In times of inflation, economic uncertainty and competing financial priorities, making dollar decisions can be challenging. Giving your budget a reset could put you back in control of your finances.
Whether you’re among the nearly half (47%) of Americans who don’t have any set budget at all, according to a recent YouGov survey, or the one you’re using isn’t working for you, this guide breaks down four popular methods and helps you figure out the best option for your personality and goals.
[Read: How to Create a Budget That Works for You: Zero-Based, 50/30/20 and Envelope Methods]
4 Types of Budgets to Consider
1. 50/30/20
The 50/30/20 method sorts your spending into categories. Spend 50% of your income on needs, 30% on wants and 20% on savings.
Who it’s best for: People new to budgeting or those who want to be more intentional with their spending rather than track every dollar.
How to set it up: Start by reviewing the last three months of bank and credit card statements to categorize your spending, Stephanie Hayes Levi, community outreach specialist at Wings Credit Union, wrote in an email.
Needs should include housing, utilities, groceries, transportation, insurance and other essentials. Wants include dining out, entertainment, hobbies, travel and lifestyle spending. Savings can include your emergency fund, debt repayment, retirement contributions and investing.
In practice: “Compare your current spending to the 50/30/20 framework and adjust as needed based on your income and stage of life,” Levi wrote. “If money is tight, a variation like 60/30/10 may be more realistic.”
Ideal outcome: The goal here is progress, not perfection, Levi wrote. “And making room for enjoyment can help your budget stay more sustainable long term.”
[Read: How Much Money Should You Have in Savings?]
2. Zero-based
Zero-based budgeting assigns a destination to every dollar of income you make, but it can be more time-intensive to set up and track.
Who it’s best for: Detail-oriented people who like assigning a purpose to every dollar may prefer this method. “It works well for people who want more structure, accountability and control over their spending,” Levi wrote.
How to set it up: Calculate your monthly take-home pay, review your spending habits and create clear budgeting categories that go much more granular than needs, wants and savings. “Assign every dollar a purpose, even if the money is still physically in your account, until total income minus expenses equals zero,” Levi wrote.
In practice: Planning your paychecks before you spend them with no money left unassigned at the end of the month keeps you accountable. Expect to perform regular check-ins, ideally weekly, to help track remaining funds.
Ideal outcome: With every dollar assigned, spending decisions tend to become more intentional rather than impulsive.
3. Envelope
The envelope system works best for cash-only lifestyles.
Who it’s best for: This method can be effective for visual learners who want stronger discipline around spending habits, Levi wrote.
How to set it up: Create envelopes or categories for your budgeting areas and decide how much money to allocate to each one. You can also try using “digital” envelopes or separate bank accounts for your various spending categories.
In practice: Once an envelope or category is empty, spending in that area stops until the next refill. So for example, if you put $500 in the grocery envelope, you know that when it’s gone, you have to rely on what’s in the house.
Ideal outcome: Because spending pauses when the envelope or category is empty, seeing cash leave an envelope increases spending awareness and creates natural spending limits without relying on credit cards, Levi wrote.
4. Pay Yourself First
For this budget, the setup matters less than making your savings goals the top priority.
Who it’s best for: This can help people who struggle to save consistently, those trying to pay down high-interest debt quickly or anyone building emergency, periodic or long-term savings, Levi wrote.
How to set it up: Review your budget to determine how much you can realistically save each month, then create savings categories, Levi wrote. Next, set up automatic transfers so that as soon as your paycheck hits your account, money automatically moves into your designated savings accounts.
In practice: Money automatically moves to savings or debt repayment when you get paid, and you budget for the rest of your monthly expenses afterward.
Ideal outcome: Because your savings and debt payoff doesn’t become a back-burner item, you’ll see faster progress.
Which Budgeting Method Is Right for You?
Among the 53% of Americans who said they use a budget in the YouGov survey, the most common reasons included were to have enough money for necessities (66%), increase savings (49%), stop overspending (38%) and manage debt (35%).
No matter your goal, the best budgeting method is the one you can stick to, said Sherman Standberry, certified public accountant and CEO of My CPA Coach, wrote in an email interview.
“We suggest starting with the end goal in mind, which is simply creating a plan for the dollars you earn,” he wrote. “From there, choose the method that works best for you. It should be easy to understand, visualize, and track on an ongoing basis.”
Budgeting apps
Most budgets can be set up manually in a simple spreadsheet, but online budgeting apps can be helpful tools as well, Standberry wrote.
The YouGov survey found that 16% of Americans use budgeting apps overall, including more than a third (34%) of 25- to 34-year-olds. Try exploring some free budgeting tools or consider one of these more comprehensive budgeting apps (pricing is current as of publication):
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Armed with this information, you can go ahead and start building the budget style that works best for you.
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How to Create a Budget That Works for You: Zero-Based, 50/30/20 and Envelope Methods originally appeared on usnews.com
