Comprehensive Guide to the 3 Step Budgeting Method and More for Beginners

Choosing the perfect budgeting system can feel like a daunting task, especially when you’re bombarded with so many options. 

It’s easy to become overwhelmed, second-guessing yourself, or worse – not making a decision at all. 

However, with the 3 step budgeting method and other effective approaches, you can transform your finances and unlock the power of budgeting.

Remember, personal finance is just that – personal. There’s no one-size-fits-all answer, and the right budgeting method for you will depend on your unique situation.

Rather than letting the fear of making the “wrong” choice paralyse you, pick a budgeting method that resonates with your needs and circumstances. 

For example, despite some expert’s advice, having a $1,000 emergency fund might not be universally applicable.

If you’re a city-dwelling singleton with no car or homeowner responsibilities, your rainy day fund might need less padding.

On the other hand, if you’re working towards a six-month safety net, $1,000 might just be the tip of the iceberg.

The key is to be flexible and adapt your budgeting system as needed, rather than treating any method as gospel. 

With that in mind, let’s dive into the world of the best budgeting systems for beginners, such as the 3 step budgeting method, zero budgeting method, and more. 

You’ll surely find the one that’ll make managing your money feel like a breeze – no matter which side of the pond you’re on!

Unlock the Power of Budgeting and Transform Your Finances with the 3 Step Budgeting Method

By mastering the 3 step budgeting method, you’ll be well on your way to financial success. 

Regardless of the specific budgeting system you choose, the core principles of the 3 step method will apply:

• Setting clear financial goals, 
• Tracking your expenses, and 
• Reviewing and adjusting your budget as needed. 

Keeping these steps in mind will help you stay focused and committed to your financial journey.

As you explore different budgeting methods, you may find that a combination of budgeting techniques works best for you. 

For example, you might use the envelope method for discretionary spending while employing a zero-based budget for your monthly bills. 

The key is to remain adaptable and continuously refine your budgeting strategies to better align with your financial goals.

The Best Budgeting Systems: A Beginner’s Guide

A budget is telling your money where to go instead of wondering where it went.

Dave Ramsey

1. Pay Yourself First Budget: A Personal Budgeting Method

George S. Clason, author of the timeless personal finance book “The Richest Man in Babylon,” coined the phrase “Pay Yourself First.” 

You can read my book review here.

This budgeting method is highly recommended for those who are just starting their journey into personal finance and learning how to budget money effectively.

When you receive a paycheck, before paying for anything else, you save and invest a portion for yourself. 

Clason recommends keeping 10% of your earnings and using 20% to pay off debt. The remaining 70% covers all your expenses. 

If you don’t have debt, increase the amount you pay for yourself first to 30%.

The best way to do it is by setting up an automatic payment, so you don’t get tempted to spend any of the 30% and learn to live on the other 70%. 

By using the 3 step budgeting method alongside the Pay Yourself First approach, you’ll be able to set clear financial goals, track your progress, and adjust your budget as needed.

How the 3 Step Budgeting Method Works with Pay Yourself First

Step 1: Set Financial Goals

When using the Pay Yourself First budget, determine your short-term and long-term financial goals.

These might include building an emergency fund, saving for a holiday, or investing for retirement.

Step 2: Track Your Expenses

Monitor your spending to ensure that the remaining 70% of your income covers all your expenses.

This can be done using budgeting apps, spreadsheets, or pen and paper.

Keeping an eye on your spending habits will help you avoid going over budget.

Step 3: Review and Adjust Your Budget

Periodically review your budget and make adjustments as needed.

This may involve increasing your savings rate, cutting unnecessary expenses, or allocating more money towards your financial goals.

This budgeting method is ideal for you if:

Example of the 3 Step Budgeting Method with Pay Yourself First Budget

Let’s say your take-home pay is $4,500.

Debt takes up a more significant portion of your income than saving and investing because trying to accumulate money when you have high-interest consumer debt isn’t smart. 

However, debt shouldn’t stop you from preparing for your future; hence, paying yourself 10% at the minimum.

This approach gives you a sense of achievement and security as you build your savings pot while paying down the debt. 

If you have no debt or a small debt, that’s even better. You can increase the amount you keep for yourself as long as the total for saving, investing, and paying off debt remains 30%.

