Well yeah it’s February but there are still 11 months left of the year, so don’t worry if your New Year’s resolutions are taking a while to kick off. As with everything to do with changing habits and mindsets – or indeed with personal finance – takes time.

In my previous posts, I promised to come back to the concept of budgeting. Lots of people start here but whilst I agree it is super important to know where your money is going and how to spend more mindfully, starting with the budget always makes me feel like it’s putting the least interesting bit first and there’s a risk you will get put off before you get to the thrill of setting yourself up for your dreams. That doesn’t work for everyone though, so do things in the other that you find the most inspiring.

There are equally a ton of different ways to create a budget and it depends on where you are with your finances.

Zero-Based Budgets

Best for: people with limited incomes, or challenges with spending habits

The idea here is to give every single penny of your income a job – to allocate it an ensure that it doens’t wander off by itself. It’s a monthly budget based on an assessment of all your fixed costs, then where you allocate funds to discretionary spending and to savings. Once this is done, all you have to do is track your spending and basically stop if you are about to go over any of your planned limits.

There is lots of information on estabishing a zero-based budget but all you really need to know is a detailed list of your income and usual expenses:

• Fixed costs – the basics to keep the wheels on your life;
• Discretionary costs – including groceries since how much we spend on this can vary so widely, along with things like clothes, cosmetics, entertainment etc;
• Irregular costs – these could be either fixed, like a car service or discretionary, like an annual subscription, but you need to be able to plan for them (or choose to cut them out) or they will mess up your monthly plan.

Once you have done an audit of all of these costs and listed them out, take a really good look. Are you being realistic? Over-ambitious in terms of cutting costs, or too lenient? If you are at the point of making a budget it’s because you want something more important so focus on that instead of on feeling like you’re cutting all the treats out of your life. Building your future is literally the best treat you could have.

50/30/20 Budget

Good for: people who want a framework then a bit more freedom, but are still getting started on a financial independence journey.

This is pretty similar to what I do, thought with the cost of childcare it’s more like 65/15/20. It’s a pretty simple way of guiding your money rather than tethering it down, which is why it is easier to do if you have some slack in your budget and aren’t troubled by impulse spending.

You set out your expenses into buckets: 50% for needs, 30% for wants, and 20% for savings. You will need to know your fixed costs, then be prepared to budget down on your needs so that they fit within your budget envelope. It’s a really good way to get started in terms of savings – or paying down debt – and trimming your budget in a way which helps you to build good habits. You will still need to roughly track what is going to each bucket during the month so that you can make sure that the ‘wants’ 30% isn’t going off track but you can also be secure in the knowlegde that you have covered all your bases, and you are living within your means.

Extreme Budgeting

Best for: those who are really driven by their goals and have flexibility. Or who love budgeting.

This seems to be a pretty common story in the FIRE movement, but it’s not something which has ever really worked for me. I could argue this is because of lack of flexibility though these are linked partly to my status as a single parent and partly to other choices, like staying in a career which prevents geo-arbitrage.

This is a huge leap from either of the other two, which are more focused on the basics of mindful money. Extreme budgeting can be done in fact with either a zero-based budget, or using different percentages with the same 50/30/20 approach but the focus is on drastically reducing spending. Here you would audit your spending then really interrogate it. What can ou cut back on? What would that mean for your life – moving house, selling your car, cleaning your own house? I like the focus on a Marie Kondo-esque focus on what brings you joy and cutting it out. There is often a focus on discretionary spending, but this can also be applied to your fixed costs – maybe that big house isn’t bringing you what you thought it would, and you can consider downsizing for example. As with all budgets, it’s totally personal, so for me one latte a week brings me joy so I buy one on Sundays whilst my daughter is at ballet class and really savour it: buying another one at any time feels like a waste of money rather than a treat, so I just don’t do it.

There are brilliant resources from people who live this way and have done brilliantly on their FIRE journeys. Try the Frugalwoods blog or book (which I love though the couples element personally puts me off a little) or try Michelle McGagh’s No Spend Year for a detailed and inspiring journey from the UK.

There are a lot of different options and you might need to try a few, or move on from one to another. The main thing is to get started: to be mindful with your money you need to know what you want it to do, and then intentionally guide where it is going. There is always going to be an element of tracking as well, especially at the start, and I will talk about tools for that too in future posts. Budgeting can feel like a tricky process to get started with, but it is putting you in control, and that’s a great feeling.

How do you do your budget and what tips do you have? I’d love to hear from you!