How To Budget: The 4 Best Budgeting Methods To Try!

For many people, budgeting is just not any fun, and it means limits or lack of or even punishment. But if you choose the right budgeting method, you can be financially successful, and budgeting doesn’t have to be such a chore. Find out about the best budgeting methods so you can decide which one to use!

Budgeting methods

I personally prefer the word “plan” to the word “budget” because it doesn’t sound so constraining. But a budget broken out into budget categories in some form is really important for your financial success.

Ever heard the saying from Benjamin Franklin, “Failing to plan is like planning to fail”? Well, if you don’t plan, you can’t win and your budget is there to help you win.

That said, the process of budgeting doesn’t have to be difficult or complicated, either.

There are several advantages and disadvantages of budgeting, but it’s generally a positive thing. You just need to create a system that works for you. And this means the right budgeting method.

In this article, you’ll learn all about the various types of budgets and how to win with your money! But first, let’s discuss why understanding the different budgeting methods even matters.

Why it’s important to understand budget methods

There are some pretty solid reasons why you should understand and be using some or one of the methods of budgeting. It helps keep your spending in check, tracks your expenses, and teaches you to control your money — and not have it control you!

It’s also the first step in helping you build wealth.

Having a budget allows you to enjoy life without the stress of how to pay for it later. Because “later” rarely comes. Paying for things in the present instead of the future allows you to truly enjoy yourself and live the life you want.

I was able to save $100,000 in just 3 years by making a budget and sticking to it. And you can find out how to save 100K, too! Imagine what you can accomplish with a little planning.

People will often allow their emotions to cloud their judgment when it comes to planning their finances.

However, if you look at your money objectively for what it really is, a tool, then it’s easier to make your plans! Once you decide what your priorities are, the different budgeting methods you choose should reflect them.

4 Different budgeting methods to consider

The method you choose is entirely up to you; the most important part is picking a style that works for your life. Trust me, even if you currently hate budgeting and need a better budgeting system, there’s a style out there for you!

Different budgeting methods

Finding what works for you is the most important step because not everyone’s brain processes information the same. You may like one of these methods or a hybrid of a couple of them. You may choose to start budgeting weekly or prefer a biweekly budget or monthly.

The most important thing is just to do it. If one doesn’t work, try different types of budgeting methods. That said, below are four different ideas that you can try.

1. Envelope or cash system

The cash-based budgeting system is simple. You subtract your expenses from your income and then put the amount of each expense into its own envelope. These envelopes are your categories.

Using cash may also make it easier to stick to your budget. Studies have shown that you spend less when using cash. But you don’t have to use cash for all of your bills when using the envelope system.

You can set up the money for your big bills using a digital envelope system. Then, track them through a budget worksheet or an app. Then, put actual cash for your smaller expenses or day-to-day transactions in actual physical envelopes.

The cash envelope system works best for categories which you can use cash for on a daily basis. So, things like clothes, food, eating out, fun, kids’ expenses, etc. Do not make it overly complicated, or it will be hard to follow and stick to.

Learn more about getting started with the cash envelope method. And be sure to check out our reviews of the best cash envelope wallet options.

2. Percentage breakouts

Another way to examine your budget is to break down your household income into percentages. Once you do this, you can organize your spending and savings accordingly where you allocate percentages to your:

  • Needs
  • Wants
  • Savings and/or debt.

Keep in mind that the percentage allocations in your budget can change and that’s ok. Remember this is YOUR budget, and you can choose to spend less on one category to put more in another, like savings or debt repayment if needed.

So, for example, you can select a 35/30/35 breakout, a 35/35/40 breakout, or even a 25/25/50 breakout. The goal is to set percentage breakouts that make sense for you.

Just be mindful of how much of your income you spend on housing alone. A good rule of thumb is to keep your housing costs to less than 30% of your income.

Otherwise, you won’t be able to put as much money towards your other goals. Things like saving and investing or becoming debt-free.

It’s helpful to maintain a budget worksheet for this method, too. Using one of the best budget templates or a worksheet is helpful to see where your money is going. It can help you create your budget easily from month to month.

Here are some common percentage budgets you can try:

70-20-10 budget

The 70-20-10 budget method helps you break your income down as follows: 70% to your expenses, 20% for savings, and 10% to pay off debt (or for charitable donations).

Included in your expenses are essentials like groceries, personal care, and housing costs, but also non-essentials like gifts for weddings or fun money. Then you save 20% towards your goals, including your retirement investing. Last, you’ll pay off any credit card debt or personal loans and give to others with the remaining 10%.