From the same example, let’s say $400 is going towards paying off your loan instead of $900. You can bump up your savings and investments by $500.

Now your Pay Yourself First Budget with the 3 step budgeting method looks like this:

Notice that the percentage of expenses (70%) hasn’t changed.

You might save and invest for a variety of reasons, such as:

• Your retirement
• Children’s education
• Holiday
• A new car
• Home improvements, and so on.

Using the 3 step budgeting method and other budgeting tips in combination with your Pay Yourself First approach can help you create a more effective personal finance plan. 

By setting financial goals, tracking your expenses, and regularly reviewing and adjusting your budget, you can achieve a well-rounded and efficient financial strategy. 

This way, you’ll stay on track with your financial goals while still enjoying the simplicity and flexibility of the Pay Yourself First Budget.

2. Cash Envelope Budget: Master the Envelope Method of Budgeting

If you’re looking for a more tactile way to manage your money, the Cash Envelope Budget might be right up your alley. 

It’s one of those budgeting methods that makes you feel the pinch of spending – literally.

This method is all about using cold, hard cash to allocate your funds for different expenses.

This cash stuffing method encourages you to be more mindful of your spending habits and makes you think twice before splashing out on those impulse buys.

Taming Your Spending with the Cash Envelope Method, Otherwise Known Cash Stuffing Method

Here’s how it works:

Withdraw a set amount from an ATM that’ll last you for a month. Then, allocate the cash to different envelopes for each budget category, like $300 for food and $50 for entertainment (cinema).

The idea is that once the money is gone, that’s it. You can’t refill your envelope.

If you splurged on groceries by week 3, you aren’t allowed to withdraw more cash.

I tried this method for 30 days, and it turned out my plan wasn’t great.

I suggest you learn from my mistakes. It was fun, but I can only recommend it if you have one or two major expenses.

Imagine creating three or four envelopes – it’s too cumbersome and feels primitive when there’s a better alternative.

However, it is effective.

Integrating the 3 Step Budgeting Method into Cash Envelope Budgeting

Consider the Cash Envelope Budget if:

• You’re struggling with overspending.
• You find credit cards to be the bane of your existence.
• You’d like to be more mindful of how you spend money.
• You want to break bad money habits.

We’re so used to using cards that it’s hard to feel the actual money leaving us.

When you pay with cash, though, you see it when you hand it over to a cashier, and you feel your wallet getting lighter.

You’re likely more reluctant to spend money when you use cash. It forces you to think harder and prevents you from spending your dwindling cash on unnecessary items. 

3. Zero-Based Budget: Embrace the Zero Budgeting Method

Are you ready to take budgeting to a whole new level? 

The Zero-Based Budgeting method might just be the perfect fit for you. 

This budgeting method demands your full attention and commitment, but the results can be truly transformative. 

So if you’re up for the challenge, let’s dive into the nitty-gritty of zero-based budgeting.

Mastering Your Finances with Zero-Based Budgeting

A zero-based budget means that when you subtract your total expenses from your income, you’re left with a zero balance. 

For example, $4,500 (income) minus $4,500 (expenses) = 0. 

Of course, you wouldn’t spend the entire $4,500 on all your expenses.

The idea is that you give a job to every penny and assign it accordingly.

The best approach to allocating every penny is to examine your previous month’s spending.

Use it as your baseline to allocate money to the right categories.

You’ll love the Zero-Based Budget method if:

• You’re a highly organised and meticulous person.
• You enjoy budgeting.
• You want to scrutinise your expenses down to the penny.

Implementing the 3 Step Budgeting Method with Zero-Based Budgets

While it may require more effort than the first two budget methods, it’s an effective way to identify where you overspend and allocate funds to the right places. 

For example, if you discover that you spent an excessive amount on eating out the previous month after receiving a bonus, you won’t make the same mistake this month. 

You can identify errors and allocate the extra income in the future to more appropriate areas, such as saving and investing or paying off debt.

The zero budgeting method is all about getting granular with your finances and optimising every single dollar. 

By combining it with the 3 step budgeting method, you can create a budgeting system that not only pinpoints problem areas but also helps you set and achieve financial goals. 

So, if you’re ready to get serious about budgeting and make every penny count, give the zero-based budget a try. 

