With so many personal budgeting methods available, figuring out which one best suits your needs can be a challenge.
This article outlines the best personal budgeting methods, breaking them down into easy-to-understand sections. Plus, it provides an interactive quiz to help you decide which budgeting method is ideal in your situation.
When Choosing a Budgeting Method, Think of it Like a Map
Personal budgeting is like planning a road trip.
Imagine setting off on a journey and having a certain amount of fuel (your income) to get you to your destination (your financial goals). Your budget is your roadmap, guiding you on allocating your fuel effectively to reach those goals without running out of gas.
Why is budgeting important? That’s like asking why you need a map. Without one, you might get lost, take longer routes, or end up somewhere you never intended to be.
Just as maps get you to your preferred destination on the most efficient path, budgeting is about finding the most efficient path toward achieving your financial goals.
Or better said, it’s not about restricting what you can have, but about making room for what’s important in your life.
What Budgeting Method Is Best For You? Take our Quiz to Find Out
To help you find your ideal budgeting method, we’ve developed a quiz to give you personalized recommendations based on your goals, availability and comfort with technology.
Take the quiz now, then continue reading to learn more about the specific budgeting methods the quiz recommends.
Find Your Ideal Budgeting Method
Answer the following questions to find out which budgeting method suits you best.
1. Would you say you have a problem controlling variable expenses like eating out and entertainment?
Here’s an overview of the budgeting methods we discuss below (click the links to learn more):
- The 50/30/20 budget. This method is designed for simplicity and balance, allocating 50% of income to needs, 30% to wants, and 20% to savings or debt repayment.
- The 70/20/10 budget. Similar to the 50/30/20 method, but allows for more lifestyle spending. This method suggests allocating 70% of your income to living expenses, 20% to savings and 10% to debt or charitable giving.
- The envelope system. A tangible and visual budgeting method, the envelope system (sometimes called the cash envelope system) involves distributing cash into different envelopes designated for various spending categories.
- Paying yourself first (a.k.a. reverse budgeting). This method prioritizes saving, by setting aside a portion of your income for savings or investments before considering other expenses.
- Zero-based budget. A detailed and proactive budgeting approach where every dollar of income is assigned to a specific expense or saving category, ensuring that income minus expenses equals zero.
- DIY budget. Ideal for those who prefer hands-on control, this method involves manually tracking income and expenses using traditional tools like pen and paper or digital spreadsheets.
- Values-based budget. A flexible and personalized budgeting approach that allocates income based on individual values and priorities, allowing for custom percentage distributions.
#1. The 50/30/20 Budget
With the 50/30/20 rule, you allocate 50% of your income to “needs,” which are things you can’t do without (like housing, groceries and utilities). Then 30% is set aside for “wants,” which are those little (and not-so-little) extras that make life enjoyable, such as entertainment and hobbies. The remaining 20% is earmarked for savings and debt repayment, helping you secure your financial future.
The beauty of the 50/30/20 method is its simplicity.
It offers a high-level framework that’s easy to grasp, making it a fantastic starting point for budgeting novices who have typical lifestyle expenses such as a house payment or rent, a car payment, and some fun.
However, the 50/30/20 method can be vague. The definition of “needs” and “wants” can blur, and they might not always align perfectly with your circumstances and financial goals.
For example, if you enjoy living in a nice apartment and that alone takes up 50% of your pay, yet you’re still able to save 20%, does that apartment become a need or a want?
Or, say you want to aggressively go after a certain goal, such as paying off debt. Should you limit that to only 20% to have some balance in your financial life, or go after the debt with every last dollar you have? And in that case, does the amount of debt you’re paying off over 20% become a want rather than savings?
Overall, there tends to be a lot of these gray areas within the 50/30/20 budget, making it less than ideal when you need a level of customization.
Our take: The 50/30/20 method is an excellent diagnostic tool. It quickly highlights your financial weaknesses — e.g., if housing and auto expenses alone consume half your income, leaving you scraping by for everything else. However, this strategy doesn’t offer much aid if you’re far off from the suggested percentages and need to correct your course.
Consider the 53/30/20 method a guiding post for where you want to be, while understanding that you may need a more hands-on method — like zero-based budgeting (discussed below) — to get there.
#2. The 70/20/10 Budget
The 70/20/10 budgeting method is similar to the 50/30/20 method in that your income is broken down into three categories:
- 70% is dedicated to “monthly spending,” covering both necessary and discretionary expenses like rent, utilities, entertainment, travel and gifts.
- 20% is set aside for “saving and investing” for emergencies, retirement, college funding, and/or other significant expenses.
