There are so many different budget types these days that it’s hard to keep track. Do you want to go minimalist? Manage your spending by priority. Stuff categorized envelopes with cash? What does it all mean?

If that all makes your head hurt, and you just want to keep it simple, there’s a perfect option for you: traditional budgeting. It’s just what it sounds like—straightforward and disciplined, like a Midwestern soybean farmer. But how, exactly, does that translate into budgeting? We’re glad you asked…

1. What is traditional budgeting?

Traditional budgeting, also known as the line-item budget, involves meticulously planning and tracking every dollar you earn and spend. The goal is to make sure your income covers all your expenses, including savings and any payments you owe toward debts. To start, you create a detailed budget by listing all your income sources and categorizing all your expenses (both fixed and variable).

Key concept: the point of traditional budgeting is to balance your income with your expenses and savings goals, making sure every dollar has a purpose.

2. How traditional budgeting works

Traditional budgeting is a structured approach that works best with careful planning and attention to detail. Here’s how it works:

Step 1: Calculate your monthly income

The first step in traditional budgeting is determining your total monthly income after taxes. This includes all sources of income, such as your salary, freelance work, side hustles, or any other money you have coming in regularly. Use your net income (after taxes and deductions) to create an accurate budget.

Brigit tip: If your income fluctuates, calculate an average based on the past three to six months to create a more reliable budget.

Step 2: list all your expenses

Next, list all your expenses for the month. Expenses can be divided into two main categories:

  • Fixed expenses: These are regular, predictable costs that stay the same from month to month, like rent or mortgage payments, utilities, insurance, and loan repayments.
  • Variable expenses: These costs can be different each month—they include groceries, dining out, entertainment, gas or transit costs, and other discretionary spending.

Write down each expense category and estimate the amount you usually spend in each one. Better yet, use the Brigit app—it will automatically break down your expenses by category, so you know exactly where your money is going each month.

Brigit tip: Review your bank statements, credit card bills, and receipts from the past few months to get a clear picture of your spending habits (or let the Brigit app do it for you!) and identify areas where you can spend less.

Step 3: Allocate your income to each expense category

Once you have a list of your income and expenses, assign income to each expense category. The goal here is to make sure your income covers all your expenses, with every dollar accounted for. This is where the concept of “zero-based budgeting” comes into play: your income minus your expenses (including savings) should equal zero.

Brigit tip: Don’t forget to include savings and debt repayment as categories in your budget. Allocate a portion of your income to building an emergency fund, contributing to retirement accounts, or paying down high-interest debt.

Step 4: Track your spending

After you’ve created your budget, it’s important to track your spending throughout the month to be sure you’re staying within your spending plan. You can use a budgeting app, spreadsheet, or pen and paper. Regularly reviewing your spending will help you identify any areas where you’re overspending and make adjustments as needed.

Brigit tip: Set a weekly or bi-weekly check-in to review your spending and be sure you’re on track. That can help you catch any potential issues early and avoid going over budget.

Step 5: Adjust and refine your budget

Traditional budgeting is not a set-it-and-forget-it process. It requires regular adjustments and refinements based on your spending habits, income changes, and financial goals. At the end of each month, review your budget to see how well you adhered to it and make any necessary adjustments for the next month.

Brigit tip: Be flexible and willing to adjust your budget as needed. Life is unpredictable, so it’s best to always be ready to adapt your budget to changes in your circumstances.

3. Benefits of traditional budgeting

Provides detailed control over finances

The traditional budget gives you detailed control over your finances by tracking every dollar. This level of detail can help you identify spending patterns, avoid overspending, and make informed financial decisions.

Encourages financial discipline

By requiring you to allocate your income to specific expense categories, traditional budgeting promotes financial discipline. It forces you to think critically about your spending and prioritize your financial goals, such as saving for a down payment, paying off debt, or building an emergency fund.

Helps identify wasteful spending

Traditional budgeting makes it easy to see where your money is going and identify any wasteful spending. By reviewing your budget regularly, you can pinpoint areas where you may be overspending and make adjustments to reduce unnecessary expenses.

Supports goal achievement

With a traditional budget, you can set specific financial goals and allocate money toward achieving them. Whether it’s saving for a vacation, building a retirement fund, or paying down debt, traditional budgeting helps you stay focused on your goals and track your progress.

Reduces financial stress

Knowing exactly where your money goes each month can reduce financial stress and anxiety. A traditional budget provides a clear picture of your financial situation and helps you avoid surprises, such as unexpected bills or overspending.

4. Is traditional budgeting right for you?

While traditional budgeting offers many benefits, it may not be the right fit for everyone. Consider the following factors to determine if traditional budgeting is right for you:

You prefer a structured approach

If you do best with a structured and detailed approach to managing things, traditional budgeting is a great option. It provides a clear framework for tracking your income and expenses and ensures that every dollar is accounted for.

You’re committed to tracking your spending

Traditional budgeting requires you to stay on top of tracking your spending to ensure you stay within your budget. If you’re willing to commit to this level of detail and discipline, traditional budgeting can help you reach your goals.

You want to improve your spending habits

If you want to develop better spending habits and get more control over your finances, traditional budgeting can provide structure and accountability that will help. It helps you identify areas where you may be overspending and encourages you to make more intentional financial decisions.

You want to pay off debt or save more

Traditional budgeting is particularly effective for those looking to pay off debt or save more money. By allocating specific amounts to debt repayment and savings, you can make steady progress toward your financial goals and build a more secure financial future.