By Lindsey Smith

In last month’s blog, we talked about a couple different kinds of budgets you can utilize for your personal finances. As you know, the overall concept of budgeting never really changes, but there are plenty of plans out there and each one is a little bit different. It’s good to be aware of the different options so you can find the one that works best for you. However, just because you know about the plans doesn’t make it easier to pick one.

We’re here to help you wade through all the noise and chaos of financial advice. Many financial experts and bloggers tend to promote the budget plan they’ve created and nothing else, regardless of whether that plan will actually work for you or not. We want to change this. You should always pick the plan that’s best for your needs, not just the one that’s popular.

This month we’ll be diving into two new types of budgets: the no-budget plan and the time-based budget. As always, when it comes to choosing a budget that’s right for you, it’s never a bad idea to reach out to one of our experienced bankers for help.

Without further ado, let’s dive in.

What is a No-Budget Budget? 

This style of budgeting is technically not budgeting at all. You don’t create any kind of serious plan for most of your money, instead dividing it into two categories: savings & fixed expenses.

This budget is perfect for people who are not really interested in creating an extensive budget or spending a lot of time figuring out where their money is going. If you’ve been budgeting for many years, feel like you’ve mastered the general concepts of saving vs. spending, and have a comfortable amount of income each month, this could be perfect for you.

So, how do I start using this budget plan? 

  1. First, you set up your accounts so that at least 10% of your take-home pay is automatically being funneled into a separate savings account each payday.
  2. Then, you have all your fixed expenses paid automatically online. This includes things like house payments, electricity, water, phone bill, etc. This also includes your retirement fund unless you have a plan to handle that pre-tax.
  3. That’s it. Whatever money is left after you do those two things is free for you to use however you want.

Pretty easy right? This might sound like a dream plan, but let’s take a look at some of the pros and cons before you decide to put it into action.

Pros of the No-Budget Plan 

  1. You don’t have to spend a lot of your free time setting up a no-budget budget. You’ll have plenty of time to put your attention into your hobbies or hanging out with friends or anything else you would rather be doing than worry about your finances.
  2. You don’t have to worry about forgetting to set money aside for a certain bill or expense as it should be set up in autopay (You should still keep track of these expenses as they’re taken out, as mistakes do happen every once in a while).
  3. If you really want to go to an event or buy a particular expensive item, you won’t have to worry as much about finding the money because after autopay, all the money in your account is free to use towards these kinds of expenses.
  4. Autopay options can often help you save money as companies offer discounts to get you to switch to the paperless version of billing. This is also more eco-friendly and prevents you from losing a bill in a stack of mail.

Cons of the No-Budget Plan 

  1. If you are seriously in debt or are new to budgeting, this plan is probably not great for you. You will have zero idea where your money is really going and are more likely to blow your spending money faster.
  2. Autopay can be hard to set up and manage depending on your financial situations and the companies you get service from. If their customer service isn’t set up well or if you have a wide range of income every month, it can be difficult to know when to pay certain bills and whether or not you will have the money to cover it.
  3. Speaking of autopay, if you forget to set it up for less frequent expenses, like car insurance, you may have a month where you don’t have access to as much money as you need.
  4. If your financial situation changes and you’re bringing in less money, it can be difficult to rearrange your finances without getting into a different budget plan with more detail. This plan is made for those who have consistent and stable incomes.

Now that we’ve examined the no-budget budget, what do you think? Not for you? Don’t worry, there are plenty of other budgeting options, such as the time-based budget which is perfect for people who are struggling with debt or don’t understand where all their money goes each month.

What is a Time-Based Budget? 

A time-based budget is essentially a budget created to address any expenses/saving goals you have as they need to be tracked. For example, you can create a weekly, monthly, or yearly budget depending on your needs. This plan is very similar to the 50/30/20 budget plan, but there are some key differences we will discuss below.

