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5 popular budgeting strategies — and how to find the best fit for financial motivation

Kat Aoki
5 popular budgeting strategies — and how to find the best fit for financial motivation (Westend61 via Getty Images)

When it comes to choosing a budgeting strategy, there’s no one-size-fits-all. What might be a great system for one person could be a mismatch for another. The key is to find a budgeting strategy that aligns with your lifestyle and values — and that you'll stick with over the long run. To help you decide, we cover five of the most top budgeting strategies and explain who they’re best for and why.

Many Americans are struggling financially amid inflation, with 54% of those surveyed by Bankrate saying they don’t have savings set aside to cover an emergency of $1,000 or more. These startling statistics reveal how important it is to develop good money management skills and budgeting habits — especially in times of economic uncertainty.

Whether your goal is to get out of debt, to build an emergency fund or to retire early, everyone can benefit from knowing how much they’re bringing in versus how much they’re paying out. More so, more than half of all Americans say the most valuable financial lesson learned is how to budget and track expenses — with many reporting that having a budget can actually be enjoyable and simplify life, while reducing stress and worry about the future.

Learn more: 7 best budgeting apps for managing your money the modern way

The 50/30/20 rule is a popular budgeting method that involves dividing your after-tax income into three main spending categories: needs, wants and savings. It’s a simple, yet effective method that promotes healthy financial habits by making sure the essentials are covered, while allowing a reasonable amount of discretionary spending to satisfy emotional needs.

To use this method, determine your after-tax income and divide it into three based on these ratios:

  • 50% for "needs" — essential expenses like mortgage or rent, utilities, health care, groceries, transportation, basic clothing and minimum debt repayments

  • 30% for "wants" — discretionary spending on things like eating out, streaming services, subscriptions, gym memberships, yoga classes, hobbies, travel and other lifestyle expenses

  • 20% for savings and debts — for emergency savings, retirement account contributions and investments and paying down debts beyond minimum payments.

Use a calculator to see how much you should spend per category based on your income — simply multiply your take-home pay by 0.50, 0.30 and 0.20 to understand how much you have for each of the three budgeting ratios, and then track your actual spending against the resulting percentages every month.

If your after-tax income is $3,000 a month, for example, this is what you’d have for needs, wants and savings according to the 50/30/20 budget:

  • 50% for needs — $1,500 (or $3,000 x 0.50)

  • 30% for wants — $900 (or $3,000 x 0.30)

  • 20% for savings and debts — $600 (or $3,000 x 0.30)

You can then keep track of your budget within a spreadsheet like Excel or Google Sheets or a budgeting app like Monarch Money.

The 50/30/20 rule is best for people who have enough regular income to devote to both needs and wants every month. It’s also good for beginners, because it’s simple to use and you don’t need to keep track of every single dollar.

This 50/30/20 method isn’t for people who want a more granular approach over their finances — the zero-budget approach is better for that. It’s also not for people living on low incomes, as allocating 20% to wants may not be realistic. On the flip side, it may be too restrictive for high earners, who have more disposable income to spend.

Zero-based budgeting is a budgeting technique that allocates every dollar of your monthly income to a predetermined expense category — leaving “zero dollars” unaccounted for. This allows you to maintain a high level of control over your spending and savings. However, it may take more work to implement and maintain than other budgeting methods, like the 50/30/20 approach.

Let's say your monthly take-home pay is $3,000. Using the zero-based budgeting method, you’d need to allocate every dollar to a specific spending category.

Here’s an example of what that might look like:

Zero-dollar budgeting requires that you stay within each category limit. Any extra money you bring in must be assigned to a category, and you can “borrow” funds from another category if amounts exceed what you’ve budgeted — say, your entertainment costs one month exceed $100. Because you’re dealing with real funds in your bank account, you’re held accountable to every dollar.

