5 Simple Budgeting Methods to Help You Live Your Best Life

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Only 41% of Americans have a budget and keep close track of their spending, according to a survey by the National Foundation for Credit Counseling. But as the most fundamental tool in the financial planning process, a budget can make it easier to achieve your financial goals.

Not only does a budget help you keep track of where your money is going, but it also gives you more control over that process. Without a clear plan for your cash flow, you could be spending against your own best interests without even knowing it.

Read on to learn how a budget can help you improve your financial health. There are various budgeting methods you can use to do it.

How a proper budget can power your financial independence

Budgeting isn’t always fun, but it’s one of the most important things you can do to improve your financial health. Here are a few ways that living on a budget can make a difference.

  • It aligns your spending with your goals. By creating and following a budget, you can decide how you’re going to spend your money each month based on what’s most important to you.
  • It can improve your debt repayment strategy. If you’re working to pay off student loans, credit cards, or some other type of debt, having a budget can help you set aside more cash to become debt-free.
  • It can help you achieve your savings goals. Whether you want to save more for retirement, build your emergency fund, or set aside cash for your next vacation, a budget can help you plan out how much you’re going to save toward your goal at the beginning of the month.

5 budgeting methods to consider

Before picking a budgeting method, you might want to figure out where your money is going so that you know what areas need your attention.

“An easy way to get things started is to collect all of your receipts for a month or two for every penny you spend,” said Megan Luke, a senior vice president at PNC Bank. “At the end of the month, sort the receipts into piles for food, gas, entertainment, and so on. This will give you a good picture of your current spending and provide opportunities to find ways to adjust and perhaps save.”

Or you can use your online checking or credit card account to view your transactions and do the same.

Once you have an idea of your spending habits and where you can make changes, five main budgeting methods can help you make it happen. No single method’s best for everyone, so it’s important to compare each and determine what works best for you.

1. Zero-based budget

The concept of a zero-based budget is simple: income minus expenses equals zero.

This budget is best for people who have a set income each month or at least can reasonably estimate their monthly income. After calculating your monthly income, add up your monthly spending and savings to equal that income amount.

It’s important to plan out all your expenses as accurately as possible. If you go over on one spending category, you’ll need to take cash from another category to make up for it. And if you forget a large expense, it could throw your budget off.

“[Zero-based budgeting] is the most time-consuming method because you have to dig into the details behind each line item,” Luke said.

Since there’s less room for error with a zero-based budget, it might be a better option for someone who has already been budgeting for a while. Even then, it’s a good idea to keep extra cash in your checking account as a buffer. Also, have at least a small emergency fund in case you incur a large unexpected expense.

2. Pay-yourself-first budget

The pay-yourself-first budget is another simple budgeting method that focuses primarily on savings and debt repayment.

Simply put, you set aside a specific amount every time you get paid for savings and debt payments, then spend the rest of your money however you see fit. By doing this, you can prioritize your savings and debt repayment goals and make do with whatever is left over.

For example, you may want to focus on paying off high-interest debt first while slowly building up an emergency fund. But as you get rid of your high-interest debt, you could focus on other savings goals.

Of course, it’s important to prioritize your necessary expenses and bills. But you don’t have to watch where you spend your discretionary income because you’ve already taken care of what’s most important to you.

This budget is best for someone who struggles with saving each month or doesn’t want to focus too much on budgeting each expense.

3. Envelope system budget

This budgeting method is similar to the zero-based budget but with one big difference: You do it all with cash. In an envelope budgeting system, you plan out how you’re going to spend your money each month and use an envelope for each spending category. Then you withdraw as much cash as you need to fill each envelope based on your budget.

As you go grocery shopping, for instance, take your grocery envelope and pay for your items with cash. If you run out, that’s all you can spend in that category for the month unless you want to take cash from other envelopes. Avoid raiding other envelopes too often, though, because it can cause a snowball effect and you can run out of cash before the end of the month.

Financial expert Dave Ramsey is the biggest proponent of the envelope system, so it’s a great option for people who espouse his beliefs about money, which focus heavily on paying down debt quickly and using cash only.

But it’s not a good idea for someone who doesn’t feel comfortable having that much cash on hand or prefers using credit cards or debit cards.

4. 50/30/20 budget

The 50/30/20 budget is straightforward and requires less work than the zero-based and envelope budgets. The idea is to break down your expenses into three categories: necessary expenses (50%), discretionary expenses (30%), and savings and debt payments (20%).

This budgeting method is a great option for newbie budgeters because it doesn’t require meticulous tracking of all your expenses. You can succeed with this budget as long as you know what counts as a want versus a need and put enough money toward savings and debt.

The main drawback is that the 50/30/20 rule might be unrealistic for people who have a lot of debt or have big savings goals because 20% isn’t a lot.

But the good news is that you can customize it to fit your needs. For example, you may want to consider increasing the savings and debt repayments category and decreasing the discretionary or necessary expenses categories.

In other words, don’t get stuck on the 50/30/20 proportions. Tailor the concept to your needs.

5. The ‘no’ budget

As the name suggests, this budgeting method consists entirely of not spending money that you don’t have. Rather than create a budget:

  • Keep an eye on your checking account balance. Use a budgeting app or your bank’s online banking or mobile app to help you track this.
  • Know when recurring bills hit your account. One way you can do this is to keep a list handy in a spreadsheet, Word document, or on a piece of paper.
  • Set aside cash for savings and extra debt payments. When you can, use automatic transfers from checking to savings, as well as increase your automatic monthly debt payments.
  • Spend what’s left over without overdrawing your account. Again, by keeping an eye on your account balance, you’re better able to know how much money is available after core expenses.

While the “no” budget sounds easier than the other methods we’ve listed, it’s not always easy to tell yourself “no.” This budgeting method is best if you’ve demonstrated spending discipline in the past and are confident that you can continue that streak.

Also, it’s best if you use only a debit card with this budget because it’s tied directly to your checking account and automatically updates your balance.

Don’t give up on your budget

Even if you pick the right budgeting method for you, it can still take a few months to get used to the system, especially if you’ve never budgeted before. But like any habit, the more you do it, the easier it becomes.

Think about why you want to take more control over your money management. Consider your goals and why you want to achieve them. Doing this can help you regain your motivation to keep working to improve your budgeting skills.

Also, don’t be afraid to make changes to your budgeting strategy to make it more effective. For example, try a different method if one isn’t working for you, or make adjustments to one to tailor it to your needs. And consider using a budgeting app to help make the process easier.

Whatever you do, the important thing is that you develop the habit of managing your money in a way that helps you improve your financial health and achieve your goals.

Interested in refinancing student loans?

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1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on ourstudent loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.

Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.

However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.674% APR to 8.229% APR (with AutoPay). Variable rates from 2.245% APR to 7.24% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.245% APR assumes current 1 month LIBOR rate of 2.30% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
  2. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.

All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.


6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of November 1, 2018, the one-month LIBOR rate is 2.29%. Variable interest rates range from 2.79%-8.39% (2.79%-8.39% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.75%-8.69% (3.75%-8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled. Applicants with an Associate’s degree or with no degree must have made at least 12 qualifying payments after leaving school. Qualifying payments are the most recent on time and consecutive payments of principal and interest on the loans being refinanced. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a cosigner who is a U.S. citizen or permanent resident. The cosigner (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a cosigner will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.

2.24% – 7.24%3Undergrad
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2.47% – 6.97%1Undergrad
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2.51% – 8.09%4Undergrad
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3.02% – 6.44%2Undergrad
& Graduate

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2.69% – 7.21%5Undergrad
& Graduate

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2.79% – 8.39%6Undergrad
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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.