Hi, I'm Erin from Broke Millennial for The Financial Diet. Welcome to The Three Minute Guide brought to you by Skillshare. You've asked for budgeting tips. Now, there isn't one budget to rule them all, so we're going to dig into three different styles of budgeting and which personalities they're best for. 

Number one: Tracking every penny, for when you're so forgetful that you just don't know where your money is going. Tracking every penny, or TEP, is exactly like it sounds. Every time you make a purchase you write down exactly how much you spend and, more importantly, what you spent it on.

The point of TEP is to be able to look back at all those transactions after a couple of weeks and start to notice patterns of mindless spending. My old roommate used this method to uncover the fact that she had been leaving her office every day at three-o-clock and mindlessly buying a three dollar bottle of water from Starbucks. Instead she nixed the habit, and she would go for a walk every day instead and put sixty dollars a month back into her budget. 

Number two: The envelope method, because you like or need strict rules and structure. This is the style that I used when I was first living in New York City and only earning $23,000. The envelope method is perfect for if you're trying to curb your impulse purchases or aggressively paying down debt because it sets very strict rules for how you can spend your money. 

In the traditional version you use actual envelopes to represent your spending categories. For example, rent and utilities, debts, savings, food, transportation, and those monthly household items. Then you need to consider your net income and how much money you need to put into each individual envelope in order to fund your needs.

To really do it right you are supposed to put actual cash into each envelope, and then pull out the cash with the corresponding category whenever you make that purchase. When the money is gone, it is gone - you cannot dip into another category in order to cover a shortfall. I'd actually challenge you to try the cash version for one or two months.

It might sound cumbersome, but there's just something about physically using cash. If that gets to be just a little too much, try using apps like mvelopes or  goodbudget in order to do a digital version of the envelope system.

Number three: The zero-sum budget, because the unpredictability makes you anxious. The goal of the zero-sum budget is to be living off last month's income. It can take a while to get the hang of it, but once you're there it gives you a lot of control, especially if you're earning a variable income. There are four rules from the popular zero-sum budgeting software You Need a Budget.

Rule number one: Give every dollar a job. It is similar to the envelope system, except you don't have to be using cash and the envelopes, and instead just have it outlined in your budgeting spreadsheet. 

Rule number two: Embrace your true expenses. This is a great one when you have those annual fees that sneak up on you. You want to make sure that things like your annual fees actually get divided by twelve so you know how much you need to be putting aside every single month, so you're never blindsided by, let's say, your renter's insurance coming up. Write down your annual expenses like renter's insurance, and then divide it by twelve. That way you're putting a little bit of money aside every single month and you are ready for that payment when it comes up.

Rule number three: Roll with the punches. Be flexible with your categories, because change happens. Unlike the envelope method, with this version you can reallocate funds from one category to cover a shortfall in another.

Rule number four: Age your money. You want to be breaking out of that paycheck to paycheck cycle, and instead live off of last months income to pay for this month's expenses. That's why this is such a great style for freelancers who are living off a variable income. This style is obviously very much easier said than done, which is why looking at things like the YNAB software or reading more articles online or even joining reddit's forum for zero-sum budgeting can be really helpful. We have links to all of those in the description of this video.

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Click the link in the description to check out this week's featured class or any of the other classes Skillshare has to offer. Have a money question you want to learn more about? Don't forget to leave your idea in the comments section below. I'm Erin from Broke Millennial for The Financial Diet, and don't forget to be here next Thursday for a new three-minute guide.