Popular Budget Models: Prescriptive

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prescriptive budgets are designed to

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give you clear parameters for your

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spending decisions in prescriptive

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budgeting the plan is your master guide

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all of your efforts are focused on

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keeping your behaviors in line with the

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plan prescriptive budgets provide you

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with great structure for your spending

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choices they're particularly useful if

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you're budgeting to be more aware of

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where your money is going and more

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intentional around spending and saving

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it these types of budgets are also

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incredibly effective to combat

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overspending and common financial

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hazards that could hurt long-term

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financial success with prescriptive

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budgeting the categories that you

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defined in your pre-work and the

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averages that you calculated for those

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categories become the cornerstones of

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your budget structure keep in mind that

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these budget models will require a time

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investment for planning and for

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monitoring they can also become overly

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complicated and feel restrictive if

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you're too aggressive and detailed in

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your planning

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a prescriptive budget with its detailed

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planning and spending allocations is

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what most people think of when they

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think of a traditional budget plan three

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common prescriptive approaches are

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zerobased budgeting proportional

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budgeting and the envelope system of

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budgeting the zero based budgeting model

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prioritize assigning everything to a

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predetermined spending category you

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start at $0 and you end at zero dollars

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with every penny accounted for this

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approach is a great way to practice

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financial discipline and it allows you

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to focus on achieving your financial

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goals by ensuring you incorporate them

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into the plan

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shorter budgeting periods of 1 to two

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weeks work well for this structure

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because you can plan your allocations in

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smaller increments and make little

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adjustments quickly and more easily if

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you decide to use a version of zero based

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budget be sure to set aside sufficient

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time for planning in advance and also

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time for monitoring yourself during that

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budget period

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also keep in mind that a very detailed

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and specific zero based budget can lead

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to the plan being overly complicated and

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restrictive which can lead to it being

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ignored and abandoned since you create

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it and you control the plan monitor how

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you use it to manage these potential

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challenges so what does a zero based

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budget look like it may look like this

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start with your anticipated income

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include in that income everything you

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plan to have available for that budget

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period whether that's earnings a portion

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of your financial aid refund or another

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resource like family financial support

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next list spending categories and

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average costs that you calculated in

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each category during your budget

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pre-work add up the averages and compare

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it to your income

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if income and spending don't equal each

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other you have some decisions to

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make use your current behaviors and

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financial goals to inform changes to

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your budget category

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allocations what spending do you need to

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prioritize where can extra resources be

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directed or what could be reduced if you

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need to reduce your spending consider

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making smaller incremental changes to be

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realistic about what you can and will

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adjust in your

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behaviors once you have your

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allocations keep spending within those

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parameters and when it's time for the

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next budget period move any leftover

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money directly into your savings and

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start your budget plan for zero again

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proportional budgeting allocates

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resources based on set percentages of

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your total income in proportional

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budgets you group specific spending

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categories into larger key

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types commonly those types are needs

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wants savings and debt repayment

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structuring your plan based on these

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groupings ensures that you can stay

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within your allocations while still

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having flexibility within each of them

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to direct your resources as needed and

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as circumstances and opportunities

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change a well-known proportional budget

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is a 50-30-20 approach

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this means 50% of your allocation is

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going towards

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needs 30% towards wants and 20% towards

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savings and debt

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repayment other percentage allocations

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may work better for your

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circumstances the 70-20-10 approach

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directs you to allocate 70% of your

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income to cover essential living

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expenses

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20% is for savings and debt repayment

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and 10% is for personal

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spending ultimately the percentage that

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you attribute to each area depends on

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your resources and priorities so feel

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free to adjust percentages or adjust the

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categories based on your circumstances

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and goals proportional budgeting works

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best if you have regular predictable

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income that you can portion out into

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needs wants and savings if you have less

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predictable income or if your expenses

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don't fit nicely into simplified

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categories you may need to modify this

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approach before it's useful to you

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whether you follow a 50-30-20 rule a

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70-20-10 rule or set your own rules the

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key to this approach is to align your

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percentage allocations with your

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priorities and goals so what does a

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proportional budget look like a 50-30-20

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budget could look like this start with a

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plan for percentages and spending areas

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you'll use and then divide your net

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income into each

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area be sure to list where the

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categories you identified in your budget

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pre-work fall in this system you can

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then choose if you want to divide the

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allocations even further into

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subcategories or if you just want to be

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aware of overall behavior in each area

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and let things flow as

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needed and if you prefer to see your

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budget in tables and cells this is

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another way you could plan out a

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proportional budget however you draft

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your plan remember that your allocations

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are driven by percentages you determine

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for each spending area

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this may mean additional allowances in

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some categories and major cuts in others

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when compared to your current

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behaviors now the envelope system of

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budgeting is typically used in

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conjunction with another strategy like

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zero based budget or a proportional

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budget it's exactly what it sounds like

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with the envelope method of budgeting

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you label physical envelopes for your

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identified spending categories

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after allocations are determined you'll

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deposit that amount of cash into each of

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your labeled envelopes you only have the

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cash that's in the envelope to spend and

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once it's gone it's gone for that budget

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period this is a particularly effective

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method if you're budgeting to try to

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manage overspending or impulse spending

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habits use small denominations of cash

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as much as

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possible and don't cheat don't leave

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cash in the envelope for future spending

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or borrow it from other

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envelopes if you have money left over in

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an envelope at the end of the period

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immediately deposit it into your

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savings the envelope system works

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because both the physical connection to

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cash and the psychological impact of

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watching it dwindle in the envelope have

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powerful effects on behavior you feel

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yourself part with every single dollar

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as that large stack gets smaller and

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smaller and smaller and it works in many

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different scenarios to help you

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visualize your spending and remaining

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available resources for example if you

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study abroad you can withdraw foreign

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currency and divide it into specific

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envelopes based on planning rather than

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constantly trying to convert money in

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your head for each purchase you just

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focus your spending to the currency in

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those

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envelopes this ensures you don't

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inadvertently overspend because you've

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done all the planning in advance you can

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just live the experience and use the

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money that's available

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if you plan to utilize this approach

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it's important that you commit to

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spending cash from your envelope as much

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as possible if you start to cheat and

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use your card for convenience you risk

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losing track of what's been spent from

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the envelope and what's been spent

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through other

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means some banks have what they call

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digital envelopes so that you can manage

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this approach virtually if you don't

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like using cash and that aligns more

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closely with your natural purchasing

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preferences it's something to explore

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but keep in mind that implementing the

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system virtually won't have as strong of

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a psychological influence if you're

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trying to control risky spending

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behaviors also keep in mind your

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personal security never have large

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amounts of cash sitting around in an

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unsecured dorm room or in a shared

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living space lock your envelopes up and

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only carry the cash you need and plan to

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spend