Different Budgeting Methods and Styles

Like most things in life, budgets don’t come “one size fits all.” People have different incomes and spending habits like they have different hobbies and tastes in music. Budgeting needs can also change as life changes — whether that’s a move to a new town, growing your family or even economic fluctuations.

Running a successful budget requires identifying the right fit that both supports your goals and maintains your quality of life.

Finding the right budgeting technique is a great step toward strengthening your overall finances. We’ve gathered five popular budgeting methods to help you decide which might work for you.

1. Envelope budget

The envelope method is effective because of its simplicity. The idea is to limit overspending by using only the money you have on hand. You place cash in envelopes labeled with specific categories—and when you need to spend from a category, you use the cash from that envelope.

Following this method can be a great way to learn where your money goes and where you need to cut back. Here’s how it works:

1. Make a list of all your monthly expenses.
2. Organize your monthly expenses into categories like dining out, groceries, clothing, etc.
3. Designate a monthly budget for each category.
4. Label each envelope with its category and the amount you’ve allocated for that month.
5. Put the cash you budgeted into each envelope and store in a safe place.
6. Take cash out as you need it and write the new balance on the envelope after each withdrawal.

If the “dining out” envelope is empty after the first weekend of the month, you’ve identified one problem. You can take funds from another envelope if you wish, but then you’re impacting another area of your spending. Over time, you’ll learn how much to take out for each purchase, so you don’t run low or exhaust funds for any particular category before the month ends.

2. Reverse budget

If you have intentions to save money left over from your pay, but often find yourself with nothing left to deposit, you’re not alone. Reverse budgeting was created to face this problem head on. Instead of saving what’s left over, you pull out what you want to save first. Savings first, expenses second.

A reverse budget can help to build savings in a number of areas:

• Savings/401(k)
• Emergency fund
• Vacation fund
• Down-payment fund

The goal is to satisfy your savings and retirement fund goals each month. If you have upcoming plans to make a major purchase, it may be smart to start saving for it 6 to 12 months or more beforehand.

By making it a habit to save first, you can spend your remaining funds with confidence knowing your most important financial priorities have been fulfilled.

3. Down-to-the-dollar budget

If you love a good spreadsheet, this may be the budgeting technique for you. Also known as a zero-based budget, the concept is straightforward: Record every single purchase you make to the nearest dollar. Include everything from your mortgage to a $1.39 pack of gum to make your final assessment as accurate as possible.

If you can commit to this budgeting method, you’ll have a clear view into areas of overspending. Now it’s easier to pinpoint what costs to cut. And over time, you should notice a positive impact on your bottom line.

4. 50/30/20 budget

Like the envelope method of budgeting, 50/30/20 is all about separating your money into different categories. The three numbers represent a percentage that adds up to 100% of your monthly expenses. Here’s how each breaks down:

• 50: No more than 50% of your take-home pay is used for necessities such as mortgage/rent, utilities, food, transportation, etc.

• 30: No more than 30% goes toward lifestyle choices such as entertainment, hobbies, vacations, etc.

• 20: A minimum of 20% is allocated for a long-term savings goal (e.g., 401(k) or other retirement fund) and paying off debt.

50/20/30 could be an effective way to ensure all categories get their proper share. Once you get comfortable with this budgeting technique, you may feel encouraged to start allocating even more to your savings goal.

5. The no-budget budget

This doesn’t mean “don’t budget.” It’s just a budgeting technique that requires only two things of you: Know your monthly take-home pay and know what expenses you must cover each month. Whatever’s left over each month is yours to spend (or save). When it’s gone, you say NO to expenses that don’t appear on your no-budget budget.

You can find your take-home amount on your paystubs. Add up a month’s worth. Then, look at your bank statement to see what expenses you pay in a month. Remember to factor in payments you pay annually or bi-monthly, like car or homeowner’s insurance, subscriptions, etc.

Now compare. Is your monthly take-home amount more than your expenses? Good! A no-budget budget could work for you. Are your expenses more than your take-home pay? If you’re in the hole, another budgeting style may be a better option.

Let our Budget Calculator do the math for you.
Do you know where your money goes every month? Our free budget calculator can help you track it and identify ways to make positive changes.

If you want to try a no-budget budget, be sure to have 10% of each pay automatically deposited to a separate savings account. Also, take advantage of auto-pay opportunities where it’s offered for your fixed expenses.

Stay the course

Nobody’s perfect, so don’t get discouraged if you find yourself having to re-evaluate your initial budget plans. What’s important is to find a budgeting style that works for you and set the plan in motion. You can do it! And once you see your hard work resulting in dollars saved, you might even be inspired to tighten your budget even more.