- The final 10% is assigned to “debt repayment or donations,” whether that’s accelerating debt payoff or supporting causes you care about.
The 70/20/10 rule offers flexibility and a simple, balanced approach.
Someone might favor this method if they value a higher degree of spending flexibility and have specific goals or habits (like tithing or rapid debt reduction).
However, the 70/20/10 rule has its drawbacks.
Notably, the “monthly spending” category is broad and may not align perfectly with your financial situation. For example, the percentages may not be achievable if your income is particularly high or low, and it may not adapt well to varying life stages (such as those with irregular income).
Our take: The 70/20/10 budgeting method is a practical tool for you to get a handle on your finances. It gives you a clear picture of where your money is or should be going, but it might not be the best fit if you’re dealing with a major financial overhaul.
#3. The Envelope System
The envelope system — also called the cash envelope system or the Dave Ramsey envelope system — is a method of budgeting that revolves around cash and categories.
With this approach, you divide your income into physical envelopes, each representing an expense category such as groceries, entertainment or transportation.
The rule is simple: you can only spend what’s in the envelope for the corresponding category.
One of the highlights of the envelope system is its tangible nature; this method provides a visual and tactile way of managing your spending.
That makes it an excellent fit for people who are prone to overspending or impulse buying, as it instills a natural discipline. It’s harder to hand over cold hard cash than to swipe a card. Plus, when the envelope is empty, the spending stops.
You can also use a hybrid approach, splitting up your fixed and variable expenses while only using the envelope method for the variable expenses.
Fixed costs — like rent or mortgage payments, auto loans and utility bills — are regular, recurring expenses that don’t change much from month to month. These are often automated payments and don’t fit neatly into the envelope system. Therefore, they can be taken out of the equation.
Variable expenses, on the other hand, are costs that fluctuate from month to month. Think of things like groceries, eating out, entertainment and clothing. These categories are where the envelope system shines. You can keep a tight rein on your spending habits by allocating cash to these variable expenses.
Of course, the envelope system is not without its challenges. Carrying around large amounts of cash can be inconvenient and risky. Also, the system may struggle to accommodate transactions that require a credit or debit card (such as online purchases). In cases such as these, you need to have a system in place to move money out of the corresponding envelope and into a “deposit” envelope, and then have the follow through to go to the bank and deposit that money at regular intervals.
Our take: The envelope system can be a powerful tool to curb spending, especially when applied to variable expenses. It’s an excellent way to control spending in problem areas, like excessive eating out or ballooning grocery expenses. However, if your fixed costs are high, the envelope system won’t be much help, as those bigger issues will need to be addressed.
#4. Paying Yourself First (a.k.a Reverse Budgeting)
Paying yourself first (also known as reverse budgeting or paying your goals first), is when you fund your most important financial goals immediately upon receiving your income.
For instance, you could immediately save, invest or pay off debt by directing 20% of your income toward the goal of your choice the day your paycheck hits. Then, the rest of your income is allocated to cover your monthly variable and fixed expenses.
Reverse budgeting hinges on Parkinson’s Law, which suggests that our spending naturally expands to use the available funds. Assigning money to your financial goals limits your spending power, thus curbing excess spending.
But, as with any strategy, it’s not without challenges.
For this method to work, you must have consistent income and expenses. If your spending varies significantly, or if you don’t have an emergency fund, you may need to take money away from your goals, defeating the purpose of paying yourself first. And if your income varies — for example, because you’re a freelancer or contract worker who gets paid on an irregular basis — the math can become too cumbersome to deal with.
Our take: Paying yourself first is an ideal low-maintenance budgeting method for anyone with consistent income who spends less than they earn every month, and who wants to spend freely knowing that their goals are taken care of.
#5. Zero-Based Budget
Zero-based budgeting (otherwise known as an allocated spending plan) is a meticulous budgeting method where every single dollar of your income is allocated to a specific expense or savings category.
As you can imagine, this requires thoughtful planning and a clear understanding of your income and expenses.
The benefits of zero-based budgeting are its detail-oriented nature and the high degree of intentionality it encourages. It’s ideal for those wanting to optimize their finances with a clear plan, acting as a roadmap for where each dollar should go.
Of course, it’s significantly more time-consuming than other budgeting methods, requiring regular tracking and adjustments. It’s also fairly rigid and might not easily accommodate unexpected expenses, which can cause stress. For these reasons, zero-based budgeting is more common among businesses than households.
Our take: Zero-based budgeting forces you to account for every dollar, making it an excellent choice if you live paycheck to paycheck. Sure, it’s intense, but it brings awareness to the leaks in your budget. Even if you only stick with zero-based budgeting for a short term (such as six to 12 months), it can drastically improve your financial awareness and decision-making. Consider using a tool like the You Need a Budget app to streamline the process if you’re considering this approach; YNAB is designed specifically for zero-based budgeting, making the entire process more manageable.
