Budgeting Methods—A Comprehensive Guide for 2023

Updated · Mar 06, 2023

Don’t let all the complex terms, rules, percentages, and categories fool you. Budgeting is easy when you choose the right method.

A good system is meant to make your life easier. If you’re struggling to manage your finances, then you’re not using the right approach.

To help you find the best fit for you, we created a list of the main budgeting methods.

Read on to find out which one is most suitable for you.

Cash Envelope System
Best for overspenders
50/30/20 Budgeting Rule
Best guide for mindful spending
Zero-Based Budget
Best for full control over your income and spending
Dave Ramsey's Budget Percentages
Most detailed budget system
Best for saving money

How to Choose the Best Budgeting Method for You?

For starters, you need to determine the level of detail you want to include in your expense tracking.

Some budgeting methods, like Dave Ramsey’s percentages, require a lot of calculating and recording. Others, like the 50/30/20 rule, are more flexible.

Next, take an honest look at your spending habits.

If you have a history of overspending, try a more strict method, like the envelope system or the zero-based budget. To set aside more money, go for a system that prioritizes savings, like the pay-yourself-first strategy.

Last but not least, clarify your goals.

Are you trying to get out of debt?

Save for a house or a trip?

Build up an emergency fund?

Choose a budgeting method that will help you reach those goals.

Budgeting Methods

There are many different budgeting methods out there.

That said, they all follow the same few principles—cash allotments, percentages, goal-oriented distribution of resources.

The Cash Envelope System

The envelope system is a budgeting method in which you create different spending categories and allot a fixed amount of money to each one. Once you reach the limit, you can't spend more until the next month.

The main benefit of this method is that it helps you stay within your budget. It’s particularly useful if you tend to overspend.

In addition, it teaches you financial discipline. Having a limit on the amount you can spend on groceries, for example, will motivate you to spend it wisely.

In time, you’ll learn how to distribute your money between and within categories. In the beginning, though, it can be time-consuming to set up and track everything.

Besides, you have to be skilled at budget accounting. If you have a lot of variable spending each month, it’ll be hard to predict your expenses.

As a result, you’ll constantly move money from one category to another, quickly losing track of your spending.

Therefore, the envelope system is best for people with predictable spending who lack financial discipline.

The 50/30/20 Budgeting Rule

The 50/30/20 rule splits your income into three categories: 50% for needs, 30% for wants, and 20% for savings.

This system is easy to follow and flexible. It’s more of a guideline to help you stay mindful of your spending than a strict budget.

However, like all budgeting systems, it’s not without its downsides.

The categories are very broad, which gives you more flexibility. That said, it’s also easier to get carried away with discretionary expenses.

What’s more, depending on your income and cost of living, your needs could easily exceed the recommended 50%.

In that case, a low-income budget will be more suitable.

In contrast, 20% might not be enough for someone who is trying to save money quickly.

Overall, the 50/30/20 budget is a good starting point. It's best when used as a guideline rather than a strict budgeting method.

Zero-Based Budget

With the zero-based budgeting (ZBB) method, you budget to zero every month.

This means you list your income and expenses and allocate every penny to a spending category.

It’s from the same family of budgeting systems as the envelope method. The main difference is that you don’t physically separate cash allotments into envelopes.

The zero-based budget can help you avoid overspending. With it, you can easily identify areas where you can save money. Finally, it teaches you how to manage your finances mindfully.

The main downside of this strategy is that it is time-consuming to create it, especially if you are new to this. Plus, it can be difficult to stick to such a demanding budget, too.

As such, these types of budgets are best for disciplined spenders with some financial literacy.

Dave Ramsey's Budget Percentages

Dave Ramsey's budget percentages is a popular budgeting method that assigns percentages to different expense categories.

In that, it is similar to the 50/30/20 budgeting system. That said, it includes more categories:

  • Housing: 25%
  • Transportation: 10%
  • Food: 10%-15%
  • Utilities: 5%-10%
  • Health: 5%-10%
  • Insurance: 10%-25%
  • Personal spending: 5%-10%
  • Giving: 10%
  • Saving: 10%
  • Miscellaneous: 5%-10%

Although it looks complex and restrictive, this system offers some flexibility. After all, the percentages are only guidelines.

The difficult part is to set it up. Once you determine what expenses you have in each category, you’ll just need to update the list monthly.

Keep in mind that it is restrictive, though. It takes discipline and some effort to track your spending in each category.

A tracker app or a budget template can do wonders in that sense.

All in all, Dave Ramsey’s percentages are best for people who like straightforward and detailed budgeting systems.

Pay-Yourself-First—Best for Saving Money

The pay-yourself-first method is one of the most popular budgeting techniques with an emphasis on saving money.

With this method, you set aside a certain amount at the beginning of each month. This can be a fixed amount or a percentage of your income.

Then, you use the remaining funds to cover your expenses.

The pay-yourself-first method can help you organize your spending. Plus, it motivates you to save money even if you’re on a tight budget.

That said, this method is not suitable for everyone. Some people need more help organizing and tracking their expenses.

As such, it is a great tool to help people who can live within their means save money quicker.

Wrap Up

Now that you know the main types of budgeting methods, you can choose the best one for your needs.

If you have a steady income and predictable expenses, a fixed budget might work for you.

In contrast, the best budgeting methods for overspenders have less wiggle room. But if you’re new to finance management, you’ll need something easy to follow.

So, try out the strategies in our list and tailor them to your needs.

Aleksandra Yosifova
Aleksandra Yosifova

With an eye for research, Aleksandra is determined to always get to the bottom of things. If there’s a glitch in the system, she’ll find it and make sure you know about it.