Home & Family / Money

The Highs and Lows of Four Home Budget Plans

highsBudgeting is frequently associated with downbeat words such as boring, tedious, and restrictive. Forget the negative connotations. Budgeting is a powerful tool used by people to gain control of their money. Planning inspires people to live sensibly, spend wisely, and build savings. Whether you are saving for a short-term goal, like a family holiday or paying off a credit card, or a long-term goal, such as accumulating money for retirement, a proper plan can provide rich financial rewards and dramatically raise your credit score. Here are the highs and lows of four popular household budget plans:

Type of Budget Plan How it works High point Low point 
Static or Fixed budget Identify income and fixed and variable expenses, including one-time expenses. Everything is analyzed and broken down into set monthly payments to include savings. This budget provides a clear sense of expenses. It helps people stay on track regarding routine bill paying and savings. This 12-month budget is reevaluated each year. Expenses must be regular for this plan to work effectively. One must also create a buffer for sudden or unplanned expenses due to less spending flexibility.
Flexible

(50/20/30 plan)

Create four basic categories – necessary fixed bills, necessary flexible expenses, non-essential expenses, and savings. Half goes to necessities, 20% to savings, and 30% to everything else. This annual budget is adjusted based on how spending shifts over the course of the year. Thus, it offers spending flexibility. Savings is set at 20%. 30% is allocated towards lifestyle. If money is tight, people tend to lower their percentage of savings which can be detrimental. Also requires more attention than a fixed budget.
Rolling or Continuous This budget changes continuously. While the budget is a 12-month plan, it gets rolled forward after each month. This plan is designed for those who seek to be aggressive and innovative in budgeting or for those lacking fixed expenses. Much more work than traditional as it needs constant updating.
Zero-based You begin with an income side of the equation and money is allotted to each line-by-line category until you are down to zero. It reduces doubt and indecision as every dollar is accounted for each month of the year. Requires you to make a new budget every month as nothing carries over.

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