#6. DIY Budget
The DIY budgeting method is as straightforward as it sounds. All you need is a pen and paper (or a spreadsheet), to record your income and expenses. You categorize each entry and calculate the differences between your income and expenses to keep track of your financial situation.
DIY budgeting is ideal for those who prefer a hands-on approach. If you’re comfortable with spreadsheets, this method offers a high level of customization. Free budgeting templates can help you get started, and can be customized based on your needs.
The cons of this method include its tediousness and potential for errors. You’ll have to record every transaction for accuracy purposes, and since it’s not automated via a budgeting app, it’s easy to miss a transaction or two.
Our take: The DIY method is a practical way to bring awareness to your financial situation, and it encourages you to think twice about your spending, knowing you’ll have to record every transaction. However, while noting every expense can be helpful, it might not provide as clear an overall picture of your finances as methods like zero-based budgeting.
If you need to cut spending, I prefer the zero-based budgeting method over the DIY budget. But the simplicity of the DIY method is its strength. There’s no new technique to learn — only the categorization of your expenses — making it a straightforward option for those who appreciate simplicity in their financial planning.
This budget strategy makes a lot of sense for someone in retirement who has a low volume of monthly transactions and wants to make sure they’re not overspending.
#7. Values-Based Budget
A values-based budget method involves allocating your income to various expense and savings categories based on your values and priorities. This could mean prioritizing spending on experiences over material things, investing in your health and education, or donating to causes you deeply care about.
Ultimately, your percentages will likely differ greatly from most of the recommended household budget percentages you’ll find.
The pros of this method are that it’s meaningful, intentional and satisfying. It’s suitable for those who want to spend their money on what truly matters to them, while still avoiding wasteful spending. It aligns your financial choices with your personal values and life goals.
The cons are that it can be subjective, challenging and time-consuming. And it may not always account for essential expenses or savings goals, which could lead to potential financial issues if not managed carefully. For example, you may not think that saving and investing for the future are priorities you want to focus on, but if you fail to account for those financial needs today, you will likely regret it in the future.
Our take: The values-based budgeting method echoes the style of budgeting popularized by the book Your Money or Your Life. It’s ideal for those who want to delve a layer deeper, shifting away from just a numbers mindset and towards a more holistic view of their financial life. This big-picture thinking helps guide more significant life decisions, like moving or making a career change. By aligning your spending with your values, you gain a greater sense of purpose and satisfaction from your financial decisions.
Best Budgeting Apps and Tools
Budgeting apps and tools offer a streamlined, user-friendly way to monitor income and expenses, automate tracking, categorize transactions, analyze financial behaviors, receive alerts and generate comprehensive reports.
Here are some of the best budgeting apps and tools available today:
- Empower. A free app that connects to your bank accounts, credit cards, investments and retirement accounts, providing a comprehensive view of your financial situation. It tracks income, expenses, net worth and portfolio performance. It also offers budgeting tools, a retirement planner, an investment analyzer and access to financial advisors for more personalized advice. Learn more in our Empower review.
- Mint. A free budgeting app that links directly to your bank accounts and cards, automatically tracking your income and expenses. It helps users create personalized budgets and offers alerts for unusual charges. Its easy-to-understand graphs and charts make it simple to visualize where your money is going.
- You Need A Budget. YNAB operates on a paid model, focusing on the zero-based budgeting method (where every dollar has a job). It helps users allocate each dollar of income to a particular category, making it easier to control spending. It also offers features such as goal tracking, debt payoff plans, detailed reports and online workshops to help users understand their finances better.
- Rocket Money. Offers a clear, intuitive interface for tracking expenses without intrusive ads. It’s designed to keep you on top of your finances with ease. While it’s a free app, Rocket Money’s revenue model involves upgrading users to a paid plan, which includes additional features such as bill negotiation. This can be a valuable tool for cutting unnecessary costs and streamlining their budget. Learn more in our Rocket Money review.
The Best Budgeting Methods: Summary and Final Thoughts
Remember that budgeting is a practice. It’s unlikely that everything will fall perfectly into place in the first month. There will be hiccups and mistakes along the way, but the objective is to learn from these, adjust your course, and keep moving forward.
So no matter what budgeting method you choose, plan to make mistakes. Remember that the goal is to learn every month.
Ultimately, budgeting aims to ensure that your income is spent in the most efficient manner possible, in alignment with your financial goals. With persistence and patience, a well-planned budget can bring you closer to the life you want to live.