How to Choose the Right Budget System: 4 Methods to Consider

The best system for you depends on what you’re trying to do — curb spending, pay down debt, build savings or something else.
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Written by Lauren Schwahn
Lead Writer
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Edited by Rick VanderKnyff
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Budgeting systems are designed to help you understand and evaluate your relationship with money. While all share a common goal, they often use distinct tactics to get you there.

We’ve narrowed down some options to help you find one that resonates. Use these recommendations as a guide.


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4 budgeting methods to consider

1. Getting started: The 50/30/20 budget

What’s appealing about this system is that it gives you room to pay down debt, cover current costs and save for future expenses. It splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment. You can use it by itself or as a baseline for other flexible budgeting methods.

NerdWallet's budgeting app is based on the 50/30/20 approach.

2. Curb your spending: The envelope system, or 'cash stuffing'

If you need a rigid system to help you stop spending money frivolously or stay out of debt but don’t want to track every purchase, try this cash-based approach. You set a spending limit for each expense category, like groceries, then fill envelopes with the allotted cash you can spend in each (hence the "cash stuffing nickname that's often used on social media). Once an envelope is empty, you can’t spend any more money on that particular category for the month.

“Our brains are wired so that something tactile in front of you that you can smell and feel is more real than something on your phone or a number in your bank account,” says Daniel Chong, a certified financial planner in Irvine, California. “If you can’t seem to get a grasp on a certain spending category, then cash is king.”

The Goodbudget app is based on the envelope system, for those who like the method but don't want to deal with paper envelopes.

3. Build up your savings: Pay yourself first

Designed to align your spending and values, this “reverse” budget puts savings before immediate expenses. With this system, you decide how much to set aside from your monthly income for savings goals like retirement and an emergency fund, then use the rest for bills and other costs. That way you don’t have to crunch every number.

4. Make the most of every dollar: The zero-based budget

This budget suits overspenders and meticulous planners alike. It makes monitoring your spending clear. You take your monthly income and use every dollar in a deliberate way — like saving a certain amount for a trip and paying for utilities and groceries — until there are zero dollars left. But if you don’t strictly use cash as with the envelope system, you’ll have to log each expense to make sure you’re on budget. Budget apps such as YNAB and EveryDollar can help you follow a zero-based budget.

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How to choose the right budget system

Figure out where you are and what you value

If you don’t know which route to take, do a financial self-assessment. Your present financial state and goals can give you a clue. Perhaps you’re in debt and need a system to help you decrease spending or you want to learn how to balance expenses with saving for a down payment on a house. Once you know where you stand and what you hope to accomplish, pick an option that matches those needs.

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Decide how much effort you’re willing to devote

Consider how much time and maintenance a budgeting system involves before you get on board. Some have strict requirements, while others are more flexible. For example Excel spreadsheets and the zero-based budget demand frequent and detailed expense tracking. The pay-yourself-first system and apps that sync to your financial accounts require little upkeep.

How often should you budget? There’s no set rule, so go at your own pace. If you’re confident with your financial state, you can probably get away with reviewing your information once a month or a couple of times a year. Those who are still figuring out how to handle their money may want to check in weekly or after every purchase they make.

Compare manual and digital budgeting options

Determine whether you want to take a DIY approach to budgeting or seek technological assistance. Personal finance software can be convenient if the app or program lets you automate savings or access and update your information on the go. If it doesn’t automatically input and categorize your purchases or it's hard to use, it might not add much value.

For some, a hands-on approach, like with pen and paper, is best. Writing things down can help you retain information and feel connected to your budget. If you’re not comfortable linking your bank accounts to an electronic budgeting service, a physical method can save you worry, too.

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Still not sure which budget system is best for you?

Some experts say there’s no need to follow a specific budgeting system as long as you’re aware of important details like your income, debts, goals and general spending. If you live within your means and know you’re on track to reach your goals, then tracking every penny is probably overkill, says Catherine Hawley, a CFP in Monterey, California.

“You don’t need to know that your electric bill was exactly $83.82 last month. You just need to know that you’re kind of within some general parameters, and I think that can actually be a relief to people,” she says.

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