A weekly budget is great for people who get paid every two weeks. It’s essentially just like the monthly budget but put into action within a smaller time frame. You should create a monthly budget summary to go along with a weekly budget, just to make sure you’re still on track, but this shouldn’t take up much of your time. Your focus should be on your weekly needs. The key to the weekly budget is to set aside an allowance for yourself weekly for things like eating out, getting coffee, buying groceries, or getting gas. Then you know how much you can spend before the next paycheck. Your monthly expenses, like rent, electric, water bills, etc. can be covered under the weekly plan easily, especially if you know what day or week they’re going to hit each month and match that time frame up to the nearest paycheck. 

A monthly budget is just like your traditional budget or a 50/30/20 budget plan. You have to keep track of the same expenses you have each month, like rent/mortgage payments, utilities, food and gas. Then, instead of creating an allowance each week like in the weekly budget, you would create a general category for those expenses at the beginning of the month, making sure that all your monthly bills are factored in along with your savings amounts. This plan takes more prep than the weekly budget as you have to look ahead weeks in advance and prepare for any unexpected expenses or emergencies that may pop up along the way.  

A yearly budget is the most basic and least time-intensive budget option of the three time-based budgets. It can be used along with any other budget plan, but you can also use it by itself if you’re not interested in a super extensive budget plan. This is an especially useful option if you feel like you’re spending wisely but still have some small money issues, like with the no-budget budget plan. This yearly analysis of your spending and saving trends can show you exactly how much money you spend at certain times of year, such as on vacation or over the holidays to see if you can cut back to a more reasonable amount in the coming year. This budget plan would also take into account things like money for your health savings account or retirement account each year. For those of you who are looking to advance your career and meet your earning/savings goals, this budget plan/analysis could be eye-opening and help you make a more concrete financial plan for the future.

 Pros of the Time-Based Budget

  1. You create this plan based on your spending habits/needs. This way you can create weekly/monthly/yearly goals based on the data you find.
  2. You can change this plan easily as you discover things you need to fix month-to-month and there are plenty of apps to help you keep track of expenses daily if necessary.
  3. If you’re looking to start your own business or if you’ve been thinking of changing careers, this plan could help you see how much of a safety net you have during the transition period.
  4. If you set weekly spending limits, you will find yourself thinking more critically about what you need vs. what you want and if it can wait until next week.

Cons of the Time-Based Budget 

  1. It can take time (in fact, a lot more time) to determine how much money you need to put in different places each week, month, or year. You can get stuck working on this even longer if you’re analyzing past years’ expenses against this year’s. You may not have this much time on your hands.
  2. You may find it difficult to anticipate what you will use per week or even month, since every day is different when dealing with your finances. Especially if you have a family of varying ages and needs.
  3. This plan may not work for you if you struggle to anticipate your future needs and haven’t yet created a financial plan. However, if you’ve been budgeting for a few years, it could be helpful to give the yearly budget a try to see how your work has paid off or where you need to adjust.
  4. You may not have a time frame for paying off certain expenses and trying to fit them into a plan like this could make you even more anxious about the budgeting process. It’s important to not get overwhelmed with the details of a budgeting plan right away to ensure success. A more structured plan might be the better choice for you in this case.

How Can I Decide Which Plan to Use?

As you decide on a plan, it’s important to take into account your level of experience with budgeting. You don’t want to pick a difficult or detailed option if you know that’s not how you operate or if you’re new to budgeting. You need to think about your financial goals, whether short or long term, and decide which you need to prioritize first. This may seem like a daunting task but know that an Availa banker is always a click or phone call away. Don’t be afraid to reach out to one of our experienced bankers for advice.

General

Availa Bank locations are in the following communities: Carroll, Ames, Ankeny, Arcadia, Coon Rapids, Council Bluffs, Fort Dodge, Holstein, Jewell, Nevada, Roland, Sioux City, Pocahontas, and Webster City. For more information about Availa Bank, visit the website at www.Availa.Bank and follow them on Facebook. Member FDIC.