The 3 Best Budgeting Methods

Figuring out the best budgeting method for you is one of the most challenging, but also most important parts of managing your money. When you know where your money goes, you can make more intentional decisions about how to spend it. Skillfully managing the money that comes in and goes out can be the difference between living paycheck to paycheck and living the life of your dreams. 

While this article features the three best budgeting methods, the truth is that there are near infinite possibilities. Each person has their own unique needs, habits, goals, and ways of relating to money. Therefore, everyone will likely need to modify, adapt, or combine methods of budgeting in order to find the best one. 

There is no one best budgeting method—there’s only the best budgeting method FOR YOU. 

So if you’re new to budgeting, read through these, pick a place to start, and begin trying it out to see what works and what doesn’t. If you need help figuring out which one to use, this quiz can help you decide: Which Budgeting Method is Right for You? 

1. Zero-Based Budgeting

Zero-based budgeting is a system of deciding in advance how you will spend each dollar that comes in. You can put it toward bills, fun spending, savings, debt payments, etc, but every dollar must go somewhere. There is no money “left over” at the end of the month. 

This method is ideal for those who want to limit spending, get out of debt, increase their savings, and start getting ahead. Those using a zero-based budget often find that they can finally make progress on their goals by being a lot more intentional with their money. 

Zero-based budgeting can work for anyone, but it is especially ideal for those who are struggling with overspending and keeping track of how much money they have available to spend.

The popular budgeting apps YNAB and EveryDollar are based on zero-based budgeting, but if an app is not for you, it can also be done with a spreadsheet or even pen and paper.  

Those who especially struggle with overspending on credit cards may want to utilize cash envelopes, where you put the amount for each category in an envelope. Once the cash is gone, you're done spending in that category for the month. 

2. Paycheck Budgeting

Paycheck budgeting is a system of allocating where each paycheck will go. Traditional budgeting methods typically work with a whole month’s worth of income and expenses, but that can be problematic if you’re trying to spend money that hasn’t arrived in your checking account yet. That’s why it can be helpful to decide which bills will be paid with each paycheck. 

Budgeting by paycheck is a great all-purpose method for anyone, but it is particularly helpful if you find yourself paying your bills in the first half of the month and then running out of money before your next paycheck comes in.

Paycheck budgeting can be done in a zero-based budgeting manner, where every dollar gets assigned in advance, but it doesn’t have to be. With a paycheck budget, you can leave money left over to be used next month if you want. This tends to be a little easier for beginners who are overwhelmed with trying to figure out how to make things equal zero every month. 

Popular budgeting apps, such as YNAB, combine zero-based budgeting with paycheck budgeting. But if you’re not interested in using an app, you can easily budget your paycheck with a spreadsheet or pen and paper. 

Those interested in using a spreadsheet should check out this budgeting method for ideas on how to get started. 

3. The Intentional Spending Plan Method

The Intentional Spending Plan is a system that combines prioritizing paying off debt and saving for financial goals with basic money tracking. 

First you decide how much you want to save for various goals, such as retirement, college, a new home, a vacation, or anything else. Then you set aside the money for each goal in a special account for that purpose. 

Once you take care of paying off debt, saving for your goals, and paying bills, you can do whatever you want with the rest of your money, including just letting it accumulate. 

At the end of the month, you record and review your expenses to see if you need to make adjustments. The extent to which you track your expenses can vary; some people may want to record every transaction, while others may be satisfied with seeing total expenditures for the month. 

This method of managing your money is best for people who have a comfortable amount of money in savings and earn more than they spend. It is not a good system if you struggle with credit card debt or you often find yourself running out of money before the end of the month. 

This system offers flexibility when it comes to method of tracking. Some may want to use an app such as Mint.com. Others will want to put everything in a spreadsheet or simply review their bank accounts and credit card statements each month. 

Other Budgeting Methods

Many lists of the best budgeting methods will mention a few others, such as the 50/30/20 budget or the pay yourself first budget. While these are great concepts, they work best when used in conjunction with another budgeting method. This is in part because they don’t help you with the logistics of actually managing and tracking your cash flow. 

The 50/30/20 Budget

The 50/30/20 budget says that you should be spending 50% of your budget on needs and living expenses, 30% on wants, and 20% on debt payoff and savings. This can be extremely helpful for those trying to figure out how much they should be spending in each area. For example, if you want to know if your grocery budget needs to be reduced, figuring out how much of your total income goes to groceries and other living expenses can be useful. 

However, the 50/30/20 budget doesn’t work particularly well on its own. Aiming to spend 50% of your income on needs is different than actually making it happen. And you still need a tracking system to help you find your percentages. 

In addition, the 50/30/20 percentage breakdown doesn’t work well with what many families are experiencing right now. With food, gas, and housing expenses on the rise, it may not be feasible to limit living expenses to 50%. High student loan payments take a huge bite of one’s budget. Those in high cost of living areas will find that their living expenses take up way more than 50% of their budget. 

If you’re interested in learning more about the 50/30/20 budget, here are some resources for you:

The Pay Yourself First Budget

The Pay Yourself First budget is essentially a system of prioritizing savings (and debt payments), paying your bills, and then not worrying about the rest. While it does not require that you even track your expenses, most people will find it beneficial to have at least a basic understanding of where their money goes. 

That’s why it works really well when combined with a basic tracking system, whether that is an app like mint.com, a spreadsheet, or even just reviewing your bank and credit card statements each month. 

In fact, the pay yourself first principle is integrated into the Intentional Spending Plan system above. 

Pay Yourself First is not listed as one of the best budgeting methods by itself, because it only works for those who have extensive savings and/or have more than enough income to cover monthly expenses. Those not in this situation will benefit highly from having a more intimate knowledge of where their money goes, and will thus benefit from one of the other budgeting methods. 

Budgeting for Success

Whatever method you use, remember that the best budgeting method is the one that you will actually use. You need to design a system that is sustainable and that will help you achieve your life goals. 

Ultimately, the goal of having a budget is not simply to have a budget. The goal is to have a tool or system that helps you be more intentional with your money so that you can start getting ahead and live your life the way you want.

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