50-30-20 budget

The 50-30-20 rule is fairly straightforward. You spend no more than 50% of your income toward your needs and essentials (things like housing expenses, rent payments, home repairs, transportation costs and car payments, your food budget and groceries, etc.) It also includes debt repayment.

Next, no more than 30% of your income goes toward wants and non-essentials (cable, entertainment, subscriptions, vacations, presents for an anniversary or birthday, etc.)

Finally, at least 20% of your income goes toward savings (your retirement account, emergency fund or rainy day fund, health savings account, saving for college tuition, etc.)

It’s one of the easiest methods of budgeting because it works for a variety of incomes and allows you to save and spend freely.

60-30-10 budget

The 60-30-10 rule is a very unique budgeting method. It works best if you have either a very high income, low expenses, or both. 

With this approach, 60% of your money goes toward savings, debt payoff, and investments. Then, 30% is budgeted for your essential costs, like your mortgage, renters insurance, property taxes, school supplies, food, etc. Last, 10% is left over for whatever you want to purchase, like birthday gifts for friends, dinners out at restaurants, etc.

Even if you can’t use the 60-30-10 budget yet, you can always use a percentage method that allows you to save more. Maybe try for 30 or 40% savings to start, and work up to saving more over time.

80-20 budget

The 80-20 budget is a simple approach that can be very effective. 20% of your money is for your savings goals. The other 80% is for your essentials and discretionary spending. 

So you would budget 20% of your wages towards your emergency fund, investing, and other goals. Meanwhile, you divide the rest for your expenses and anything else you want or need to buy.

For example, essentials like rent, homeowners insurance, groceries, life insurance, internet, etc., are paid for from the 80%, as well as discretionary spending like Netflix and movies, tickets for events like a concert, or gifts for birthdays.

30-30-30-10 budget

Another common percentage is the 30-30-30-10 budget. It’s a method that makes a lot of sense if you want to be careful about how much money you spend in important categories.

With this approach, you spend 30% on your housing costs. Another 30% goes towards your savings goals, like retirement and paying off any debt you have.

In addition, another 30% pays for your other essential expenses like internet and groceries. Last, the final 10% is for discretionary spending.

A budget like this means you’ll be careful that your housing costs don’t get too high, which can be helpful, and you’ll save a significant amount.

3. The reverse budgeting approach

As the name implies, reverse budgeting is the opposite of most methods. With most budgets, you subtract your expenses from your monthly income, but the reverse budget is different. It is also known as the “pay yourself first” method.

In this method of budgeting, you focus on savings and financial goals, such as saving a certain amount of money each month, in addition to paying your essential bills, like mortgage payments and utilities.

Then, as long as you meet your monthly goals and pay your bills without exceeding your income, you can do what you like with the money leftover. Reverse budgeting can be one of the best types of budgeting methods because it’s easy, and you don’t have to overthink your money goals too much.

4. Zero-based budgeting

Another form of a budget is the zero-based budgeting example. Zero-based budgeting is the method that Dave Ramsey advocates using. Basically, a zero-based budget is planning for every single dollar in your budget.

So, instead of having $X amount left over at the end of the month, you have $0 left (on paper anyway). When you are planning out your budget, you account for everything you can think of in the budget so that every dollar has a purpose.

You won’t really have zero dollars at the end of the month because you have accounted for different savings funds in the budget. The method is effective because it creates intentionality with every dollar so that what is “left” doesn’t disappear every month.

So no matter what you spend your money on, from essentials like health insurance and debt payments to discretionary spending like going to a concert or money for a hobby, you plan it in advance with the exact amount of money you need.

Budgeting using a spreadsheet vs. an app: Which is best?

Some people love an organized chart for their money — they don’t have to worry about bank security or what’s happening with their personal information. And using a budget spreadsheet allows them to get really close to their numbers.

Do you like this approach but are worried about being able to access it when you’re not home? Google Drive is free and makes it easy for you to upload your budget worksheet for easy access on your mobile devices.

Clever Girl Finance budget worksheet
Click the image about to download our free budget spreadsheet!

Apps, on the other hand, can make it really simple to budget, especially if you can connect your bank accounts to them so your transactions can be tracked automatically. These days, most apps have extra levels of security.

But sometimes, there can be delays in transaction updates. And apps are not always as intuitive when it comes to categorizing transactions, which will require you to spend some time setting things up.

That aside, for the most part, all you’ll really need to do once things are set up is check in frequently. It will help you ensure your transactions are tracked correctly. You can also set up alerts to keep you on top of your budget.

Whether you choose a budget worksheet or an app, you can set up your budget to be reflective of any of the above methods. Be sure to check out our example of a budget.

