The 3 Types of Budgets Everyone Should Have But Probably Don't
Life is constantly throwing curveballs at us.
Some we swing at and miss entirely.
Others we may hit out of the park.
Whatever the outcome, it can pay to prepare for the curveballs of major life changes by having a good budget or two to work from.
You’ve probably experienced a few major life changes that affected your finances. They can include:
- Having children
- Buying a home
- Losing a job
- Job promotion
It can help to get through these, including the good times when you get a new job with a higher salary, with a budget that fluctuates with your income. Different financial situations can cause you to need a different budget.
One can be for when times are going really good. You’ve been promoted at work or you came into a windfall somehow. A second one can be used during lean times, such as if you’ve lost your job or your spouse becomes sick.
And a third one can be the main budget you use during regular times when small ups and downs happen from time to time. No major life event hits you during this in-between time. If it does, you adjust.
The point is to make your financial life easier when your financial situation is thrown a curveball. Adapt a new budget that you already have set up and you can more easily get through it. Here are more details of how each of these three budgets work:
A Normal Budget
Normal circumstances are expected for this everyday, normal budget. It should cover all of your bills and discretionary expenses that are important to you, such as dining out.
It should include your debt payments, such as car and home loans, and credit cards. Savings goals such as retirement and college should also be included.
A budget calendar can help you keep track of when your bills are due, among other things. Budgeting apps can also help.
A Budget for Bad Times
A budget for lean times should cover the basic necessities you need to survive. You know what they are: groceries, housing, utilities, medical care, and basic transportation.
It isn’t for a bar tab, dining out and going to plays and sporting events. You may even need to cut your TV subscriptions or cable bill.
Minimum payments on student loans or credit cards should be made during down times.
Figure out the least amount of money you need to live on. A 21-day financial fast where you don’t spend any unnecessary money for three weeks can help you come up with a budget for bad times.
Having an emergency fund to cover three months or more of living expenses can help make this budget easier to live with.
Of the three suggested budgets, this one for bad times is probably the most important. The other two can take care of themselves at the last minute if necessary, but a lean budget can give you peace of mind that you’ll make it through a tough stretch.
And a tough stretch will come someday. You may lose your job, be furloughed for a month, get sick and be unable to work, or have to live on one income for a year if you or your spouse is out sick.
Or you may just simply need a lean budget to help you afford to buy a home and make the monthly mortgage payments until one of you gets a better job.
A Budget for Good Times
By good times, we mean more than the hopefully normal good times you experience when you don’t suffer a negative major life change, such as a divorce, and everything is going normally.
What we mean are really good times.
Like getting a big raise at work. Or winning a small fortune in the lottery. It could be as big as inheriting money, but likely can be earning $500 or so more per month with a side job. Or maybe it’s just a tax refund.
What to do with this extra money? That’s what a budget for good times is for.
It can be something simple such as paying off credit card debt with extra income from a side gig. Or you could boost your retirement fund by putting your raise directly into a retirement account at each paycheck.
This budget can also be used to help you figure out how to spend some extra money on something fun.
We know, it doesn’t sound fun to budget ahead of time for a frivolous expense. But you might get the most out of your windfall if you thought about it before it arrives. Spending it on a vacation you’ve always dreamed about might be a better way to use it than buying an expensive car.
Consider what you’d get the most satisfaction from spending the extra money you have on. Remember that there’s no rush to spend it. When the money does come, put it aside and look to your “good times” budget for ideas on what would benefit you and others the most.
That may be the best reason to have a budget. To have a blueprint for how you’re going to wisely spend money during good and bad times, and the in-between, so that you and the people you love are enjoying life as much as possible.