You can implement the zero-based budget with a spreadsheet or within a budgeting app. A few highly rated budgeting apps feature the zero-dollar method, including You Need a Budget (YNAB) and Monarch Money.

The zero-based approach is best for people who struggle with overspending, are paying down debt, or otherwise have a hard time sticking to a budget. It’s also good for those who like having a detailed overview of their money to ensure that every dollar earned is spent wisely. It’s also useful if you’re going through life changes, as setting up a zero budget can give you a fresh perspective on your finances and values.

Due to the methodical nature of this method, zero-based budgeting is not ideal for people juggling multiple jobs or who have irregular incomes and unpredictable spending patterns. In that case, a lack of consistency can make it hard to implement. It’s also not for people who like more flexibility in their budgets — and don’t like having to account for every dollar spent.

As the name suggests, the pay-yourself-first budget emphasizes saving and investing before spending money on other things. This approach ensures you consistently work towards the goal of building wealth while paying for everyday expenses with any remaining funds. Of course, it’s still important to prioritize paying off debts even with this method in place, especially if you’re paying high interest rates.

To use this approach, decide on a percentage or fixed amount that you want to pay to yourself before earmarking funds for other expenses. Then, set up automatic transfers for that amount from your paycheck to your savings or investment accounts when you get paid. Use the remaining funds to pay for essential expenses and other discretionary purchases.

Here are some ways to put the pay yourself first budget into action:

  • Allocate a percentage of your paycheck to automatically go to your company’s 401(k) or 403(b) retirement plan.

  • Set up direct deposits so that part of your paycheck goes to your checking account and the other part goes to a high-yield savings account or other non-spending account.

  • Link your bank account to a brokerage or investment platform to make regular purchases of mutual funds, stocks and other investments. You can also use an app like Betterment or Wealthfront to do this.

The pay-yourself-first approach is best for people who have a stable income from a job or other source but struggle to save money regularly. It also works well for disciplined people who have clear financial goals they’re working toward — like saving for a down payment on a house or building up wealth for retirement.

The pay-yourself-first method is not for people living on a low income, struggling to make ends meet or paying down a lot of debt. In those circumstances, it’s better to focus on increasing income or finding ways to reduce debts and expenses first — for example, by using the zero-dollar approach budgeting method.

The no-budget budget is a simplified, no-frills budgeting method that focuses on the two key metrics: your monthly income and your monthly expenses. Rather than tracking every spending category in detail as with the 50/30/20 and zero-based methods, this approach gives you a lot more flexibility in how you spend your discretionary funds each month.

The no-budget budget is easy to implement. Let’s say your take home pay is $3,000 and your essential expenses are $2,700. Using this method, you’d first add up your obligatory monthly expenses, and then you’d subtract your expenses from your take home pay:

$3,000 ➖ $2,700 🟰 $300

In this case, you’d have $300 left over to spend however you want.

You can use a spreadsheet or a free financial management app like Empower to make this method work for you. Empower’s cashflow analysis and income vs. expenses visualization lets you track your money without a strict budget — which is the whole point of the no-budget budget.

The no-budget budget is best for people with stable, predictable incomes who have a strong handle on their finances and can keep their spending in check. It’s also ideal for busy people who don’t want to track every dollar or take the time to use a more feature-rich budgeting app like You Need a Budget (YNAB).

The no-budget budgeting method isn’t for people who often have a hard time sticking to a budget or overspend, despite their best intentions. In that case, the zero-budgeting method may be a better choice.

While it might be less conventional than the other budgeting methods we cover, values-based budgeting is a financial strategy that aims to align your spending with your personal values and priorities — rather than only on dollars and cents. It's a system designed to help you “vote with your dollars” and save up for the things that really matter to you.

This method works a little differently from other budgeting methods. It’s a bit like course-correcting your spending, requiring time to think about what matters to you personally and where your money is going currently.

Here are the steps to getting started with values-based budgeting:

  1. Think about your core values, such as family, health, personal growth and social issues. Write them down and rank them in order of importance.

