A Guide to Monthly Budgets

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What we’ll cover:

  • The 50/30/20 Rule – probably one of the most popular budget methods
  • Zero-based budgeting – subtract expenses from take-home pay and you should end up with zero
  • Reverse budgeting – puts the focus on savings, as in you pay yourself first
  • 60 percent solution – keeps essential expenses at or around 60 percent to avoid overspending

Talk to anyone, and they'll probably tell you that the act of budgeting can feel like going into battle against yourself. 

Getting your spending, saving and income to line up ever so perfectly is more than just an exercise in crunching numbers. It can feel like you're making difficult decisions that directly oppose your desires. 

Still, it beats the alternative – not having control over your personal finances. 

While living on a budget can feel restricting, living without a budget can make you vulnerable to unexpected expenses. There are a lot of reasons why people struggle to budget. It can feel daunting. It's time consuming. Budgets are also just difficult to sustain over time. 

But we’re confident there are types of budgets for every lifestyle. Here are just a few methods of budgeting you might consider trying. 

Whichever method you follow, just remember the trick to budgeting success is to be realistic and set goals, while giving yourself some flexibility.

The 50/30/20 rule

Using the 50/30/20 budget, try to allot no more than half of your total monthly budget toward essentials such as rent or mortgage, transportation, groceries and utilities. Another 20 percent should go toward savings and 30 percent can go toward personal items.

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Savings can go toward short-term and long-term financial goals, such as 401(k)s or individual investments for retirement savings, or starting a savings account or, say, a CD for an emergency fund (Marcus offers both a high-yield Online Savings Account and a CD with several terms to choose from). The last 30 percent of the 50/30/20 rule is considered flexible – it’s to be used for things you want but don’t need. That includes eating out, traveling or taking a trip to the theater.

Zero-based budgeting

The Zero-based budgeting definition is a budget which all spending is accounted for – that is, every dollar of your monthly income is accounted for and used. 

To get started with this method, calculate how much monthly income you take home from your salary, benefits or other sources of income. Then write down all monthly expenses – including your entertainment and leisure activities. Subtract your expenses from your take home pay, what you put into savings and what you put toward paying off debt, and you should end up with zero. And that’s how you achieve a zero-based budget. It’s a good idea to track all monthly expenses for a couple of months to identify trends and areas where you could cut back. 

Then, create a budget that covers all your expenses – essentials, long-term savings and short-term savings for a trip or new car – and make sure your spending matches the budget. 

Commonly used within companies, this method takes considerable work and requires you to keep careful tabs on all your spending. On the upside, you’ll know exactly where your money is going and what you need to do to adjust.

Reverse budgeting

Traditional budgeting entails adding up all expenses and allocating the remaining cash toward savings. With reverse budgeting, there's a twist. Here, you put the focus on saving; you’re paying yourself first with this kind of budget, building your budget based around savings goals.

Once you’ve established your savings goals and set aside a certain amount of money from each paycheck that will go toward savings, then put the remaining amount toward essentials. Whatever is left after that is considered discretionary cash – i.e. money you can use however you please, whether you want to treat yourself to five specialty coffees every day or pay for a weekend getaway. 

Whichever method you follow, just remember the trick to budgeting success is to be realistic and set goals, while giving yourself some flexibility.

The upside to reverse budgeting is that it’s fairly low maintenance in that you’re not tracking every penny you spend, nor are you categorizing your expenses. How much to set aside for savings is up to you, of course, and should be adjusted as needed. One way to approach this is by writing out goals, whether it’s buying a house or a motorcycle, including how much you’ll need to save to reach that goal and when you’ll need it by. Then calculate how much you can put toward that each month.

In order to make sure you actually save the amount you’re budgeting for savings, you can set up automatic transfers from your checking account into your savings or IRA account. Automated contributions from your paycheck to your 401(k) also count.

60 percent solution

First proposed by Richard Jenkins, former editor-in-chief of MSN Money, the 60 percent solution budget emphasizes one thing – to keep essential expenses at or around 60 percent to avoid overspending and running into debt. To avoid dipping into your savings, it could be a good idea to set up a separate savings account, or accounts.

The 60 percent solution budget has some similarities to the 50/30/20 rule, but instead of allocating 50 percent to essentials, 60 percent goes toward fixed “committed expenses” – your rent or mortgage, groceries, utility bills, etc.

The remaining 40 percent is split into four separate 10 percent increments for retirement, long-term savings, short-term savings and fun money. The 40 percent can be divvied up differently depending on your circumstances and goals. So if debt reduction on your credit cards or a big trip is on the horizon, bump up savings in one of the categories.

Sticking with your budget

Tracking your income and expenses to make a budget can feel tedious. 

And if the idea of budgeting makes you want to pull your hair out or wave the white flag, we have an easy solution for you: the Clarity Money app, which is part of the Marcus family. Clarity Money offers AI-powered budget tracking and insights that can help you stay on top of your budget – whatever method you do choose.

Remember, if your budget isn’t working, don’t be afraid to make the necessary changes. We listed out several budgeting methods in case you want to try each of them out. You can commit on your own terms. Budgets are made to be tweaked and revised. Don’t let anyone tell you otherwise.

Marcus by Goldman Sachs® and Clarity Money® are both brands of Goldman Sachs Bank USA.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.