Using a budget can help you save money, pay off debt and work toward building financial stability. But making a budget that's effective can be difficult if you don't have a blueprint.
The best budget is one you can stick with, and what works well for one budgeter may not click for someone else. To find your best fit, check out these five budget plans. Each takes a different approach to budgeting, but all share the common goal of helping you reach your financial goals.
1. 50/30/20 Plan
One of the most popular budget methods is the 50/30/20 spending plan. With this budget, there are only three spending categories you'll need to keep track of:
- 50% of your net income goes to needs: This is the spending that includes basic, non-negotiable expenses. For example, your housing payment, bills, basic groceries and hygiene products, transportation to and from work and the like.
- 30% of your net income goes to discretionary spending: This is the lifestyle spending you do because you want to—like shopping, dining and anything from that brand new tech you've been eyeing to tickets to see your favorite band.
- 20% of your net income goes to financial goals: This category includes money you put into a savings account, use to pay off debt or invest.
Of course, you can always tweak your ratios to better meet your current financial situation and goals. For example, if you have a lot of debt or a small emergency fund, it may make sense to put more than 20% of your budget toward those goals and dial back your discretionary spending.
To make this budget work for you, consider opening a savings account specifically for your financial goals. Then, set up automatic transfers into that account based on your budget plan. For example, if you take home $1,000 a week and want to put 20% toward your goals, you could set up a $200 weekly transfer into savings.
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Who Should Use a 50/30/20 Budget?
If you want a simpler approach to managing your money, the 50/30/20 budgeting method could work well for you. It's a good alternative to more in-depth budget plans if you find that tracking your expenses in multiple specific categories is overwhelming, because it takes a more straightforward approach.
2. Envelope System (AKA Cash Stuffing)
The envelope system is an old-fashioned approach to budgeting that typically relies on cash in physical envelopes. It's also frequently called "cash stuffing"—especially on social media, where it's popular for its effectiveness at reining in impulse spending.
You'll start by determining how much you typically spend (or how much you'd prefer to spend) in different categories, such as rent, groceries and entertainment. Once you've determined an appropriate amount for your spending in each category, you'll label an envelope for each one and put the corresponding amount of cash in the envelope.
Once you've used up all the cash in an envelope, you won't be able to spend any more money in that category unless you pull cash from another envelope. Budgets are intended to keep you disciplined, however, and continually moving around money could have a domino effect that impacts expenses you can't afford to cut back on.
Also, keep in mind that you may not be able to make some payments in cash. While you don't need to set aside an envelope for these bills, you'll still need to account for them as you determine how much to allocate for other spending categories.
Who Should Use an Envelope Budget?
The envelope budgeting system can be a good idea for someone who prefers to use cash and wants to be strict with how they manage their money. If you're not a cash user but like the sound of this method, some budget apps are designed to offer a digital experience similar to old-school envelope budgeting. One such app is Goodbudget, which has you manually allot your income to different spending "envelopes," but doesn't require you to become a regular at your local ATM.
3. Zero-Based Budget
The zero-based budgeting method works similarly to the envelope system but with a couple of key differences. First, you don't have to use envelopes to keep track of your money, and second, you're not restricted to using cash.
The main concept behind a zero-based budget is that you give every dollar you earn a purpose—in the end, your monthly expenses should equal your monthly income. But this doesn't mean you're supposed to spend every dime that comes in every month. In fact, this approach is all about being meticulous with where your money goes.
You'll likely have a lot of spending categories to plan for and keep track of, and a plan for what to do with any money that's left over (put it in your savings, for instance). If you overspend in one category, you'll need to stop spending in that area until the next month or take from another category.
Who Should Use a Zero-Based Budget?
A zero-based budget is a good option for someone looking for a detailed approach to managing their money who wants to know exactly where all of their money goes. This approach can also be good for someone who prefers to use credit cards. You're less likely to overdraw your checking account when you've budgeted every dollar to the penny.
If you're considering giving zero-based budgeting a trial run, consider an app designed specifically for the task. For example, You Need a Budget (YNAB) allows you to create categories for everything and links to your financial accounts to help you track important transactions.
When you get paid, those dollars are represented in your YNAB dashboard, where you'll allocate every cent to its own spending categories. If you go over in one category, YNAB will show you that you're in the red, giving you the chance to move money from a different category to make up the difference.
4. Pay-Yourself-First Budget
Also sometimes called reverse budgeting, this approach prioritizes making sure your savings and debt goals are met. When you get your paycheck, you'll set aside money for those goals—in other words, you'll pay yourself first. After that, you can use the remaining money for whatever you want.
Of course, you'll need to account for recurring expenses like rent or mortgage payments, utilities and other bills. Once your priorities are handled, you'll know what you have left over for the fun stuff. The idea with this budgeting method is that you don't have to keep track of exactly where your money goes, just that you don't run out of it.
