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Types of budgets: 5 most popular methods, examples & who they're best for

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Looking to sharpen your money management skills? Many people look to budgeting as a key part of that. The truth is, there isn't one universally "right" way to budget. There are many different strategies to help you succeed.

All budgeting methods have a few core factors in common: They help you distinguish wants from needs, allow you to plan ahead, and hold you accountable. But each specific budgeting style gets more granular into goals, lifestyle and how you prefer to think about your money. Remember that you can always start with one—and if it doesn't make sense for you, you can adjust and try another.

Here's a look at the top five most popular budgeting methods. We've also included examples for each, which you can assume account for post-tax (net) earnings.

  1. Pay yourself first / 80/20 budget
  2. 50/30/20 budget
  3. Envelope budget / Cash-stuffing
  4. Zero-based budget
  5. No-budget budget

1. Pay yourself first, aka 80/20 budget

Best for: Prioritizing savings.

How it works: A pay yourself first budget prioritizes simplicity and savings. It minimizes detailed income and expense tracking.

You decide how much to set aside for retirement savings, an emergency fund and other goals each month. Then, you set up automatic transfers so that the money that goes to savings is separate from the rest of your money. Whatever is left must cover your needs and wants.

This method may also be called the 80/20 budget, which assigns 20% of your income to savings and 80% to your needs and wants. But you can allocate your income using whatever percentages work for you.

Pay yourself first budget example

Say you earn $70,000 annually and you want to save $7,000 in a Roth IRA and $7,000 for emergencies this year. You get paid by direct deposit every other Friday, or 26 times per year. Divide $7,000 by 26 to get $269.23—that's how much you'll save toward each goal ($538.46 total) every two weeks.

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2. 50/30/20 budget

Best for: Balancing control with flexibility.

How it works: A 50/30/20 budget allocates 50% of your income to needs, 30% to wants and 20% to savings. It's more detailed than an 80/20 budget but more flexible than a zero-based budget.

It also can help you see if you're overextended. Maybe your needs occupy 70% of your income or your wants take up 50%—limiting your ability to meet your goals. You can bring your budget into balance by adjusting your expenses or working to bring in extra income. Or maybe you'll discover that your needs only consume 40% of your income, meaning you can save more tenaciously or give more freely.

For some people, giving is so important that it's an essential expense. If that's you, consider the 40/30/20/10 budget, which puts 40% of your income toward needs instead of 50%. This change frees up 10% of your income for giving.

Another variation is the 75/15/10 budget: 75% for spending on both needs and wants, 15% for investing and 10% for saving.

Example of 50/30/20 budgeting

You can assign whatever percentages you want to whichever categories make sense to you. Here are the types of expenses you might allocate to each category:

  • Needs, 50%: Housing, utilities, transportation, health care, groceries
  • Wants, 30%: Travel, dining out, tennis lessons, streaming services
  • Savings, 20%: 401(k) contributions, Roth IRA contributions, emergency savings

3. Envelope budget or cash-stuffing method

Best for: Literally seeing where your money is going.

How it works: The envelope system is a cash-based budgeting method that gives you a tactile way to divide what you have to meet your goals.

The traditional method involves labeling envelopes with a category (for each kind of expenses, as well as savings goals and discretionary spending) and the amount you need for it. When you get paid, take cash from your account and divide it among your envelopes. If you don't have enough to spread around, you'll have to reassess. If you have extra, you can decide where to add it in.

But the point is that when an envelope is empty, you're done with that spending category until you get paid again.

Seeing cash in an envelope can give you a better sense of what you can spend. And parting with cash can feel more significant than swiping a credit card. It comes with the risk of losing cash or having it stolen, and it can be impractical for expenses like a mortgage or health insurance. But you can also consider taking a modern approach and using an app to digitally divide your income into categories/"envelopes" and track what is spent from each, making sure you stop when it reaches $0.

Envelope budgeting example

You probably don't want cash envelopes for major expenses like rent, mortgage payments or insurance premiums. But here's how you might use it for smaller categories:

  • Envelope 1: Groceries, $500
  • Envelope 2: Gas, $200
  • Envelope 3: Restaurant meals, $150
  • Envelope 4: Coffee, $30
  • Envelope 5: Clothing, $120

4. Zero-based budget

Best for: Detailed awareness.

How it works: A zero-based budget promotes mindful spending by assigning a purpose to every dollar you earn so that your income minus your saving and expenses equals zero. It's ideal for the quality-control connoisseur. It also can be helpful if you're working toward a life without credit card debt.

This method is the most time-consuming and strict, but it can be soothing if you crave control and structure and like reaching a perfect balance every month.

Example of a zero based budget

If your after-tax monthly income is $5,000, a zero-based budget might look like this:

EssentialsMonthly allotment
Housing (mortgage or rent)$1,500
Clothing & basic needs$150
Irregular expenses (discretionary spending)$350
Emergency fund (home/car repairs, out of work, etc.)$200
Vacation & travel$200

5. No-budget budget

Best for: Disciplined budgeters.

How it works: A no-budget budget can be considered the opposite of a zero-based budget. It requires the least planning and allows the most flexibility. Calculate your monthly income, and subtract your necessary expenses and essential savings. The rest is yours to spend or save however you wish.

The no-budget budget may not be the best choice for someone who has never scrutinized their finances or who has high expenses compared to their income. However, it can be a time-saving choice for people who already have an ample emergency fund, have mastered a stricter budget method, and whose income is far higher than their expenses. It can also help people who have tried other methods but found them too strict or tedious.

No-budget budget example

You and your spouse take home $11,000 per month after taxes, employee benefit costs, and workplace retirement account contributions. After subtracting your mortgage ($3,000), utilities ($300), private school tuition ($1,500), IRA contributions ($1,000), medical expenses ($500), home maintenance ($500), auto and life insurance premiums ($500), transportation ($700), emergency savings ($1,000) and groceries ($600), you can do whatever you want with the remaining $1,400.

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Tips on using a budget system

Choosing a budget system is one thing; sticking to it is another. Everyone needs strategies to stay on track when they get frustrated, bored or overwhelmed. These tips can help you gain control of your money and follow your chosen system.

  • Embrace the adjustment. Budgeting is a continuous process. Forgive yourself for slip-ups, and focus on positive adjustments. Example: "I went over my entertainment budget because I forgot about going to the movies last week. But I nailed my donation goal, and I can trim next month's entertainment budget by $20."
  • Trust the process. Believe in the impact of daily decisions. You won't see instant results from adopting a new budget, but each mindful choice will add up.
  • Stay alert. Don't get caught off guard at month's end. Regular check-ins allow for course correction and, when you're on track, offer positive reinforcement.
  • Celebrate small wins. Did you stick to your grocery budget? Resist online shopping all week? Set up automatic investments? Every victory deserves recognition. It's important to recognize the successes you're making in your budget.
  • Build a support system. Identify friends, family, church members or online groups who understand your budgeting journey and share your commitment. Lean on each other for encouragement and celebrate shared successes.
  • Remember your why: Visualize what your life will look like when you achieve your financial goals. It's easier to choose the library over the bookstore or at-home tacos over dine-out steak when you remind yourself how good it will feel to become your own boss, pay off your credit card or own your dream home.

How to choose the budget system that's right for you

Remember, there's no one right way to budget. If the first method you try ends up feeling like the wrong fit, try another or invent your own. The best budget method for you is one that's manageable and supports your priorities. Whether you're just getting started, craving accountability or need to refine your system, a Thrivent financial advisor can meet you where you are and partner with you to work toward your financial goals.