(Inside this post: Explore 5 common budgeting methods, including zero-based, 50/30/20, cash budgeting, and more, plus where to find tools to use them.)
If you saw our last post, Budgeting for Beginners, we discussed how to create your first budget. Now that you’ve got the basics down, it’s time to choose the budget method — the way in which you organize your budget each month. Before we dive in, remember that there are a million and three ways to set up a budget. Today, we are going to look at five of the most common budgeting methods, but keep in mind that just as your budget system is tailored specifically to fit within your life, the budget you create within that system needs to be tailored to how you like to manage your money.
Getting Started with Budget Methods:
There isn’t one universal way to set up a budget, and you might see these methods in the next section and choose to create your own hybrid approach. My advice is to start with one that might work for you and test it out for a month to see how it feels in practice. Throughout the month, consider the pros and cons of each method.
Did you:
- Find the method easy to set up?
- Dread opening your budget, or were you excited to track progress?
- Have any technical difficulties?
- Enjoy the format (paper, apps, spreadsheets) you used to record your budget?
- Feel encouraged to set aside savings and monitor spending?
Once you’ve evaluated a method, you can decide to continue with that method for the next month, take the pieces you enjoyed and leave the rest, or try a different method next!
(Psst. Finding a budget method that feels right is a great place to start. If you want a little more guidance as you build the rest of your system, the Budget Blueprints Workbook walks you through it step by step!)
5 Common Budgeting Methods
Each of the methods below have different levels of flexibility, details, and prioritization. As you investigate them, consider which one might align most with how you already naturally like to manage your money.
1. Traditional Budgeting: This is the method where most people start! List out all of your income and expenses for the month at the beginning of the month. Each expense is broken into a specific spending category and assigned a spending limit. Typically, this is a more detailed budget because you manage several specific spending categories, instead of a few large buckets of expenses. Because you are listing several spending categories, tracking expenses is crucial to ensure you are staying within your allotted spending.
2. Zero-Based Budgeting: This method is very similar to traditional budgeting, but you are intentionally assigning each dollar a “job” within your budget. The end goal is to not have any money left over at the end of the month, but a net zero outcome when you subtract your expense from your income. This means that any dollar that comes in throughout the month is either paying a bill, getting spent on discretionary expenses, or going into your savings account. Oftentimes, budgeting apps that note “X amount still left to budget” when you are creating your budget work from this zero-based framework.
Budgeting tip: I like to have a “miscellaneous” budget category in my zero-based budget so that I have a natural funds’ buffer within my checking account each month. This way I am protected in case an unexpected expense comes up or I make an error in my calculations. For example, I might budget $300 into the miscellaneous category, and that ensures my checking account is never equal to zero at the end of the month even though I have allocated all of my funds within my budget. That $300 just rolls over to become next month’s buffer.
3. Paycheck Budgeting: Paycheck budgeting emphasizes cash flow monitoring throughout the month by only budgeting expenses for a single paycheck, then repeating the process for the next paycheck. In a month, you might have 2–4 “mini budgets” that you create depending on how often you are paid.
Budgeting tip: In this method, I find it is easiest to split up larger expenses into separate paychecks to help avoid a cash strain at the end of the month. For example, if your rent is $1,500/month, then you would set aside $750 from each of your two paychecks throughout the month. This avoids your last paycheck being completely consumed by your rent and ensures your rent is always paid on time!
4. Cash-Based Budgeting: Often called cash envelopes or “cash stuffing” (thanks, TikTok!), this is the classic budgeting method in which you only use cash for all of your expenses. Typically, you physically separate your cash into envelopes for each spending category.
5. Percentage-Based Budgeting: This method breaks down your total income per month into large spending “buckets” based on a percentage of your income. A common example of this includes the 50/30/20 budget where you spend 50% of your income on needs, 30% on wants, and 20% on goals. The percentages act as a starting point for the budgeting process but can be flexible depending on your personal situation. It’s common for the “needs” category to creep up to 60% of your budget or for the 20% category to break down into 10% savings, 5% investing, and 5% giving, for example.
How to Use These Budgeting Methods
These budget methods can be implemented in different formats. You can check out budgeting apps, starting with your personal bank’s app, or one of the more popular budgeting apps. If you love paper, there are plenty of free templates or budget planners available. And finally, we all know someone who loves a good spreadsheet! Both Microsoft Excel or Google Sheets have their own budgeting templates, or to get you started, I love this site called Vertex42 for spreadsheet templates.
Whatever method you choose—and how you implement it—is up to you. It’s a crucial component of your overall budget system and should be one that seamlessly integrates into your financial life. If you find yourself needing a little extra help choosing your method and setting it up, we’ve got a workbook to walk you through all the steps, plus financial counseling options to provide extra personalized support!
What is your favorite way to budget? Let us know in the comments below!