It might just be the game-changer you’ve been waiting for.

4. The 50/30/20 Budget: Learn the 50/30/20 Method of Budgeting

Craving a straightforward and balanced approach to managing your finances?

This popular 50/30/20 budget method gives you a simple framework to allocate your money across three main categories, ensuring you cover your needs, wants, and financial goals. 

Let’s explore how the 50/30/20 budget can help you take control of your spending and saving habits.

Finding Balance with the 50/30/20 Budget Rule

The 50/30/20 rule divides your budget into three major categories:

• 50% for essential expenses, such as mortgage or rent, water, electricity, internet, and food.
• 30% for non-essential expenses or “wants,” like entertainment, takeaway, and dining out.
• 20% for financial obligations, including savings and debt repayments.

It’s important to remember that “wants” and “needs” can be subjective. 

For the 50/30/20 budget to be effective, you need to be strict with your criteria and follow through. 

However, it can easily lead you to overspend if you aren’t careful.

Adapting the 3 Step Budgeting Method for the 50/30/20 Budget Allocation

Compared to the Pay Yourself First budget, the 50/30/20 budget might make you feel more restricted, as it’s more specific about how you should allocate your money. 

If you’re looking for a budgeting method that provides a clear structure for managing your finances, the 50/30/20 budget could be a great fit for you. 

By integrating the 3 step budgeting method into your 50/30/20 plan, you can create a well-rounded and effective budgeting system that caters to your unique financial needs and goals.

Bonus: A Bare-Bones Budget for Low Income Budgeting

When facing a challenging financial situation, the Bare-Bones Budget could be your lifesaver.

This method is designed to help you regain control over your finances by focusing on the essentials and minimising unnecessary spending.

Financial Triage with the Bare-Bones Budget

The Bare-Bones Budget involves stripping your expenses down to the bare essentials needed for survival and debt repayment.

It’s a financial triage approach that can help you navigate through tough times and prioritise your most pressing financial concerns.

I’ve started with this budget myself, so I know it works.

Implementing a Bare-Bones Budget can help you reset your finances and resume your debt repayment journey with a clear head, free from panic and stress.

Applying the 3 Step Budgeting Method to a Bare-Bones Budget

By incorporating the 3 step budgeting method into your Bare-Bones Budget, you can develop a plan that tackles your immediate financial issues while still working towards your long-term goals.

The combination of these two approaches allows you to address the most pressing aspects of your financial life while laying the groundwork for a brighter financial future.

Give it a try and see how it can transform your financial situation, even when times are tough.

Final Thoughts: Choosing the Right Budgeting Method for You

Selecting the ideal budgeting method is essential for successfully managing your finances and working towards financial independence.

Here’s a quick rundown of the various budgeting methods discussed in this post to help you decide which one is right for you.

Jumpstart Your Financial Journey with the Pay Yourself First Budget

If you’re new to budgeting and want to start saving or get out of debt, I recommend the Pay Yourself First Budget.

It’s incredibly simple, without any complexities or stress, making it an excellent starting point for beginners.

Tame Your Spending Habits with the Cash Envelope Budget

For those struggling with spending habits, a Cash Envelope Budget aka Cash Stuffing Method could make a significant difference in how you manage your money.

It’s well worth a try, even just for a month, to see if it helps you gain control over your spending.

Gain Precise Control with the Zero-Based Budget

If you prefer tight control over your finances and don’t mind spending more time budgeting and accounting for every penny, the Zero-Based Budget is the way to go.

It offers a comprehensive approach to managing your money.

Find Balance with the 50/30/20 Budget

While the 50/30/20 Budget is not my personal favorite, it may suit those who seek a clear structure for managing their finances.

It offers a balanced approach to dividing your income into essentials, wants, and financial obligations.

Reset Your Finances with the Bare-Bones Budget

If you’re in serious financial trouble or completely broke, the only way to move forward is with a Bare-Bones Budget.

This method helps you focus on essentials and debt repayment, providing a way to regain control over your finances during tough times.

Regardless of which budgeting method you choose, budgeting is a crucial tool for taking control of your finances, saving money, paying off debt, staying out of debt, and building wealth.

A budget will keep you on the straight and narrow, enabling you to create a financially independent life.

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