Budgeting Methods

The winning approach is the one you’re actually going to stick to, month after month

We Tested 5 of the Best Budgeting Methods. Here’s What We Found

The best budget is the one you’re going to stick to.

Trying to get your spending under control? Just like with dieting, it can help to add some structure by following a plan, especially if your budget is likely to be bigger because of inflation, as The Wall Street Journal newsroom has advised. There are just about as many approaches to handling your daily finances as there are to counting calories.

To sort out which type of budget might work best for you, and if you need a budget at all, can take some experimentation. But that can be a time-consuming process, so we put the most popular budgeting methods through our testing process over several weeks to see which ones work best for a regular person.

I used my own budget as the model. I’m a married 30-something with no children who lives in New York City. My main objective with my money is to make sure I’m taking care of my expenses while also saving for a down payment on a house.

For help, I turned to certified financial planners. One thing they stressed: There’s no one-size-fits-all budgeting solution. “Everybody’s different,” says Greg Giardino, a Tarrytown, N.Y.-based certified financial planner. “The most important thing is that you pick a strategy that really resonates with you.” The more comfortable you are with that strategy, you’re more likely to implement it and stick with it.

Here are five of the most popular budgeting techniques touted by professionals—and how they fared in our testing.

50/30/20 budget

How it works: You think about your budget in buckets according to a hierarchy of importance. You’ll need a spreadsheet or a budgeting app, such as Mint or You Need a Budget, for this one because it involves tracking and doing some math. You need to divvy up your take-home pay into buckets: 50% goes toward needs (housing, car payments, groceries, insurance, student loan payments and other debt minimums), 30% toward wants (trips, dining out, entertainment, gadgets, etc.), and 20% toward savings (retirement, emergency funds, and debt payments above minimums).

Who it’s best suited for: People with fairly stable monthly incomes and expenses.

What the experts say: The 50/30/20 is a go-to for many financial planners. It’s straightforward and easy to grasp, since every expense fits neatly into a category. But its feasibility depends on where you live. “For places with higher costs of living like New York, New Jersey, or California, housing alone can eat up 35 or 40 percent of your budget,” says Giardino. “So you’ll end up going over with your needs and not having enough for the other categories.”

My review: I found it impossible to trim my needs bucket down to 50%. Meanwhile, the 20% savings threshold didn’t feel like enough. In addition to whatever we put toward our retirement nest eggs—usually at least 5%—my partner and I have made a habit in recent years of putting 20% of our income into a joint savings account for big future expenses. I didn’t want to cut back on that, so I ended up panicking and bumping my total savings contribution up to 25% after a few weeks. For me, 50/30/20 was a good baseline, but if you live on a modest salary in an expensive city with dreams of homeownership, having 30% left over for your “wants” category is a pipe dream.

70/20/10 budget

How it works: This seems a lot like the 50/30/20 budget but the percentages lead you to different results. You divide your post-tax income into three categories: 70% for monthly spending, 20% saving and 10% donations and debt repayment above your minimums. There’s no distinction between your fixed costs and your disposable income—they’re all lumped into the same 70%. The calculations here are simple, so you can use an app or spreadsheet, or simply do the math in your head.

Who it’s for: People with comfortable incomes who don’t tend to overspend, especially those who plan to donate to charities or causes.

What the experts say: There’s less structure to this one. Whether that’s a good or bad thing depends on the person. “You can have as many or as few guidelines as you want in budgeting,” says Jeff Farrar, a Wilton, Conn.-based certified financial planner who teaches a budgeting course at Fairfield University. “The important thing is that you hit your goals. Any budget that helps you do that is a successful one.”

My review: With no distinction between “wants” and “needs,” this technique offers you a lot of freedom. So if you’re someone who tends to tear through your monthly income before paying your bills, you’re better off trying a budget with more structure. When I tried this, I once again ended up bumping my monthly savings above 20%. I’m not ashamed to admit that almost all of my 10% bucket went to debt repayment, although having donations as a line item did spur me to give a little when I otherwise might not have. This budget feels like it’s best for people who already have their expenses mostly under control and merely need to hold themselves accountable to their savings accounts and preferred charitable causes.