  2. Track your current spending and expenses with a spreadsheet or budgeting app for a month or two to get a better idea of where your money is going.

  3. Analyze your spending habits and determine where they align with your identified values — and where they don't.

  4. Based on your values, design a custom budget aligned with these goals, allocating your income and other funds accordingly.

  5. Set financial goals based on your values. For example, if family is a top value, your goals might include planning a family vacation or putting money into an educational fund for your grandchild.

To get started with this method, set up a spreadsheet or use a budgeting app like Quicken Simplifi or YNAB (You Need a Budget) that lets you allocate specific categories for your spending and saving objectives.

This method is best for people who are financially stable and want a stronger connection between their budgets and their priorities and values. It’s also ideal for people who are burnt out on the “rat race” and want to save money toward more fulfilling personal goals.

This strategy is not ideal for low-income earners who are struggling to make ends meet or for people who are deeply in debt. In these situations, it’s better to get a handle on one’s spending first — for example, by using the zero-based budgeting approach.

In addition to using a budgeting strategy, the debt snowball and debt avalanche methods focus your finances on cutting down your overall debt. One prioritizes paying off your debts from smallest amount to largest, while the other focuses on paying down your highest debts first.

For each, you budget paying at least the minimum payment owed for each debt to avoid fees and other penalties. The difference between them comes down to where you apply the rest of your money next — and how you’re best motivated to pay off debt to zero.

The snowball method focuses on paying down your smallest debts first, regardless of the interest rates you’re paying on them. The reason it can work is simple: Chopping down your smaller debts first can provide “emotional wins” to stay motivated and on track to paying down debt — even if you’ll pay more interest over the long run than with the avalanche method.

The avalanche method focuses on paying off your debts by their highest interest rates first. It can work well if you’re motivated by saving interest and money overall. Chipping away at larger debts without getting discouraged takes time, but you could save more money than using the snowball method.

💡Expert tip: If you have good to excellent credit, consider a debt consolidation loan that can roll all of your high-interest debts into a single monthly payment at a lower rate. Handled correctly, a debt consolidation loan can help you get out of debt faster while saving you hundreds or even thousands in interest.

Dig deeper: 18 clever ways to save money — and take a bite out of inflation

How to successfully create — and stick to — a budget

Sticking to a budget isn’t always easy, but knowing how you’re motivated toward goals and taking on a few tips can help make a budget work for you.

  • Set realistic goals. You know yourself better than anyone, so choose practical goals you know you can stick with. Too extreme, and you could get discouraged and give up before you’ve had a chance to build new habits.

  • Get motivated. Consider joining a budgeting group online to get ideas, support and inspiration. Reddit alone offers judgment-free subreddits like r/personalfinance, r/budget, r/financialfreedom and r/povertyfinance.

  • Embrace automation. Setting up automatic transfers into a deposit account each month can help you set and forget savings, putting your budget on autopilot. If you’re still planning for retirement, most employers offer a way to automatically defer a percentage of your paycheck to a 401(k), IRA or other plan.

  • Reward yourself. Be sure to build some flexibility into your budget. Allowing yourself some discretionary spending will alleviate the pressure and keep you motivated. If a morning coffee out brings you pleasure, for instance, build it into your budget — and make up the difference elsewhere.

  • Use a budgeting app. Your smartphone offers a valuable way to track and manage your money. The best budgeting apps pack a range of robust features to fine-tune your spending and savings goals, helping you to power through paying down your debt — and celebrate your much-deserved wins.

Kat Aoki is a seasoned finance writer who's written thousands of articles to empower people to better understand technology, fintech, banking, lending and investments. Her expertise has been featured on sites like Forbes Advisor, Lifewire and Finder, with bylines at top technology brands in the U.S. and Australia. Kat strives to empower consumers and business owners to make informed decisions and choose the right financial products for their needs.

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