If you’ve ever googled “how to budget,” you know there are a lot of different ways to go about it. They all have the same purpose: to help you track your finances and be intentional about your spending. But the method you choose can depend on your goals, your lifestyle, and even your personality.
While alternate methods like zero-based budgeting work for some people, at Monarch, we see two types of budgets that work best for almost everyone: Flex budgeting and category budgeting. We’ve built both of these methods into Monarch so you can choose the one that works best for you and your money. Here’s how to decide between them.
Flex budgeting vs. category budgeting
Flex budgeting
Flex budgeting centers around tracking your flexible spending. These are the expenses that vary each month and require the most decision-making on your part — things like restaurants, shows, and groceries. All your other expenses get separated out first, so that you can focus on one number for your monthly spending: your flex number. (You’ll also hear people describe it as “one-number budgeting” or “bucket budgeting.”)
Monarch makes flex budgeting easy by looking at your income and transactions and giving you a view of your budget divided into three high-level buckets: Fixed, Non-Monthly, and Flexible. Your flex number is what shows up as the top-line in your Flexible Expenses view. Monarch shows you exactly how you’re tracking toward your flex number for the month, so you can easily make spending decisions.
Category budgeting
With category budgeting — the more traditional way of budgeting — you assign every expense category a budget and track your spending at the category level. That means you’ll set a monthly budget for all of your expenses, not just the ones that go up and down each month: rent, utilities, mortgage, taxes, insurance, entertainment, restaurants, clothes, groceries, you name it.
Monarch makes category budgeting easier by looking at your income and spending and helping you set everything up based on historical transactions. You’ll get monthly reports that visualize exactly where your money’s going so you can optimize your spending. You can consult your budget any time and change it whenever you need to.
When is flex budgeting the right choice?
This method might be right for you if:
You’ve tried other budgets and they didn’t work.
Because it gives you one simple number to track and doesn’t require you to reconcile your spending every month or try to use cash for everything, flex budgeting might be the very first system of budgeting that works for you.
You don’t want to get into the details of your spending.
This is the most common reason someone might choose flex budgeting. Most people are busy, or just don’t have the patience or need to follow every expense in every category. A lightweight way to make sure you’re on track to your goals might be all you need, especially if you consider yourself good with money and generally spend less than you earn.
You might find that starting out with flex budgeting gets you excited to go deeper and you decide to dive into category budgeting — but you might be just fine staying with your flex number forever.
Your spending ebbs and flows a lot each month.
If your monthly spending varies a lot, it’s more challenging to fit your expenses into the rigid monthly budgets required for category budgeting. You’ll have more variability if you have fairly low fixed monthly costs and a lot of income left over that you can decide to save or spend — or if you travel often, have a lot of hobbies or interests, or pay expenses for others (like kids or parents or pets) that you can’t fully control. Flex budgeting is a great option for any of those circumstances.
You have big goals you want to save for.
When you set up the spending buckets in your flex budget in Monarch, we recommend that you also go to the Goals area of your dashboard as well. There, you can set up and review your bigger financial goals, and then adjust your expenses if you need to. Once you’ve done that, you can be confident that you’ve “set it and forget it” and are saving for your goals without having to nickel and dime every purchase you make.
When is category budgeting the right choice?
This method might be right for you if:
You want to learn about and manage your spending.
If you love getting into the details and are interested in managing your spending on specific categories — like eating out, subscriptions, or shopping — category budgeting can help you learn exactly where your money is going and make specific changes.
You’re actively trying to cut your spending overall.
Setting specific budgets in every expense category can be really helpful to keep on a tighter budget if you need to make cuts . You can also use the category budgeting view to create groups for “needs” and “wants.”
You prefer to do cash envelope-based budgeting.
If you’ve found success with the cash envelope budgeting method (where you take your monthly amounts out in cash and literally put them into envelopes so you know where they’re going), you can set up category budgeting and track your money by adding manual transactions to reflect cash spending.
How to modify for some common needs
The ease of flex budgeting is a game-changer, but it might not quite work for your financial situation right out of the gate. Fortunately, you can customize and create a hybrid approach by setting up some elements of flex budgeting using category budgeting. You’ll still be able to view your top-level spending buckets and see your flex number. Some common scenarios:
You’re overspending on “wants” instead of “needs”
If you find yourself spending your flex number on optional things without accounting for the necessities, try adding budget amounts to those categories within your flex budget: an amount for gas, for shopping, for restaurants, et cetera. You’ll be able to view those amounts underneath your flexible spending number.
Going over in any category won’t necessarily throw you off track — it’s still all within your flex number as long as you balance out the rest of your spending — but being able to see your intended budgets and use them as mental checkpoints can be helpful.
You’re in a relationship and want separate flex numbers
If you have combined finances, you’ll get one topline flex number as a couple — that’s how you know you’re on track with your money as a team. But you can (and should) talk frequently and thoroughly about how you want to split it, and agree about how you’re going to spend it.
Once you’re in agreement, you can use category budgeting to make custom groups for each of your flexible expense categories and label which expenses go to whom. Just go to Settings > Household > Categories and you can customize the groups and label them for you and your partner.
You have business or real estate income or expenses
You can pull out any necessary forms of income or reimbursable business expenses that you need to track separately via category budgeting. In Settings > Household > Categories, you can move those categories into a custom expense or transfer a group so that you can still track those but they don’t impact your regular budget.
We designed Monarch to make both methods easy to set up and start tracking. It’s also easy to switch between the two, so you can try them both and see which one feels right to you. You might be pulled to the ease of a flex number, you might use category budgeting to add a few categories and groups to create your own custom version of flex budgeting, or you might dive deep and decide to set up a full category budget. The best method is the one that you actually use — so get started now and you’ll be ready to stay intentional with your money.
