Budgeting Basics: What is the BEST Budgeting Method For You?

If you are new to the world of budgeting, it can be completely overwhelming.

There are so many different options to choose from! And who even knows what half of those words mean?

How can anyone expect you to start budgeting if you don’t even know where to start? That is where this Budget Basics Course comes in.

So far we have gone over what a budget even is and how to build up an emergency fund to get yourself set up for success.

If you haven’t checked those out yet, go review those before reading this post. Don’t worry, I’ll wait here for you.

Okay, awesome! Now that we have our foundation laid, let’s focus on what kinds of budgeting methods are out there (hint: there are limitless types of budgets). 

I could spend an eternity detailing all different versions of every kind of budgeting method, but that’s not why you’re here today.

So for today, let’s just focus on the 7 most popular budgeting methods/types, what they are, and if they are right for you. This is the fun step in your budgeting journey. I love getting to go through different budgeting methods and decide which works best for me and my lifestyle at the time.

You’re not committed to one method forever, so don’t get too worried. For now let’s go over the methods so you can start to narrow down which one might work for you! 

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Zero Based Budgeting

With a zero based budget, each month/paycheck your expenses should be equal to your income. But what does that actually look like?

Let’s say you made $1000 this month after taxes. With a zero-based budget, this is what your budget may look like:

Obviously, those numbers are just made up for ease of calculation. But it just goes to illustrate the idea that the money coming in should equal money going out (this includes debt and savings as “expenses”).

So with the zero-based budget, you need to have a means for tracking all of your expenses because every penny counts in this budgeting method. 

Some people choose to do a manual expense tracker like the one that the Budget Mom offers here in her budget by paycheck workbook. I actually used this when I first got started budgeting. 

It’s great if you prefer pen and paper, but I often got confused about my balances if I missed a transaction or if an amount changed in my account between pending and processing.

So now, I use YNAB to track my zero-based budget. 

If you use that link you’ll get your first 34 days free with YNAB! You don’t even have to put in your credit card information.

They are great with responding to questions, and they have tons of free workshops and a youtube page that walks you through step by step how to use their software.

In my first 2 months of using YNAB I went from having basically nothing in savings or checking to saving over $6,000! 

If you want a zero-based budget, but don’t want to have to do the math to keep up with one, YNAB for sure is the place to go. 

Zero-based budgets are great because every single penny of your money has a job. It doesn’t mean that they can’t explore other jobs and careers and be moved around. It just means that all your money has a specific purpose! It has meaning!

Therefore, when you take money out of one category to cover overspending in another, you get to really see that change in jobs and priorities. 

For me, it gives my money real meaning. Instead of seeing that $6,000 in the bank and thinking I have $6,000 of spending money, I look at my YNAB budget and see all of the jobs I’ve given that money.

So then I get to decide if spending that money on a new blender or new pair of shoes is more important to me than saving for a new car or covering future medical bills.

Neither answer is right or wrong. In fact, I have an entire list of Amazon products that I absolutely do think are worth prioritizing (and could save you tons of money in the long term)!  It’s all about priorities.

So what do you do with any leftover money at the end of the month or paycheck cycle?

With a zero-based budget, you would generally put all of that leftover money toward savings or debt payoff. If it were me, I would recommend putting it toward your top priority, whether that is saving for a down payment on a house, getting a month ahead in your finances, or paying off that Mastercard.

Who is a Zero-Based Budget good for?

1. People who want a structure to their budget in order to get the most out of savings and paying off debt
2. People who have the time, determination and/or patience to track all of their spending
3. Those with BIG savings or debt payoff goals

Who is it NOT good for?

1. People with limited time/energy to track every single expenses in their budget
2. Those who want a simple budget technique

The 50/30/20 Method

Okay I know this just looks like a bunch of random numbers thrown together, but stick with me. This budget method is actually really simple. 

With the 50/30/20 Method, 50% of your income goes towards needs, 30% towards wants, and 20% towards savings/priority spending. 

So what does this look like?

50% Needs includes things like:

• Rent
• Utilities
• Mortgage
• Food
• Gas
• School supplies
• Insurance
• Basic clothing

30% Wants includes:

• Eating out
• Fun money
• Travel
• Hair and nails
• Extra clothes
• Gifts
• Date night
• Coffee runs

20% Savings/Priority includes:

• High yield savings account
• Retirement plan
• Debt payoff
• Down payment on a house

This isn’t meant to be a strict budget to follow. It’s more about focusing on finding that balance between what you are spending on wants, needs and future you. 

This method is designed to minimize the amount of time that you need to spend tracking your expenses and putting your money into different categories. Yet it still gives you a way to maintain some control over your finances.

In order to start budgeting with this method, you will calculate your after tax, take home pay. 

In our example above of $1,000 a month, with this rule, $500 would go toward needs, $300 towards wants, and $200 towards savings. 

With that, you would now have your budget amount for those three categories.

Clearly, there are some limitations to this budget. For example, if your needs are well above or below that 50% mark, then your other category amounts would need to change as well.

This budget is a great starting point, especially if you are new to budgeting and wondering how much to spend in those three basic categories.

