budget method

How to Find the Best Budget Method for Your Life & Money

Do you find yourself struggling to work out how much money you’re spending and where it’s going? We all know that budgeting is an important part of financial stability, but many people don’t know where to start. With so many different budget methods, which one will be the best for your life and money situation? This blog post explores some of the most popular methods and offers tips on how you can choose the one that works for you.

Choosing a budget method to follow is the best way to start your budgeting journey. Having a framework to follow makes everything easier. As you grow as a budgeter, you can change the parameters you follow or choose an entirely new budget method. This is just the starting point. 

First, what is take-home pay?

Take-home pay is literally the amount you take home (or is deposited into your account). It’s your paycheck minus taxes and other deductions, like employer-sponsored health insurance and retirement contributions.

You should budget based on your take-home pay because that’s the amount of money you actually have to spend. I wouldn’t even bother with budgeting for employer-withheld expenses because you have so little control over the amount. 

Zero-Based Budget Method

Zero-based budgeting means you allocate every last cent of your take-home pay to a budget category. 

This is the budgeting method the Every Dollar & You Need a Budget (YNAB) apps facilitate. If you’re looking for a budgeting app & want to use this method, those are two of the most popular. Both do charge for usage though. 

It’s tempting to budget for recurring expenses, then just stick the leftovers into savings. Zero-based budgeting helps you be more intentional about all of your money.

Zero-based budgeting takes longer than the other methods and requires you to be better informed of your expenses & income. It’s easiest if both sides of the equation are fairly consistent – regular income, predictable expenses, routine things. 

What about using cash envelopes?

Some people swear by cash envelopes. Some financial experts promote them pretty heavily. I’m not a fan myself. 

Cash envelopes are super helpful if you are the type of person who needs a hard stop. You literally can’t overspend in a budget category because there isn’t any cash left.  That may mean you need to put items back when you’re buying groceries or stop filing up your car’s gas tank before it’s full. 

On the other hand, carrying around large amounts of cash isn’t always a great idea. You could easily lose your entire month’s grocery budget while wrangling kids on the way into the store. A robbery isn’t out of the question either. Finally, cash doesn’t have the protections offered by credit or debit cards. 

On top of the safety concerns, it’s often a pain to get cash from an ATM. 

In my life, I have to choose between unloading both kids to go to the ATM inside the grocery store or driving 13 miles to the drive-through ATM. Neither of those options appeals to me, and I really don’t have the time, so I don’t bother with cash. 

I used to get cash out bi-weekly for our fun money budget. After COVID hit, we switched up our fun money process to use online checking accounts for both my husband and me. Having separate fun money checking accounts lets us decide if we want to spend our budgeted amounts or save up for bigger purchases. 

What about using credit cards?

Once you have good control over your spending impulses, making everyday purchases with a rewards credit card is a nice way to make some extra money or earn other rewards. My husband and I use a cash-back credit card for nearly every purchase we make, including paying our semi-annual auto insurance premiums and for an annual propane fill. 

We pay that card off every month (sometimes more than once a month) so we don’t pay interest. Using this card usually results in $500+ cash back each year, just for using this payment method. 

The caveat to using a credit card is that you have to pay it off, in full, every month. You still need to follow your budget so you don’t overspend; you need to make sure you have enough actual cash (in your bank account) to pay off what you spent on the credit card. 

50-20-30 Budget Method

The 50-20-30 budget method was created by Senator Elizabeth Warren as a way to help average people create a budget. It splits your income into 3 categories: needs, wants & savings/debt payoff. 

The biggest drawback to this budget method is the lack of money allocated to savings and extra debt payments. If you have a lot of debt you may not be able to save anything at all because the entire 20% is going toward debt payments. Yes, technically you should pay off debt first before focusing on savings, but often it’s reassuring to save something each month also. 

This method is a good way to balance the ease of budgeting with detailed financial measurements. 

50% Needs

Half of your take-home pay should go toward the essentials of life. You have to be brutally honest with yourself about what is actually a need. 

Everyone needs to eat… but you don’t need to eat at restaurants or overbuy on groceries. 

You may need transportation to get to work… but you don’t need three vehicles with loans and poor fuel mileage. 

