Good, Bad and in Between: Why You Should Have 3 Versions of Your Budget

A father works on his finances as his two children draw.
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Major life changes — like getting laid off or going through a divorce — can really upend your finances. On the flip side, it’s easy to spiral down a path of irresponsible choices if you suddenly have more money than you’re used to — like if you get a big promotion or financial windfall.

When your income fluctuates, you need to be ready to pivot your spending. That’s why it’s important to stay prepared by drafting different versions of your budget that you can apply to multiple financial situations.

Jake Northrup, a certified financial planner and founder of, recommends having a lean budget, a moderate budget and a fat budget.

“Planning for different budget levels is like adding guardrails to your spending,” he said. “Your lean budget is the left guardrail, your moderate budget is the middle of the road and your fat budget is the right guardrail. Most of the time you drive in the middle of the road, but it’s helpful to know how far left and right you can turn.”

Northrup said having these three budget alternatives already laid out can help reduce your anxiety or hesitation when your financial situation shifts.

Outline a Lean Budget for Times of Hardship

Consider your lean budget to be your bare bones budget. It should only cover your essential expenses — what you absolutely need to survive.

Your lean budget will show you the least amount of money you can live off of.

“If you reflect back on your spending in March or April, you will likely be able to calculate what that number is,” Northrup said. “You may have spent more money on items like groceries and movies for the kids, but you barely drove, didn’t travel anywhere and didn’t go out to eat.”

This budget variation should cut out discretionary expenses and focus only on essentials like housing, utilities, groceries, medication and basic transportation. Include the minimum payments for financial obligations like student loans or credit cards, but know you may be able to work with your creditors to lower or pause payments during times of financial hardship.

Have a Moderate Budget for the Normal Day-to-Day

Your moderate budget is the main budget you will use during normal circumstances. It should cover all your bills plus discretionary expenses that are important to you, like entertainment or eating out.

In addition to your fun money spending, your moderate budget should factor in your debt repayments and savings goals.

There are many different ways to structure your budget. If you want to keep tabs of every dollar you spend, use a zero-based budget. If you prefer to think of things in terms of what percentage of your income goes to needs versus wants, try the 50-30-20 method or the 60-20-20 budget.

The cash envelope method can help curb overspending, while kakeibo will get you in the practice of being more mindful about your money.

Create a Fat Budget for Times of Abundance

It’s easy to recklessly blow money when you end up with more than you’re used to having. A fat budget is a plan for spending if you experience a salary boost or financial windfall.

Give yourself realistic parameters to work with. Instead of dreaming how you’d spend a mega-millions lottery jackpot, think about what you could do differently if you were able to bring in an extra $200 a month working overtime or $500 a month from a side hustle.

How would you want to use those additional funds? You could accelerate your financial goals — bulk up your ongoing sinking funds, increase your 401(k) contributions or knock out more debt.

But while you’re making responsible choices, don’t forget to add in some rewards.

“Your fat budget is your moderate budget, but with enhancements,” Northrup said. “Think of this like turning up the money dial on things you love. Ask yourself what are the things you truly love spending money on and how can spending more enhance your experience?”

If you’re into gaming, you could put money aside for the latest console and an upgraded headset. If you have a passion for crafting, your fat budget might mean more shopping sprees at Michaels. If you love traveling, you could book more trips.

Who knows? Perhaps planning how you’d spend extra money may motivate you to ask for a raise, apply to a higher-salaried position or start a business.

Feeling overwhelmed? Create a budget that works for you with our budgeting bootcamp!

Nicole Dow is a senior writer at The Penny Hoarder.