6 Tips for succeeding with your chosen budgeting method

Budgeting doesn’t have to be scary and overwhelming. Once you get the hang of doing it, it gets easier and easier every month to have organized finances. Following these simple steps will help you streamline the process and actually stick to your budget.

1. Call it something fun

Call your budget something that you like and that motivates you to keep up with it. Who says it has to be called a budget?

Give it a nickname and a personality. The word budget is boring anyway!

2. Create a budget in advance of each month

Creating a budget in advance of each month means you kick off the next month with a plan, and you aren’t scrambling to figure out what to do. After all, new month new goals, right?

Plan to create your budget a few days before the month starts. You’ll have time to lay things out and figure out what your finances will look like in the upcoming month.

Once you get in the habit of creating a budget, you will even be able to plan out your budget for several months at a time.

3. Don’t assume every month will be the same

Every single month should be planned for separately. No two months will be exactly the same financially, so you want to prepare in advance for things like one-time bills or expenses, travel plans, events, etc. So, creating a new budget specific for each month is essential.

Similarly, budgeting for life-changing events requires extra attention and a budget review. Whether it’s a new baby or you’ve paid off debt, sometimes you need to take a hard look at your monthly budget and accommodate those changes as needed.

4. Create your budget based on your projected income for that month

If you get paid one time a month, twice a month, or every two weeks, base your budget on that projected income so you know exactly how much you have to budget.

Remember that if you get paid every two weeks, there will be a month when you get three paychecks. So plan accordingly.

On the other hand, if you’re budgeting with an irregular income, you may have some challenges getting it right at first. You’ll have to be even more diligent with tracking your spending and estimating your income, but it can be done!

5. Pay your expenses before splurging

Paying expenses first means paying for your essentials, debt, and goals (savings and investments) first before you do any splurging or miscellaneous spending.

The last thing you want is to find that you have overspent on what isn’t necessary and don’t have a way to pay your bills.

However, that being said, it’s okay to splurge and have some fun money. Just make sure you are building your splurges into your budget so you can enjoy them guilt-free.

6. Track your transactions

Tracking your transactions allows you to make sure you stay within your budget and keeps you conscious of your spending habits. You can track your transactions in a spending journal, spreadsheet, or with an automated app or online tool.

If you are just getting the hang of budgeting, it’s a good idea to track your transactions and check in with your budget every day. It will only take a few minutes, and it will help you stay on top of your finances. Plus, you’ll be building up one of the essential money habits of checking in on your finances frequently.

Expert tip: Budgets can change your life for the better

Budgeting may not seem like a lot of fun, but if you find the right method, it can really help your financial wellness. If it seems difficult, try out another method until you create a system that makes sense for you.

And remember that you aren’t budgeting for no reason, you are doing it so you can build a better future for yourself.

Budgeting ensures you can pay bills, pay off debt, and invest money. Remind yourself of how budgeting helps you if you feel like quitting, and don’t give up!

What are the most common budgeting methods?

The cash envelope system, percentage budgets (e.g., the 50/30/20), reverse budgets, and zero-based budgets are some of the most common budgeting methods. They are all different from each other. So the chances are you’ll find one that is right for your lifestyle, and it’s important to find one that works for you.

However, if you don’t want to keep searching for another method, you can create a hybrid of different budgeting methods to come up your own unique budget!

Which budgeting method should I try first?

If you want to know which budgeting method to try first, try out a percentage one like the 50-30-20 rule. It will give you a good starting place with your finances. Then, you can change the percentages as needed depending on your lifestyle and goals.

Keep in mind that there are several other budgeting methods you can try out, too. For example, the reverse budget or the zero-base budgeting method.

What are 5 budgeting methods?

5 budgeting methods that are likely to work for most people are the 50-30-20 budget, reverse budgeting, the 70-20-10 budget, zero-based budgeting, and the envelope system. While there are other types of budgeting methods, these five are likely to be easy to implement for the majority of incomes.

There are plenty of ways to plan your money to make the most of it. As long as you use a method that allows you to pay your expenses and save for the future, you can’t go wrong.

The best types of budget are the ones that work for you! If you enjoyed this article, check out these other great articles on budgeting methods.

Leverage these methods of budgeting today!

The budgeting method you choose can help you succeed financially. If you slip, brush yourself off and get back on track. Take the lessons you learned about budgeting from the previous month and apply them to the next.

If you find that the method you want to use isn’t working, you can adjust it to suit your preference or try an entirely new method. No matter what, keep trying until you find the right way to budget your money and reach your financial goals.

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