Who is the 50/30/20 Method good for?

1. People who want a simple budget rule to follow
2. Those who don’t need a ton of structure in their budget and don’t need to track their expenses to stay in their budget
3. People who can spend reasonably throughout the month, so that they still have money to pay their bills toward the end of the month

Who is it NOT good for?

1. People who thrive on a more structured budget
2. Low income/high-debt/irregular income households where the majority of their money is going toward a specific category
3. Those who have a tendency to see a larger amount of money in their account and spend it all

The 80/20 Method

Okay admittedly this is pretty much exactly the same as the 50/30/20 method except somehow even simpler. 

With the 80/20 Method you save 20% of your income and spend the rest on your wants and needs. 

Yep, that is pretty much it. 

Honestly, I rarely ever hear of anyone actually using this as a stand alone budget method. In my opinion, I would use this more as a guideline than the end all be all of budgeting methods. 

This gives you a goal to hit to save 20% of your income and just live off of 80% of what you are making after taxes. 

This can be a great starting point if you are looking at your budget and wondering how much to start off with saving. 

It has many similar qualities to the 50/30/20 method and shares similar downfalls. 

This method point blank just doesn’t work if you have high debt, a large savings goal, or are a low income earner who is unable to save 20% of your income and still have your basic needs met. 

It’s good to help with the pay yourself first mentality. So basically the idea that you pay your future self first (by putting money into savings/retirement) and then spend what is leftover, rather than the other way around. 

If you are just looking for a super simple budget rule to follow, this could be a good place to start!

Related: 18 Ways to Save More Money and Pay Off Debt

The Half Payment Method

This is one of the budgeting methods that I hadn’t heard about until recently! 

The premise of the half payment method is that you use each paycheck to fund half of each of your bills/expenses. 

Honestly, I don’t know if that makes any sense, so let’s break it down into an example. 

Let’s take our example from above: 

• Income = $1,000
• Rent = $500
• Groceries = $150
• Utilities = $50
• Gas = $50
• Fun Money = $50
• Savings = $100
• Debt payoff = $100
• Total expenses = $1,000

If you are paid biweekly, each paycheck would be $500. So here is what this method looks like broken down by paycheck:

• Paycheck 1 = $500

Amount toward each category:

• Rent = $250
• Groceries = $75
• Utilities = $25
• Gas = $25
• Fun Money = $25
• Savings = $50
• Debt payoff = $50

Total for Paycheck 1 = $500

At the end of budgeting your first paycheck, all of your expenses have been funded 50% of the way.

This is great if you are used to budgeting all of your upcoming expenses fully, and often find yourself with $5 to your name until your next paycheck because rent took up most of your paycheck. 

This helps to split up your expenses into more manageable pieces. 

But this really only works if you are paid biweekly and are able to get ahead in your expenses. If you are currently living paycheck to paycheck, chances are you need to fund rent and all of your other expenses in full because you don’t have any wiggle room.

And it can be hard to then turn around and put half of your next paycheck’s money toward rent when so many other bills are due at the end of the month.

If you are looking for ways to break the paycheck to paycheck cycle and get 1 month ahead in your finances, which could be a huge help in starting the half payment method, check out my blog post here.

This is a great method to use by itself, or in conjunction with other budgets like the zero-based budget (hint: that’s exactly what we did in the example above. See what I did there??)

Who is the half payment method good for?

1. People who get paid biweekly
2. Those who can prioritize their budget or use this method is conjunction with other budgets

Who is it NOT good for?

1. People who aren’t paid biweekly
2. Those who need more structure in their budget

The Budget By Paycheck Method

So fun fact: this was the first budgeting method I ever used!

It’s pretty much exactly as it sounds. With this method, rather than budgeting monthly, you budget every time that you get paid. (which technically means you still might budget monthly if you get paid monthly, but I digress).

For the Budget By Paycheck Method, I definitely recommend checking out The Budget Mom. She is the queen of all things budget by paycheck.

But for our purposes today, let me just give you a little snapshot of the Budget By Paycheck Method.

This method involves looking at your monthly expenses, the dates and amounts, and budgeting which ones you will cover with which paychecks. 

Generally, this means that you are budgeting BEFORE you actually get your paycheck, so you know how much you are planning to spend in which categories. 

This method involves needing to track all of your spending similarly to the zero-based budget, and is often used in conjunction with the zero-based budget.

Due to this, it is great for beginners who really want a full grasp and understanding of their budget.

When I first tracked my expenses from previous months to decide on budget category amounts, that’s when I discovered that I had spent $900 the previous month on DoorDash. Yeah that is $900 just on eating out alone. No wonder I didn’t have any money.

It was that realization that really kicked my a** into budgeting gear. I still don’t fully restrict myself from doordash, but I also don’t spend $900 on takeout.

Therefore, I really believe that this budget method can be great for beginners to get intimate with their budget and money. There is no room for judgement here. You just need to know where you are so you can start to plan where you want to be.

Who is the Budget By Paycheck method good for?