Needs in your budget include:

  • Rent or mortgage
  • Minimum debt payments
  • Utilities 
  • Groceries
  • Insurance 
  • Medical needs (including health insurance)
  • Transportation (including vehicle loan payments)
  • Childcare 
  • Basic clothing

Need help saving money on the necessities? Join the Frugal Year Challenge for free (in 2021 only!) guidance on how to save money. The course focuses on one area of frugality each month, so you don’t get overwhelmed and you have time to really dig in.

30% Wants

Allocate 30% of your income to cover more fun things. Wants are expenses that aren’t essential to life; instead, they’re choices you make. 

This section is where your priorities really come into play. If you are happy at home, you will budget less for travel and more on streaming & internet services. If you’re more sociable, budget more for dining out or drinks with friends. 

Wants in your budget include:

  • Dining out
  • Gym or fitness expenses
  • Cable or streaming services
  • Internet 
  • Entertainment & hobby-related expenses
  • Travel
  • Home goods, decorations, etc. 
  • Excessive or expensive clothing

20% Savings or Debt Payoff

Use this remaining portion of your income to work toward your financial goals, like savings or debt payoff. 

If you’re intense about your goals, you can absolutely increase the percentage you’re using for savings or debt, but that might make life a little less fun. You have to decide what to prioritize and how you want to adjust your spending. 

Examples of savings or debt payoff include:

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    80-20 Budget Method

    The 80-20 budget method is probably the most simple to implement – you just save money first. It’s also pretty similar to the 50-30-20 budget method, with fewer rules.

    I wouldn’t use the 80-20 budget method while you still have consumer debt (a mortgage is OK) OR when you’re new to budgeting. The basic premise of this budget method is automatically saving 20% of your take-home pay. 

    All you have to do is schedule an automatic transfer of 20% to a savings account after each paycheck. Then you can budget or spend the remaining 80% however the heck you want. That much freedom can be dangerous when you’re new to budgeting, so be careful. You need to make sure spending on wants doesn’t take away from your ability to pay for your needs. 

    Keeping a close eye on your spending helps you stay on track with your spending plan. Breaking down your expenses will allow you to monitor spending and how much you have left. A lump sum of 80% doesn’t give the detail needed if you choose not to break it down further. 

    Choosing the best budget method for YOU

    Things to consider when choosing a budget method:

    1. How much budgeting experience do you have?
      1. The 80-20 method is the simplest to implement
      2. Zero-based budgeting takes more work & might be overwhelming for beginners
      3. The 50-30-20 budget method is a good compromise between simplistic and complex, making it attractive to newbies
    2. Do you want to use budgeting software?
      1. Every Dollar & YNAB promote a zero-based budget
      2. Mint, a free option, works with any method but doesn’t give guidelines
      3. A spreadsheet or paper template can provide guidance but they don’t automate the process or help with math
    3. Do you have a lot of debt to pay off?
      1. Zero-based budgeting doesn’t have a “rule” for how much to spend on debt payments, which means there is more room for higher debt payments
      2. The 50-30-20 budget method doesn’t allow for a lot in extra debt payments, but it is a more balanced approach
      3. Any method can be customized to accommodate higher debt payments
      4. If you need help creating a debt payoff plan, check out the Debt Payoff Planner (for free)
    4. How much detail do you want to see?
      1. The 80-20 budget method has the least amount of detail in that 80% jumble
      2. A zero-based budget can be super detailed if you want


    Choose the zero-based budget method if you want to put a lot of effort into your budget but also have more detailed information. 

    Select the 50-30-20 budget method if you’re new to budgeting or need help prioritizing your spending or which expenses to reduce.

    Go with the 80-20 budget method if you’re an experienced budgeter and can handle the freedom of being able to spend 80% of your income. 

    With so many different budget methods to choose from, it can be difficult to decide which one is the best for you. It’s important that your choice aligns with your values as well as your lifestyle and financial situation. We covered three popular budgeting styles—the zero-based budget method, the 50-20-30 budget method, and the 80-20 budget method. We hope our thoughts have helped you narrow down some of the options available in terms of how much money should go where each month! Which budget method do you think would work best for YOUR family? Let us know by sharing below or by contacting us directly at hello@balancedfi.com.

    Other sources:

    Investopedia: What Is the 50/20/30 Budget Rule?

    Student Loan Hero:  5 Simple Budgeting Methods to Help You Live Your Best Life

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