Budgeting 101: Definition, purpose & types

Setting a budget can be a powerful tool to help you align everyday money decisions with your values. It can help you spend, save, invest and give without much guilt or stress. Knowing where your money is going can give you confidence that you're making progress toward future financial goals while still enjoying the here and now.

A budget is a plan for how your money is spent. It doesn't have to be perfect; it's best to just start, even if it feels overwhelming to track expenses. You may not know where your money goes. You can track your expenses for 30 days and use that as a guide to create your structure to live within. It's also flexible to account for the best-case, worst-case and most-likely scenarios. And it's changeable. So if it's not working or your financial situation or needs change, you can regularly check in and adjust it or try a new approach. By planning ahead and putting money aside for specific scenarios, you can be prepared for seasons of challenge as well as seasons of opportunity.

You get to choose how to create and manage your budget. Some people prefer a notebook and a pencil—others like digitized data tables. And if doing it yourself isn't your thing, you can use a program or app to import and automate your information and track your budget targets for you. Some programs even allow you to grant access to your financial advisor so they can offer more efficient support and guidance.

A budget creates a structure for meeting your obligations. At the same time, it offers flexibility for activities like traveling and enjoying hobbies—whatever brings your life meaning. Seeing the impact of your daily choices as you track your progress can motivate you to keep going. You may find that planning where your money will go creates opportunities that you didn't think were possible.

Here are four aspects of effective budgets that can make a difference for you and your relationship with your money:

Having a budget allows you to be more  intentional with your money. When you first create a budget, you'll take a close look at your income, spending and savings. You might notice that you're only saving 5% of your pay or that you give to causes you care about much less often than you thought. You also might realize what you're doing well, like using electricity wisely or steadily paying down a credit card balance. You'll use everything you learn about your money habits to decide how you want to move forward.

If you don't know where you're going, how will you get there? When you build a personal budget, you'll decide how much you want to spend and save in different categories. You'll base those decisions on goals you want to achieve.

For example, if you want to have a down payment on a home before starting a family, you can calculate what you'll need to save each month to meet that goal on your desired timeline. If that monthly amount isn't realistic right now, you can explore a variety of ways to get there, such as gaining experience, skills or education for a higher-paying job or researching housing assistance programs.

At first, budgeting might seem like it creates more stress than it relieves. When you do the math and realize you only can spend $200 a month on groceries, you might get a sinking feeling in your stomach.

But as you find ways to stay within that budget, your anxiety may decrease. You'll feel a greater sense of control over your money and your life. You'll gain confidence that you can learn the skills you need to build financial stability and avoid or minimize debt. Over time, you'll start to enjoy more flexibility and freedom. You might even feel inspired to pass on what you've learned to others.

In some ways, taking on debt can be a privilege: Not everyone has the credit score, citizenship status or know-how to apply for a loan. In other ways, debt can be a burden, especially if you get into it without understanding the consequences. Student loans, credit cards and installment loans all have their place and can be better than the alternatives—like not getting a college degree or losing your job because you need reliable transportation to get you there. But these borrowing and line-of-credit options often come with high interest that can weigh you down and restrict your choices.

Whether you're trying to get out of debt or stay out of debt, a budget can help. It can create a plan for you to put more money toward monthly payments. It can help you build an emergency fund that you can rely on for unexpected costs rather than charging a card or getting a loan. It can motivate you to find creative ways to make the most of what you have and advance toward your financial goals.

Tracking your spending and saving can keep you from not being honest with yourself about where your money is going. Self-accountability may not be fun, but it does force you to decide how you'll use your limited resources. By looking at your numbers, you may find you're spending $70 a week on lunch. You might decide it's worth it, or you might think you'd rather cut that down and put it toward something else that you want (or need) more. The important thing is that you're making a conscious choice.

There are many types of budgets and tactics to meet individual needs. If you don't like what others have come up with, you even can create your own. Here are five popular budgets you might want to start with:

• Pay yourself first budget or 80/20 budget. Assigns 20% of your income to savings and 80% to your needs and wants. Money coming in goes toward your savings goals first, then to everything else.
• 50/30/20 budget. Allocates 50% of your income to needs, 30% to wants and 20% to savings. Tinker with the percentages to suit your circumstances.
• Envelope system. Has you put actual cash in envelopes labeled for different categories or you can use an app to do it digitally. Per month, you only can spend what you have in each category.
• Zero-based budget. Assigns a specific purpose to every dollar that comes in.
• No-budget budget. Makes sure your income covers your needs, then gives you total freedom to cover your wants with the rest.

A budget provides insight into using your money to build the life you want. To maintain a budget, you may need to make tradeoffs which includes shifting how you think about and behave with money. It may be helpful to learn some new financial skills to stay consistent. Even though budgeting takes some time, it shouldn't be overly burdensome.

Remember that a Thrivent financial advisor is at the ready with guidance to support you in your journey.