1. People who have time and energy to sit down before they get paid and budget their money
2. Those who want more control over their money and want to plan for bigger savings goals or debt payoff

Who is it NOT good for?

1. Honestly, there are so many modifications that you can make to this budgeting method that I think it could work for just about anyone. (If you are in a job that gets paid daily or weekly, you could just pretend that money isn’t there and pay yourself biweekly).

Related: The Worst Purchases I Made in My 20’s

The Cash Envelope System

Okay so maybe this isn’t a budgeting system as much as it is a budgeting tool, but I definitely think it’s worth mentioning here!

I believe that Dave Ramsey was the one who made this tool really popular.

With the cash envelope system, you basically become an all cash spender. Now I know what you’re thinking, it’s 2020, no one pays for everything in cash.

And you would be right. So with cash envelopes it’s about paying cash for the things that you CAN pay cash for.

Maybe your rent, utilities, spotify, Netflix and cable bills all automatically come out of your debt card. That’s totally fine. 

But for your everyday spending like groceries, gas, meals, etc. you would pay cash. You would also save in cash for your sinking funds and savings goals (more about sinking funds here).

Once you have decided what you can spend cash on, you use cash envelopes and categorize your cash spending into different spending and savings goals.

So your grocery money goes in one envelope, your fun money goes in another, maybe you have a pets envelope or a beauty envelope. The possibilities are truly endless and it all depends on what you prioritize and spend money on! 

Now you still need a way to track your budget and spending with cash envelopes because you need to know how much to put into each envelope.

That’s why this is more of a tool and less of a method by itself. But luckily, if you love the idea of paying in cash, you can incorporate cash envelopes into so many different budgeting methods.

Some downsides to cash are that cash doesn’t provide you with any security if it’s stolen. It can also be tricky to organize. While I can’t really help you with not losing your wallet, I can tell you how much of a lifesaver this cash envelope wallet was when I was an all cash spender. (Fun fact: I still use this wallet with all of the cash envelopes in it. Even though I rarely use cash now, I still really love the wallet). 

Also, the name brand of this wallet goes for $80+! And I just wasn’t about to spend that much on a wallet, especially at the beginning stages of budgeting.

Luckily, this one is almost the exact same, it comes with envelopes that fit right into the wallet, and it’s less than $20.

If you want to get the feeling of being an all cash spender, I definitely recommend that wallet. It helped so much with keeping my money organized and made budgeting fun! 

Who is the Cash Envelope System good for?

1. People who love paying in cash and/or feel more in control of their money when they are using cash
2. People who want a tangible way to track and organize their money

Who is it NOT good for?

1. People who hate carrying cash and are less likely to keep up with the organization of using cash envelopes
2. Those who spend a good chunk of their money online/electronically (i.e. Instacart, Amazon orders, etc.)

Related: Why I Don’t Follow Dave Ramsey’s Baby Steps

The Priority Based Budgeting Method

You might be thinking “Well all of this is great in theory, but what if you don’t even make enough to pay all the bills, nonetheless savings and extra debt payoff?”

I totally get that. I’ve been there. So here is the budgeting method that I recommend for low income earners or those with irregular income. 

The priority based budgeting methods involves budgeting for your highest priority expenses first.

You need to eat, get to and from work, have a roof over your head and clean water to drink. So at minimum, you know those need to be funded. 

With this method, you prioritize all of your expenses and categories in order to decide, if push comes to shove, what can be put on hold or not paid this month?

Obviously, this isn’t ideal, but it is reality for so many of us. There isn’t always money to fund the things we want. So we need to prioritize and go from there. 

I recently had to do this when preparing for my $1,000/month student loans to kick in. That was a BIG hit to my budget.

So I listed out all of my expenses starting with the highest priority and ending with what I could cut out if needed. Then I decided on how much I wanted to budget for each category.

Some things had to go from my budget, some didn’t get nearly as much as I would have wanted in a perfect world. But I made it work. 

I then took those budget category goals to my YNAB budget and made some serious adjustments. 

This budget method is great to make sure that the top priority items are fully funded so you know what to expect in the upcoming weeks or months.

Side note: like I said before, there is no judgement in budgeting. Your priorities are just that, yours. So if coffee is a top priority for you (I know it is for me) then put that towards the top! It’s completely personal. 

Who is the Priority Based Budget good for?

1. People with irregular income, low income budgeters, or those with higher expenses relative to their income that need to ensure that the necessities are covered first

Who is it NOT good for?

1. Some people may not need this, but the principles of this budgeting method can be used by anyone!

Where to Go From Here

Wow! We covered a ton of information just in one post! 

Now, I don’t blame you if you didn’t retain the majority of the information provided here today (I wouldn’t have either).

I recommend saving this post for later by pinning it to pinterest (just click that little red “P” button at the bottom of your page).

That way you can come back to it as you are weighing the pros and cons of the different budgeting methods.

I hope that you learned something new today and that you were able to get a good feel for some of the different budgeting methods out there!

If you want more budget tips you can follow me on Instagram and Pinterest. 

I hope to see you around and hear more about your budgeting journey! 

XO – Lexa