Four Budgeting Methods for Current and Future PAs

There are several budgeting methods to choose from, but in this post, we will review four of the most common ones. I encourage you to review these different budgeting styles, and choose one that you think would best fit you and your life! 

The Pay Yourself First Budget:

With this method, you decide a certain percentage of your income that you want to use to pay yourself first in areas such as paying off debt and saving and investing for your future. 

There’s an excellent simple read book called “The Richest Man in Babylon”, and the premise of the book is to pay yourself first before paying others with your hard-earned money. 

So many current and future physician assistants will spend their money first, then try to pay off debt and save and invest with the leftovers. However, this makes it very difficult to build wealth over time. If you instead ensure that you’re paying yourself first, you’re able to build wealth much faster over time. 

With this method, you may decide to pay off your student loan debt along with other debt such as your car loan, as well as save and invest in retirement accounts and / or your HSA account if you qualify to have one, then use the residual funds to spend on what you wish in life. This budget method may seem more freeing and less restrictive to many who aren’t a fan of budgeting down to every single cent of their income.

The Envelope Budget:

With this budgeting method, you could have literal, physical envelopes, or virtual envelopes in your bank accounts. Within these envelopes, you would allocate a certain dollar amount for how much you want to spend in each category for each month (such as food, entertainment, gas, gifts, travel, etc.). 

Some will decide that if they don’t spend all of their funds in one area, they may shift the remaining amount to another category so they are able to spend more in that other category for the month. Others will instead use the leftover funds for the month to set aside for another upcoming expense, or perhaps even put more money towards investing for their futures. 

The 50/30/20 Budget:

This budgeting method starts with spending 50% of your budget on the “needs” in your life such as the following: food, housing, medical costs, insurance, transportation, essential apparel, etc. After that, you would then spend 30% of your budget on the “wants” in your life such as the following: a cute new dress you’d like, new shoes, going to sporting events or concerts, or traveling for fun, etc. Finally, you would then spend 20% on saving and investing for your future. 

However, if you’re pursuing retiring early once you reach financial independence, you may want to shift these percentages so you’re saving and investing more than the 20% in your budget (for example, you could consider switching the 30% of wants to 20% of wants and make the 30% the saving and investing for your future instead). 

Even though this budgeting method is called “The 50/30/20 Budget”, you have the freedom to change the percentages to what fits you and your life, as long as you choose a reasonable percentage for the needs and the saving / investing categories. 

The Zero-Based Budget:

This budgeting method is likely a very good first place to start for most people once they start becoming financially literate and learning about FI (financial independence). This budget can help people get a grasp on their budget and finances. 

This budgeting method starts with you, or you and your significant other, figuring out the exact monthly amount of money you’re making, then assigning a job for every single dollar that you’re earning. 

Within a few months of using this budget, you will quickly learn the total amount of non-negotiable items every month (housing, utilities, student loan payments, transportation, food, medical insurance / costs, etc.). Once you have this information, you can then see how much you have left to spend on the negotiable categories. Depending on your goals, you may decide to use the leftover funds towards building up your emergency fund, making extra payments towards your student loans, investing more for your future in your retirement account, or figure out how much to spend per month on fun things in life such as new apparel, tech items, or entertainment. 

With this budgeting method, at the end of every single month, every single dollar has been assigned a job, so you are not left with any money just sitting around. This method forces you to take a critical look at your spending habits and where your money is going every single month. This method can be somewhat detailed, and even perhaps tedious for some. However, again, this can be an excellent first place to start for many, then perhaps in several months once you’ve developed the habit of budgeting and understand where your money is going every month, then maybe you decide to utilize one of the other methods listed above. 

Budgeting Methods Conclusion:

Regardless of which budgeting method you choose, it’s important to start budgeting and pick a method to try first. See if you can try the method for at least 3 months to determine if it’s a good fit for you and your life. As discussed in The Big 3 Budget Items post, if you’re able to really focus on cutting costs in the categories of housing, transportation, and food, you’ll likely be able to free up a large amount per month to be able to allocate towards your financial goals. 

There are several ways of tracking your budget. Some will choose to simply use a paper and a pen, while others may elect to create their own spreadsheet, or purchase someone else’s spreadsheet to use, or even use an online tool such as Mint, YNAB (which stands for You Need a Budget), or EveryDollar. Again, pick which tracking tool is right for you!