So you’ve made the decision to get on a budget. That’s great! What type of budget method is right for you? There are several ways to budget. In this post, we’re outlining three of the most popular budget methods and explain them in a nutshell.
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This should allow you to determine which budget method explained here will work best for you and so you can then get started on your budgeting journey.
I’ll also cover one budget method to use if you just don’t see how others might work. Stick around to the end of the post if you have an irregular income and we’ll go over how to handle a budget in that situation.
Let’s get on into these three popular budget methods and see which one may be right for you!
THE ZERO-BASED BUDGET
The zero-based budget, my personal budget method of choice, and the one endorsed by Uncle Dave. It’s a pretty simple concept; you add up all of your income for a given month and give every last dollar of that income a job in the budget, until the difference between budgeted income and expenses is – you guessed it! Zero!
This doesn’t mean you get to spend every dollar of your income; this allows you to pay your fixed expenses, decrease your debt, and SAVE! I use the free version of EveryDollar to set my zero-based budgeted each month and track expenses.
Apps are great, but you can just take a pencil to notebook paper, buy a budget planner, or download a simple budget spreadsheet. There are plenty of free options available online or for very little investment on Etsy. Just find the medium that works best for you and USE it!
Related: The Five Best Free Budget Tools!
THE 50/30/20 BUDGET METHOD
This budget method is pretty simple on its face; you spend 50% of your income on needs, 30% on wants, and 20% on debt reduction and savings. Although my frugal heart would probably flip that to 30% on debt reduction and savings (slay that debt!) and 20% on wants.
Needs include housing, transportation, food, utilities, insurance, MINIMUM debt payments, as well as childcare. Think basic here. You don’t need the newest, fastest car around. Any necessary expenses to allow you to work would be included in the needs category.
Wants are just that; wants. You need to eat, but you want to go out. You need basic clothing, but you want to splurge on that new pair of shoes. Entertainment (think Netflix, Hulu, & Disney+) options, toys, manicures, and home decor are examples of wants.
Debt Reduction & Savings are where your emergency fund, snowball or avalanche payments, as well as other sinking funds would come into play.
After playing with our budget some we spend closer to 70% of our budget on needs and about equally on savings and wants. It looks like we may need to up our savings goals some more!
Even if you don’t strictly adhere to this budget method it is still a good exercise to calculate what you spend on wants as a percentage of your income; you may be more or less frugal than you realize!
THE CASH ENVELOPE METHOD
This is the best budget method for people who cannot control their spending. While personally I Don’t Like Cash Envelopes, I do see how they can be very effective at curbing impulse spending.
With the cash envelope system, you designate certain budget categories to be handled in cash. Money for fixed or automated expenses such as housing and utilities can be left in the bank for automatic withdrawal.
Examples of cash envelope categories include food, gas, clothing, entertainment, health and beauty, and stuff for the kids. Every pay period you go to the bank and withdraw the budgeted amount for the cash envelopes.
You then label and stuff the envelopes with the cash. This can be done with simple letter-sized envelopes (which we use for the occasional envelope fund) or in an envelope system wallet.
Laminated envelopes are also an inexpensive but sturdy (think reusable) option. The key here is not to go overboard investing in a stylish accessory for a budgeting system that you just started. Keep it simple.
BUDGETING WITH AN IRREGULAR INCOME
It can be difficult to set a budget with any of these budget methods if you don’t have a regular income. What do you do then?
You literally flip it on its head; start with your basic expenses rather than your expected income (since you don’t know what that will be). The most basic of expenses include housing, food, and utilities.
Once those are taken care of you move out from there to other budget categories. By knowing what your minimum basic expenses are you also get an idea of what your minimum income has to be just to break even on living expenses.
Related: Ways to Save More Money: 30 Frugal Money Saving Tips
If basic needs aren’t being met by the irregular income it’s time to reevaluate your current situation. Of the budget methods listed here, this is probably the most stressful.
This can either be motivation to continue pursuing increased income in your current endeavors or the realization that it’s time to do something different.
Additional work can always be taken on in the form of a side hustle or other part-time work. For ideas on different ways to pick up work on the side check out the side hustle archives. I’m a pretty big fan of the concept myself.
I’ve always followed a zero-based budget. I don’t budget so strictly now but I still keep track of basic living expenses. Automating investments has really helped me stick to saving without thinking about it. Thanks for the great read.
Thank you for reading Ana!
I’ve never heard of the Zero method, but it sounds really helpful. We’re not really great about setting a budget, but we should try this, and see how it goes. My husband more just likes keeping a regular eye on accounts usually.
It’s my personal favorite! It just makes more sense to me.
I have never acutally heard of these different methods! But they have really motivated me to started saving money! Thank you for sharing!
Amber – https://theunpredictedpage.com
Yeah! Thank you for reading! And good luck!
Loved this! Great explanations that really helped out.
Thank you Lauren!
Great explanations Cassie! I like the zero-method the most 🙂 Have a wonderful July xxx
That’s my budget method of choice as well!
I’d never thought about different methods of budgeting but this is so helpful – I lean towards the zero budget too, if I haven’t got it then I can’t spend it! Lisa
Great post, I didn’t realise there were so many different options. In the past I have used a form of envelope budgeting, just taking out the cash I knew I could spend. I’d hide my cards so that I knew that once the cash was gone, I knew that was it.
That’s the point! Thank you for reading!
These are great tips, thanks for sharing! I’ve used the envelope method before and it worked well! I’ll definitely be trying out a couple of your suggestions in the future!
I love me some zero based budgeting. It changed my life, and I’ll never look back! These other methods were really helpful in getting me there, though. I agree about cash envelopes. I know people love them, but I just can’t make them work for me!
Agreed, cash is just… nasty!
We have been using the 50/30/20 method and it’s really helped us to stay on top of our spending. I find allowing for those ‘wants’ makes it easier to stick to. This time of year, the wants are largely camping related – paying for reservations, buying camping gear, etc. I also take any gift-giving out of the ‘wants’ category, so that will start to include my Christmas shopping as we move forward.
Awesome!