Have More Budgeting Fails Than Successes? Try Budgeting by Paycheck

Kumiko Love combined the envelope (left) and calendar budgeting systems to take control of her finances. Courtesy Kumiko Love

Zero-based budgeting. The 50/30/20 rule. The cash envelope method.

There’s no shortage of useful budgeting methods, but what works for one person may not work for the next. And the problem isn’t always a lack of commitment or effort. Sometimes a particular budgeting method isn’t the right one for your financial situation.

That’s something Kumiko Love, an accredited financial counselor and founder of The Budget Mom, understands intimately.

“During my first couple years of budgeting, I tried so many methods — the calendar method, the paycheck method, percentage budgeting, the cash envelopes,” Love explains. “I tried Dave Ramsey’s baby steps. Every single time, I felt like I was failing, because I wasn’t reaching my financial goals the way I thought I should be.”

As Love discovered, budgeting isn’t a one-size-fits-all approach. And for those who are struggling financially, it may help to combine key elements of several different budgeting methods to finally find success.

Love combined elements of calendar budgeting, paycheck budgeting and the cash envelope system into what she calls the budget-by-paycheck method. It’s a custom approach that can work where other budgets have failed.

Don’t know where to begin with budgeting? Take our quiz and get custom recommendations on which budgeting method to try and what to skip.

How the Budget-by-Paycheck Method Works

There are four basic steps to budgeting by paycheck using this method.

  1. Track your expenses
  2. Create a calendar
  3. Write a budget for each paycheck
  4. Use the cash envelope system

1. Track Your Expenses

Before you can plan out how you’ll spend your money, you need to be aware of where it’s going, Love advises. So first, track your spending.

Take a month or two writing down every time you spend money so you have a better idea of where your dollars go. Alternatively, you can use bank statements, credit card bills and old receipts to retroactively take inventory of your spending habits.

A detail of a planner with a budget
Kumiko Love advises people to track their spending as a first step to organizing their finances. Courtesy of Kumiko Love

2. Create a Calendar

Once you’re aware of how you spend money, it’s time to put together a plan for your money. Use a monthly budget calendar to write down bill due dates, scheduled events, doctor’s appointments, holidays, birthdays and other places your money goes.

“People think budgeting is just really paying your bills, making extra debt payments and saving, but … it’s those life events that set us back on our journeys, because we’re not prepared financially to pay for them,” Love says.

While you can’t schedule unexpected expenses, you can allow for some wiggle room when you move into the next step: creating a paycheck budget.

3. Budget by Paycheck

After you fill out your calendar, create a budget for each paycheck. If you get paid twice a month, you’ll have one zero-based budget to cover expenses early in the month and another budget dedicated to end-of-the-month expenses.

You’re not budgeting your full monthly income like with other methods but just that paycheck and expenses during that time span.

The paycheck budgeting method doesn’t dictate how much you should spend in each category or goal. It’s completely up to you to decide where your money needs to go whether that’s living expenses or irregular expenses like travel and dining out.

That’s why it’s important to define financial priorities like paying off debt, creating an emergency fund or putting money toward seasonal sinking funds each pay period.

4. Use the Cash Envelope System

Once you’ve got your budget laid out, put cash into envelopes to pay for variable expenses. Love recommends scheduling bill payments online to avoid the hassle of trying to pay them via the cash envelope system.

While Love’s money management system is manual, yours doesn’t have to be. You can use a budget planner, take advantage of Love’s free resources for organizing your finances or use a budgeting app or spreadsheet.

Looking for a good budgeting app? We’ve got you covered with the 5 best budgeting apps to get your finances together.

3 Tips for Budget by Paycheck Success

Love — who paid off five-figure debt using this custom budgeting method — has three main pieces of advice for others looking to budget by paycheck.

1. Be Realistic With Spending Limits

It’s easy to ambitiously commit to no additional spending beyond your monthly bills and groceries, but that’s not realistic. Tracking your expenses closely for several months will help you pick a more achievable goal and spending limit.

“When I first started budgeting, I set my food budget at $300 a month when I was realistically spending $700,” Love says. “I set myself up to fail before I even began, because I drastically reduced a category in my budget that I wasn’t prepared for.”

2. Make Time for an End-of-Month Budget Review

Reviewing where your money actually went compared to what you budgeted is crucial. The process can help you flag critical mistakes you’re making and what changes would help you reach your financial goals. The problem areas you identify one month can become next month’s priority.

3. Take a Holistic Approach to Budgeting

Budgeting isn’t just a money management tool. Sometimes it can go beyond personal finance and force us to face some difficult truths that encourage personal growth in surprising ways.

“I think a lot of people don’t realize that about their budgeting journey, just how much you’ll discover about who you really are and the things that really trigger you to spend money,” Love says. “[Budgeting is] a lifestyle, it’s a mindset change, and it’s a journey of self discovery.”

Want to learn about other budgeting approaches? Check out nine of the most popular budgeting methods you can mix and match to create your own financial management style.

Kaz Weida is a senior writer for The Penny Hoarder. Former senior writer Nicole Dow contributed.