5 Simple Budgeting Methods | LendingTree (2024)

A budget can help you track where your money goes while giving you more control over your financial health. The best budgeting methods should fit your personal goals, such as boosting your savings account, paying down debt or reducing excessive spending.

Here a rundown on how to budget and take control of your finances, as well as why it’s useful.

While budgeting takes time and effort, it can be essential in helping curb frivolous spending and jumpstart your savings. Sticking to a budget can help you…

• Spend your money more responsibly — By creating and following a budget, you can decide how to spend your money each month based on what’s most important.
• Improve your debt repayment strategy — If you’re working to pay off student loans, credit cards or some other type of debt, having a budget can help you stretch your cash further.
• Increase your savings goals — A budget can help you determine how much to set aside to reach your financial goals, whether saving more for retirement, building your emergency fund or planning your next vacation.

5 budgeting methods to consider

You may need to figure out your current spending trends before selecting a budgeting method. This will help you know what areas need more attention.

Keep all receipts for one to two months, sorting them into categories like food, shopping, household and entertainment expenses. Alternatively, you can view your checking and credit card activity online — some credit cards even split your charges into categories to help you understand how you spend your money.

After understanding your current spending patterns, consider the following five personal budget ideas to find the best fit for you.

1. The zero-based budget

The concept of a zero-based budgeting method is simple: Income minus expenses equals zero.

This budgeting method is best for people who have a set income each month or can reasonably estimate their monthly income. After calculating your monthly income, subtract all your monthly expenses and savings, making sure the final result is zero.

Sample zero-based budget

Try to list all your expenses as accurately as possible. If you spend more in one category, you can move cash from another to compensate for it. Forgetting a large expense could throw off your whole budget.

Since there’s less room for error with the zero-based budget, it’s generally a better option for someone used to budgeting. Even then, keeping extra cash in your checking account as a buffer is a good idea.

Pro tip: Regardless of your chosen budgeting method, you should focus on building a small emergency fund in case you incur any unexpected or significant expenses.

2. The pay-yourself-first budget

The pay-yourself-first budget is another simple budgeting method focusing primarily on savings and debt repayment. With this method, you set aside a specific amount from each paycheck for savings and debt payments, spending the rest as you see fit.

For example, you may want to pay off high-interest debt while slowly contributing toward an emergency fund. But as you get rid of your high-interest debt, you could focus on other goals, such as saving for a house down payment.

The pay-yourself-first budgeting technique is best for someone struggling with saving each month who doesn’t want to list every monthly expense.

3. The envelope system budget

This budgeting method is similar to the zero-based budget but with one big difference: You do it all with cash. With the envelope budgeting system, you plan how to spend your money each month and fill an envelope with the allocated cash for each category.

As you go grocery shopping, for instance, take your grocery envelope and pay for your items with cash. If you run out, that’s all you can spend in that category for the month unless you want to take some money from other envelopes. Avoid raiding other envelopes too often, though, because it can lead to a snowball effect, causing you to run out before the end of the month.

The envelope method of budgeting might not be ideal for someone who feels uncomfortable carrying around that much cash or prefers using credit or debit cards.

Pro tip: Be sure to prioritize your necessary expenses and bills, such as rent, food and utilities. You should always include these items in whichever budget technique you use, although you can find ways to reduce your daily living expenses.

4. The 50/30/20 budget

The 50/30/20 budgeting method requires less work than the zero-based and envelope budgets. The idea is to break down your expenses into three categories:

1. Necessary expenses (50%)
2. Discretionary expenses (30%)
3. Savings and debt payments (20%)

This budgeting method is a great option for newbie budgeters because it doesn’t require meticulous tracking of all your expenses. You can succeed with this budget if you know what counts as a want versus a need and are motivated to set aside enough money toward savings and debt.

The main drawback is that the 50/30/20 rule might be unrealistic for people with significant debt or high savings goals because 20% of your income might not stretch far enough.

You can customize the 50/30/20 budget (or any budget) to fit your specific needs. For example, change it to 40/25/35 if you want to pay more toward the savings and debt repayments category and decrease the discretionary or necessary expenses categories.

5. The no-budget budget

As the name suggests, this flexible budgeting method is simple: Focus on spending within your means.

Here’s how it works…

• Keep an eye on your checking account balance. Use a budgeting app or your bank’s online banking or mobile app to track your daily cash flow.
• Know when recurring bills hit your account. Keep a detailed list in a spreadsheet, on your phone’s notepad or set to repeat on your online calendar.
• Set aside cash for savings and extra debt payments. Use automatic transfers from checking to savings and increase your automatic monthly debt payments.
• Spend what’s left over without overdrawing your account. Keeping an eye on your account balance helps you track how much money is available after core expenses.

While the no-budget budget sounds easier than the other methods listed above, it’s not always easy to tell yourself “no.” This budget type can be a good fit if you feel confident you can avoid racking up unnecessary charges.

Using a debit card with the no-budget budget method is best since it connects directly to your checking account and automatically updates your balance. This way, you can rest assured that you are spending within your means.

Pro tip: If you use credit cards for certain expenses, consider a grocery credit card or similar rewards credit card to maximize your cashback rewards. However, one of the best ways to use a credit card responsibly is to ensure you have enough funds in your banking account to cover every credit card transaction. Also, pay off your balance in full each month to avoid additional fees.

Even if you pick the right financial budget, it can take a few months to get used to the system, especially if you are new to budgeting. But like any habit, the more you do it, the easier it becomes.

Consider your goals and why you want to achieve them. Doing this can help maintain your motivation to keep fine-tuning your budgeting skills. And if you need help with debt repayment strategies, consider the debt snowball or debt avalanche method.

Also, don’t be afraid to tweak your budgeting strategy along the way to make it more effective. For example, try following different budgeting tips if your current approach isn’t working. Consider using a budgeting app and automating your debt payments to make the process easier.