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.
“There are certainly different approaches for different people,” says Jim Kinney, a certified financial planner and budgeting coach in New Jersey. “What it really takes to make any of these things work is a commitment to living within one’s means. … If that commitment is there and people are really driven to achieve their financial goals, then they’ll make it work.”
The right budget can fuel motivation. We’ve narrowed down some options to help you find one that resonates. Use these recommendations as a guide.
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:
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.
Curb your spending: The envelope system
If you need a rigid system to help you reduce frivolous spending 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, fill envelopes with the allotted cash and use only that money for purchases. 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.”
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 — so you don’t have to crunch every number.
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.
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 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.
Still not sure?
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 certified financial planner 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.