Zero-based budget

How it works: You use two to three past months’ worth of expenses as a guide to create a budget for the coming month. Within a spreadsheet or budgeting app, balance the budget so that income minus expenses (which includes savings) equals zero. The level of specificity can vary: You might be satisfied allocating money to “entertainment,” or you might want to break it down into streaming subscriptions, sporting events and nights at the movies. Helpful hint: When you start, list all your monthly expenses in priority order. “It makes it a lot easier for you to make tweaks later on,” says Akeiva M. Ellis, a financial planner and co-founder of financial education company The Bemused. “If you go over budget for some reason or have a loss of income, you can just cut whatever’s at the bottom of your list.”

Who it’s for: People with predictable monthly income who are detail-oriented, serious about budgeting and looking to make significant changes in their spending behavior.

What the experts say: This is sort of the holy grail for budgeting—there’s no better way to get a grasp on your money than by tracking every dollar in and out. It can be time-consuming, so your best bet is to use one of the many budgeting apps that help you categorize your expenses. “It can feel like counting calories on every meal, which can drive you crazy after a while,” says Farrar.

Adds Giardino: “It’s not for everyone. But it can be a worthy exercise to try, even for a month, because it really opens your eyes to those variable expenses, which can help prevent overspending going forward.”

My experience: For me, the zero-based budget won’t be habit-forming. I used a budgeting app, but the process was still a chore. I’m a pretty organized person and a lover of spreadsheets, but this was too much. It was illuminating, even exciting at first, but I gave up on it after a couple of weeks.

Cash envelope budget

How it works: Take a bunch of envelopes and label them with your monthly spending categories. Categories like rent, utilities and savings are givens; when it comes to your discretionary income, you can either label one as “spending cash” or break it out into dining out, clothes and so on. Using past months as a guide, designate a percentage of your take-home pay for each envelope at the start of the month and pull from the appropriate envelope each time you buy something. The idea is that requiring cash for each purchase prevents overspending and curbs impulse buys. Anything left in an envelope at the end of the month can be rolled over to next month or put into your savings.

There’s a modern-day variation that doesn’t involve stashing cash in your home, which might make you feel like a doomsday prepper, or at risk for theft. Instead of using envelopes, create separate checking accounts for each category. You may be able to use a banking service that allows you to create buckets within one account, but this might not be available for checking. Ally Bank, for instance, offers this kind of functionality only for its savings accounts.

Who it’s best for: People who really need to get a handle on their spending, especially those who tend to overly rely on their credit cards.

What the experts say: This is a really effective way to prevent overspending, since you can’t blow money that isn’t there. “It’s kind of a forced way to stay on budget,” says Ellis. “You’re not putting stuff on credit cards. If you don’t have any cash, you don’t have money.”

My experience: Instead of physical envelopes, I funneled my take-home pay into various checking accounts and paid with a debit card. I did miss earning points with my travel rewards credit card, but I suppose this would be a sacrifice you’d have to make if you were trying to get your spending under control. I won’t be sticking with this long-term, because I found it too restrictive. Sometimes it is necessary to spend outside your monthly budget for a trip or a big expense, so long as you trust yourself to pay it off. All that said, I can absolutely see how this could be an effective long-term strategy for someone trying to quit the plastic.

Pay-yourself-first budget

How it works: Calculate what percentage of your take-home pay you want to save each month—20% is a good baseline, experts say. Route a portion of each paycheck into your retirement funds and savings accounts, then take care of your essential expenses like housing, utilities and debt minimums. You can track these using a spreadsheet or calendar—or, even better, set them to autopay on the day your monthly income hits your account. Whatever is leftover is yours to spend however you’d like.

Who it’s best for: People who want to save more but don’t have the patience for a more hands-on budgeting method.

What the experts say: Financial planners point to pay-yourself-first as an attractive option for those who might be scared off by more time-consuming techniques. “You have a minimum amount that you put in your savings or in your investments each month, and once that is done and you’ve paid your rent and bills, everything else is fair game,” says Ellis. “Want to spend that money on a trip? That’s fine. As long as those minimum things have been taken care of, everything else is gravy.”

People think of budgeting as constrictive, but if you know you can pay your bills each month and your savings is taken care of, the rest of your money is yours to spend however you want. “That’s not constricting; that’s liberating,” adds Jordan Benold, a Frisco, Texas-based financial planner.

My experience: I’ve been deploying this method for years without knowing it had a name. It’s pretty straightforward and its simplicity makes it easy to stick to. You don’t miss money that never lands in your spending account.

Of course, your success with this technique depends on your ability to avoid using your savings accounts as a piggy bank, though that will be the case with almost any system. And if you’re prone to treating your credit lines like Monopoly money, you might need something more restrictive. For me, this one is the winner. It helps me save and lets me spend without any guilt.