Who Should Use a Pay-Yourself-First Budget?
The pay-yourself-first budget is best suited for someone who doesn't want a complicated budgeting process. It's also best to avoid credit cards with this approach because they don't give you an accurate view of how much money you actually have to spend in your checking account.
5. The No-Budget Budget
A "no-budget" budget system is a flexible spending plan where you take two things into account:
- Your net pay for the month
- Your "must pays" for the month
From there, all this method has you do is keep your spending low enough that you don't eat into the money you need to keep earmarked for all your "must pays." That broad category of spending includes everything from the rent for your home to the gas in your car to the basic food in your fridge.
Outside of that, everything left is essentially disposable income. You don't need to worry about tracking where that money goes—just as long as you've already taken care of your non-negotiables.
In practice, this can look a lot like the pay-yourself-first budget. You'll set up automatic transfers into savings right when you get paid. That way, you'll have an accurate picture of what's left in your account. You might also find it useful to set up a second checking account where you'll house money for all your expenses and set up autopay so that your bill payments come out of that account.
Once you've met your goals and ensured you can pay your bills, your only other rule is to ensure you don't overdraw your bank account.
Who Should Use a No-Budget Budget?
There are pitfalls you'll need to watch out for, though—especially overspending. For that reason, this budget may work well for you if you tend to have a fairly easy time living within your means, and if you're alright with using debit (rather than credit) to do the bulk of your spending.
Also, keep in mind that the no-budget method could be trickier to make work if you have irregular income, because you won't have the opportunity to fall into a natural rhythm of spending.
How to Stick to Your Budget
Creating a budget is an important first step, but it won't accomplish much if you don't stick to your budget. Here are some tips that can help you stay motivated and on track:
- Choose a budgeting method that works for you. Do your homework and take a second to think critically before settling on a budgeting method. Instead of simply going with the one you think can save you the most money, think about which budget method fits you the most. If a budgeting method sounds like pure drudgery to you, it's unlikely you'll stick to it. Choose one you expect to bring you some satisfaction.
- Track spending. Review your transactions at least once a week to keep track of whether you're spending within your budget. This can help you make adjustments throughout the month if need be to avoid overspending.
- Use a budgeting app. There are several budgeting apps that can help you keep track of your budget. Some of them even directly import your transactions from all of your financial accounts into one place, making it easier to keep track of your expenses. Having a budget process that's convenient will make you more likely to succeed.
- Evaluate your budget regularly. Every six months to a year, take a look at your budgeting approach and determine whether it's still working for you. If it's not, you may need to rework your budget to better align your goals with reality. In some cases, it may even make sense to switch to an entirely different budgeting approach.
- Keep your goals in sight. It can take time to master a budget, and even then, it can be challenging to stay motivated. Keep a vision board or list of reasons why you're budgeting. It may be that you want to save money to start a business, take your family on vacation or retire at a certain age. Whatever it is, keeping your goals in mind can help you stay motivated.
How Budgeting Can Improve Your Finances
A budget is one of the simplest elements of a financial plan, but it also provides a solid foundation for financial success.
The greatest resource a budget provides is information. Understanding exactly where your money goes can help you change how you spend so that you're more likely to achieve your financial goals.
For example, if you want to start making extra debt payments or put more money in your emergency fund, all you have to do is look at your budget to determine which expenses to cut back on and how to reallocate that money toward your objective.
Building Credit Can Help Your Budgeting
Having a good credit score can do wonders for your budget because it can help you qualify for lower-cost credit. Whether it's a mortgage loan, auto loan, student loan or whatever else, getting low interest rates with good credit allows you to save money that you can put to good work elsewhere in your budget.
Take some time to work on building your credit score. You should monitor your credit regularly to understand which areas you can address, and keep track of your progress. As your credit improves, you may be able to refinance existing debts and qualify for new loans when you need them and save in the process.
Learn More About Budget Plans
- How to Make a Budget
A budget can help you make the most of your financial plan. These six steps can help you get started and establish a successful budgeting plan.
- What Is Cash Stuffing?
Cash stuffing or envelope budgeting involves allocating cash to various expense categories each month and putting the money in envelopes.
- What Is the 50/30/20 Budget Rule?
The 50/30/20 rule is a budgeting strategy that divides your income into three buckets: 50% for needs, 30% for wants and 20% for savings and debt payoff.
- What Is a Zero-Based Budget?
A zero-based budget has you give every dollar you earn a job so that no money is left unaccounted for. Here’s how it works.
- What Does It Mean to Pay Yourself First?
If you never have money left for savings, try saving your money first. Paying yourself first gives savings goals the priority they deserve.
- What Is a Reverse Budget?
Here’s what a reverse budget is and how it can help you save more money, plus the downsides to keep in mind.