenditures and answering the questions related to it encourage mindfulness and reduction of impulse buys. == Personal budgets and social care ==