top 10 budgeting methods

August 20, 2022

This post will outline the top 10 budgeting methods to help you choose your best fit – and get started creating your own budget today.

Photo by Bernard Hermant on Unsplash

1. the zero-sum budgeting method

the zero-sum method is typically recommended for strategic spenders and people who want to know *exactly* where their money is going. it may not be workable for people with variable incomes or people who get overwhelmed by a lot of details. 

The zero-sum (also known as zero-based) budgeting method seems to be a fan-favorite from Dave Ramsey. The idea is that every dollar you bring in has a job or purpose. Starting with your take-home pay, you budget each category (working from necessary expenses to least important expenses) down to $0. If you run out of money before the end of the month, you cut out the least important expenses from the bottom.

Photo by Razvan Dumitrasconiu on Unsplash

2. the cash envelope budgeting method

the cash envelope method is typically recommended for beginner budgeters and people who struggle with overspending. this method is not helpful for earning credit card rewards. 

The cash envelope budgeting system is another fan-favorite from Dave Ramsey. The main idea is to withdraw all of your available cash for expenses that you would typically use debit, credit or cash to pay for. You then divide your cash into categorized envelopes (such as groceries, clothes, date night, day trip, fuel for car, gift shopping, etc.)

Photo by NORTHFOLK on Unsplash

3. the 50/30/20 budgeting method

the 50/30/20 method is typically recommended for beginner budgeters and people who get overwhelmed with a lot of small details. it is not generally helpful for people who are working to reduce impulse shopping. 

The 50/30/20 budgeting method requires a lot less tracking in comparison to most other budgeting methods. This method essentially allocates your take-home pay into three main expense categories:

needs 50%

This category might include housing, utilities, groceries, transportation, insurance, debt repayment, etc.

wants 30%

This category might include gym memberships, dining out, subscription services, etc.

savings 20%

This category might include retirement, emergency fund, other specific savings goals (college, travel, etc.) For employer-matched retirement savings, it is recommended to start at the employer match amount and work up toward a 20% retirement contribution. If you’d like to increase other personal savings over time, as you pay off debt and/or reduce expenses that you don’t need or value, you can adjust the actual savings category percentage, as well. If you’re a FIRE follower (financial independence retire early), then the general aim is to save 50-70% of your income.

Photo by NORTHFOLK on Unsplash

4. the pay-yourself-first budgeting method

the pay-yourself-first method is typically recommended for people whose main financial priority is saving money. this is not ideal for people who have very ambitious savings goals on an irregular or low income. 

This method essentially prioritizes funding your savings goals (with either a specific dollar amount or a percentage of your pay) before allocating money to your other expenses. Some people also set a specific financial goal for the month instead. A few examples might be: paying an extra $200 off a credit card, add $500 to a savings account, pay off a medical bill, etc.

This budgeting method is also uniquely flexible because it can be easily “added on” to pretty much any other budgeting method as a savings tactic. It does still require some spending planning to make sure you don’t run out of money before your next pay day. Otherwise, you could be dipping into your savings unnecessarily.

“Do not save what is left after spending, but spend what is left after saving.”

Warren Buffett

Photo by NORTHFOLK on Unsplash

5. the half-payment budgeting method

the half-payment method is typically recommended for people who often feel frustrated that their paycheck disappears immediately and feel constantly behind on bills. it works well with a bi-weekly pay schedule. it may not be the best option for people who are at risk of using the half-saved money on other things in the meantime.  

With the half-payment budgeting method, you set aside half the amount of your bills with each paycheck. When the bill comes due, you will have the full payment amount ready. Of course, you will need to be at least a couple weeks ahead for this payment method to work, so a bit of initial savings effort is required.

Photo by NORTHFOLK on Unsplash

6. the budget-by-paycheck method

the budget-by-paycheck method is typically recommended for organized people who get paid a fairly predictable and regular income. it may not be great for people who get paid once monthly. 

With the budget-by-paycheck method, bills are split up according to when they are due. Ideally, you would be able to spread out payment due dates as evenly as possible between pay days.

Photo by Dose Media on Unsplash

7. the priority-based budgeting method

the priority-based method is typically recommended for lower and/or irregular income budgeting.

The first step in the priority-based budgeting method is to calculate your minimum take-home pay. Then, list your expenses in order of priority (starting with absolute necessities and working down to any not so important expenses). Ideally, your minimum income will at least cover the basic expenses that you need. If you pick up extra work and earn more than your minimum, then you can add additional expenses if you’d like (such as building an emergency fund or other savings goal, extra groceries, dining out, clothes, etc.)

Photo by Mediamodifier on Unsplash

8. the traditional budgeting method

the traditional budgeting method is typically recommended for beginner budgeters, but many people eventually prefer simpler, less time-consuming methods.   

The traditional budgeting method (also known as line-item budgeting) asks that you record all of your income and monthly expenses. If your income varies, calculate your average monthly income for the past year. For variable expenses, such as utilities, it is also recommended to tally up the totals over the past 6-12 months and calculate the average. The next step is to identify opportunities to reduce spending. This method tracks all incoming money and outgoing money, so it is easy to see where your money is going.

Photo by Dose Media on Unsplash

9. the values-based budgeting method

as a therapist, I absolutely love the values-based budgeting method. however, it works best as an add-on to a more structured budgeting method rather than a stand-alone option.

Values-based budgeting requires self-reflection and self-awareness. Basically, this budgeting tactic poses a few questions while considering each and every financial transaction you make.

does this transaction align with my personal values?

If the answer is no, you just identified an expense to cut (or try to replace with a less expensive substitute if this transaction is a necessity).

if the answer is yes, which value(s) specifically does this transaction align with? why?

If you don’t have a definitive answer here, the transaction might deserve a rethink.

is there an alternative that might cost less?

Either way, this question will help you to look for ways to trim expenses.

Photo by Mediamodifier on Unsplash

10. The 60% Solution Budgeting Method

the 60% solution budgeting method is typically recommended for people who are trying to get their financial life in order. it has been criticized for feeling restrictive when it comes to funding wants, so this may work best for people who have relatively inexpensive or free hobbies.

The 60% solution was made popular by Richard Jenkins, a former MSN Money editor-in-chief. Essentially, the formula is to spend 60% of your pre-tax income in fixed expenses (basic needs). The remaining 40% gets allocated into for main categories, divided equally:


401(k) contributions, an IRA, etc.

long-term savings

planned savings for future use (a new car, home renovations, college, vacation funds, etc.)

irregular expenses

a sort of emergency fund (for repair bills, unexpected medical bills, etc.)

fun money

entertainment, date nights, pumpkin spice lattes, etc. (try to use less than the 10% allocation whenever possible and save it instead).

Carrot cake caramels chocolate tiramisu donut chocolate cake. Marzipan gummi bears caramels.

Sugar plum soufflé candy canes cheesecake pudding jelly.