4 of The Best Budgeting Methods

In the simplest of terms, a budget is a plan for your money. It’s money in versus money out and how you plan to spend it. Budgeting is more common than ever: over 86% of Americans say they have a budget, yet 74% admit rising costs make it difficult to stick to one (WalletHub, 2025). Choosing a method that fits your lifestyle can be the difference between frustration and success. Below are four of the most-used budgeting styles, one of which may be the right fit for you!

Option 1 – The Envelope Method: A Cash-Only Approach to Curb Overspending

Before you reach for your credit or debit card, you might want to hear this first. We all love the convenience of swiping our cards, but if you’re guilty of overspending, the envelope method is your solution! It’s not just old-school either. About 61% of Americans say they’ve tried cash-stuffing or the envelope method in the past year. It’s still one of the most practical ways to rein in overspending.

Step 1

Create an envelope for each category in your budget. You can be as detailed as you want. Think about the electric bill, cell phone, trash, internet, groceries, gas etc. You can even include your savings, entertainment, and saving for future events like a vacation too.

Step 2

Put the amount of cash you would need to pay each item into your envelopes. To calculate how much you need to put in each envelope, look back at your spending history.

Step 3

All your monthly spending should come from a designated cash filled envelope. Once the cash is gone, that’s it.

The envelope method is a great short-term budgeting tool that can help rein in out-of-control spending and retrain your brain to recognize the reality of spending, even when you aren’t using cash. Just make sure you keep your envelopes safe!

The Envelope Method in Action

Monica has an annual salary of $45,000, which is $3,750 each month. She reviewed her spending history and created the following envelopes for her budget:

• Rent: $1,200
• Utilities: $200
• Groceries: $550
• Insurance: $500
• Transportation: $250
• Minimum loan payments: $400
• Etc.

Option 2 – 50/30/20 Budget: Balance Needs, Wants, and Savings

The 50/30/20 budget is simple and user-friendly. This method divides your after-tax income into three sections – 50% to cover your needs (rent or mortgage, utilities, groceries, etc.), 30% for wants (entertainment, date-nights, hobbies, etc.), and 20% for goals. Want to pay off that credit card or stash some more money into a retirement account? That comes out of your 20%. The 50/30/20 budget would work best for someone who doesn’t need to track every cent and can instead feel at ease with expenses being lumped together.

Here is a detailed list of what you can categorize as needs, wants, and goals.

Needs – Required Expenses

• Rent or mortgage
• Utilities
• Groceries
• Insurance
• Transportation
• Minimum loan payments

Wants – Non-essential Spending

• Entertainment
• Travel
• Gym memberships
• Subscriptions
• Home goods
• Décor

Goals – Long-term Financial Plans

• Retirement
• Emergency fund
• College tuition
• Next car down payment

If you aren’t sure how to determine how much money you have for each category, NerdWallet has a calculator to help. This is the budgeting method I use to keep my spending in check.

50/30/20 in Action

Here’s how Monica can follow the 50/30/20 budget.

Needs: $1,875

Wants: $1,125

Goals: $750

However, Monica already knows her spending history from the envelope method, $1,875 isn’t enough money to cover her needs since she can’t cover the minimum payments plus groceries and transportation. The Pay Yourself First budgeting method can be used as a stepping stone to the 50/30/20 method.

Option 3 – Pay Yourself First (80/20): Prioritize Savings First

This method is popular for a reason because you are investing in yourself and your future before sending money anywhere else. Nearly 9 in 10 Americans set financial goals each year, yet almost half say they aren’t on track to reach them. Automating savings up front, as the Pay-Yourself-First approach does, can help bridge that gap.

This is also called the 80/20 method. You can also modify the amount you save each month. If 20% is not enough, increase it. If it is too much, lower it until you can afford to save more.

To make sure you save 20% each month, set up automatic payments to your savings account.

While this method is a great way to start following a budget, it shouldn’t be a permanent solution. Saving 20% is a steady portion to save. However, you may find yourself spending too much money on purchases you don’t need each month.

Pay Yourself First in Action

Monica already determined that her 20% savings total is $750 each month. She has the freedom to use the other 80% to meet her needs and wants. Using the same amounts from the envelope method, Monica can create separate line items in her budget for her other expenses.

Option 4 – Zero-Based Budget: Give Every Dollar a Job

What I love about this method is that everything has a place because each cent gets a “home.” When you follow this method, all of your income is filtered out to the appropriate spot in your budget. Your income minus your expenses equals zero.

These “expenses” aren’t just the necessary bills. This includes everything you spend and save. This is where having specific line items in your budget worksheet helps. I take this a step further and use multiple savings buckets for some of my budget categories. For instance, if my husband and I want to take a trip, I will open a special savings or club account just for that purpose. I can then determine the monthly contribution necessary to reach my goal and make sure that the money is allocated properly.

The Zero-Based Budget in Action

Dave Ramsey breaks zero-based budgeting into five steps:

1. List your monthly income.
2. List your expenses.
3. Subtract your expenses from your income so it equals zero.
4. Track your expenses.
5. Make a new budget near the end of the current month.

Monica can follow these steps using her income and expenses. Fortunately, when she subtracts her expenses from her income, she has money left over. This means that she has some wiggle room and can put more money in her “savings expense” category.

By making a new budget toward the end of the month, you can review your spending and saving to adjust accordingly so you can create a realistic budget.

Which Budget is Best?

The key to any successful budget is honesty. Be honest with yourself about what your wants and needs truly are. Can you cut spending to save more? Can you put more money towards paying off debt for a better financial future? You certainly can with the right budget tools on your side! Try calculating your budget with each of the four methods to find which one works best for you.