We get it: Following a budget isn’t your favorite thing to do with your money. Especially when there are so many fun ways to spend it. But right now, creating a budget may be one of the best ways to support your financial security and peace of mind.
All budgets involve setting priorities and making decisions that affect how and where you spend your money. But budgets aren’t one-size-fits-all.
Choosing the best money management approach depends on your personal circumstances, from your current income and outstanding debt to your lifestyle and personality. Let’s explore some of the most popular budgeting strategies.
- 50/30/20 Budget
Based on a longstanding rule of thumb from the world of personal finance, this approach says you should allot the majority of your take-home pay (50%) to essentials like your rent or mortgage bill, utilities, and groceries.
The next 30% goes toward optional expenses like ordering takeout or subscriptions to streaming services. The remaining 20% goes to savings (or paying off outstanding debt like large credit card balances).
Best for: "Big-picture" people who want to keep things simple and avoid budgeting for every single expense.
Potential drawbacks: Based on your income and expenses, the 50/30/20 breakdown may not be realistic (or may stop you from saving as much as you could). You’re free to adjust the percentage you spend on each category based on your needs.
- Zero-Based Budget
A zero-based budget gives every dollar a job. It involves setting individual spending limits for each expense, from gas and groceries to shoe shopping and saving. Taken together, your allotments for each budget category add up to your exact monthly income ("zeroing out" your funds, so to speak).
Obviously, no one's budget can be this precise. Expenses can be unpredictable and vary by season.
This budget allows you to reassign unspent funds to other categories. So if you budget $500 for utilities but only spend $400, you can roll over the remaining $100 to savings or another budget category (maybe you need more money to pay for your kids' summer wardrobe?).
Best for: People who are detail-oriented and take the time to plan out their spending. If you have limited income or are working to pay down debt, this gives you a clear roadmap to follow.
Potential drawbacks: This one takes time and effort, and it’s more challenging for those whose income varies from month to month. But, a good budgeting app or budget worksheet makes it easier to identify and track expenses.
- Envelope Budget
This one's old-school, and it's exactly what the name implies: Each month, you set aside the exact amount of money you can spend on each budget category in its own envelope, in cash.
Best for: People who want to better manage their spending by setting very tangible spending limits.
Potential drawbacks: Holding onto cash is less safe than relying on a debit or credit card, so you'll want to be careful about where you store your pre-budgeted money. That said, if you’ve struggled with credit card debt or debit card overdrafts, this system may help you adopt better spending habits, cut debt, and enjoy more financial control.
- Pay Yourself First Budget
This is the simplest approach of all, and it makes saving the top priority. Instead of setting aside money that’s left over after covering all your other expenses, you add your money to savings first (at the beginning of the month).
Setting up automatic transfers from checking to savings can make this budget effortless. Just choose what percentage of your income you'd like to set aside, and the money that's left over will cover all your essentials and nonessentials after that.
Best for: People with a higher income who primarily budget to save and don't need to track expenses.
Potential drawbacks: This isn't for people who need to monitor their spending to ensure all their bills get paid. It's best for those with a comfortable amount of disposable income who want a simple way to keep growing their savings.
We're Here to Support YOUR Financial Well-Being
For more helpful resources, visit Dover Federal's P3 Financial Literacy Hub, which includes a Budgeting Tool you can use to create your own personal budget with just a few clicks.