Popular Budgeting Systems

Budgeting Systems

Now that you know your monthly net income, it's time to make a plan for how you will spend it.

Everyone is unique with their own money goals and needs. There is not a one-size fits all budgeting method. The goal is to find or create a system that fits you and your needs.

This page will introduce you to several popular budgeting systems and why people like them.

Table of contents

The 50/30/20 Budget

The 50/30/20 budget is one of the most common systems for beginners. This budgeting system splits your net income into three categories.

50% towards your needs
30% towards your wants
20% towards savings or paying off debt

This system is popular because:

It is simple, you only have to worry about three categories when tracking your expenses.
It helps identify if you are overspending on wants, or if your income doesn't support your current needs.
(at the beginning of your career, or in high cost of living areas, 60/30/10 may be a more appropriate split)

Zero-Based Budgeting

The Zero-Based budget is for those that want total control of their money. This budgeting system involves assigning a specific job to every one of your net income dollars. At the end of the month, your income with expenses subtracted should equal zero.

Start with your monthly net income.
List all your expenses, savings goals, and debt payments.
Assign every dollar of income to one of those list items.
Adjust until your total equals zero, meaning every dollar is accounted for.

This system is popular because:

You know where every one of your dollars is going with each being assigned a specific purpose.
It is customized to your personal expenses and goals.
(this might be overwhelming compared to the simplicity of 50/30/20)

Envelope System

The Envelope System budget is for those that want better control of their spending. In this budgeting system you set spending limits for your spending categories. Originally, people would store cash in separate envelopes for each category, but now there are also digital options.

Choose your main spending categories (e.g., groceries, dining out, gas, entertainment).
Assign a specific dollar amount to each envelope based on your monthly budget.
Track your spending, when the envelope is empty, you’ve hit your limit for that category.
Refill the envelopes at the start of your next budgeting cycle.

This system is popular because:

It helps prevent overspending by setting a limit for each category.
Seeing the amount in the envelope decrease helps people think more about their purchases.

Pay Yourself First

The Pay Yourself First budget is for those that want to prioritize saving and investing. This budgeting system flips the script compared to many traditional budgets. Instead of saving what's left of your income after expenses, you save the amount you want first and then use the rest to cover your expenses.

Decide how much you want to save each month (either a percentage of your net income or a dollar amount).
Transfer this amount to savings after each paycheck (many banks allow you to set up automatic transfers).
Pay for your needs (e.g. shelter, food, utilities, etc).
Any remaining income is free to be used on wants or can be put into savings.

Example: If you earn $3,000 per month and decide to save 10%, transfer $300 to savings first, then budget the remaining $2,700 for needs and wants.

Because this budget system simply changes the order of the steps, it can be combined with other budgeting systems depending on what type of expense tracking and categories work best for you.

This system is popular because:

It helps people meet their savings goals.
It allows for guilt free spending once your needs are covered.

What's next?

Now that you have a better understanding of how to start budgeting, you’re ready to take the next step toward financial stability.

Continue on to Debt Management to learn how interest works and explore popular strategies for paying off debt.

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