Budgeting strategies: Which is best for you? 

There’s no one-size-fits-all approach to smart spending and saving. But most financial experts agree you should know how to set a budget. There are many budgeting strategies out there, so how do you know which is best for you? Take a look at these six popular budgeting strategies throughout to see which method works best for your lifestyle.

1. Proportional budgeting

Proportional budgeting is one of those most common budgeting strategies. Often expressed in numbers, such as the 50-30-20 method, proportional budgeting is when you divide your spending into separate categories. For instance, the 50-30-20 method splits your after-tax income into three categories:

50% for needs, such as housing and groceries

30% for wants, such as entertainment and going out

20% for savings and non-housing debt

Proportional budgeting allows you to be flexible with your budget, and the 50-30-20 method is just one way of doing it. If you want to try one method of allocation one month, you can tweak it to better fit your needs and lifestyle next. 

Another common strategy is the 70-20-10 method, which allocates 70% of after-tax income for living expenses, 20% for savings and investments, and 10% for debt repayment or charitable donations. Yet another is the 3-3-3 rule, which divides your after-tax income into three buckets: savings, wants, and needs. 

What's right for one person isn't necessarily what's right for you, so it's important to find what works best for your situation. 

This strategy is best for: 

People who want to better understand how they spend money.

People who have concrete, time-bound savings buckets they're working towards.

2. Pay-yourself-first budgeting

Think of pay-yourself-first budgeting as the opposite of proportional budgeting — instead of covering your needs and wants, then putting money away, you prioritize adding funds to your savings first. Pay-yourself-first works well if you have a large, years-away goal like buying a house or retiring at a certain age. It's a great option for those who are very focused on saving money.

The pay-yourself-first budgeting style works best if you first analyze your finances to see what you can afford to save. Consider all your needs, like rent, bills and groceries, then calculate the leftover money that you can consistently put into savings after receiving each paycheck. With pay-yourself-first, it’s important not to overextend. Make sure to choose an amount that gives you some flexibility with your spending now — your future self will understand.

With pay-yourself-first, it’s important not to overextend. Make sure to choose an amount that gives you some flexibility with your spending now – your future self will understand.

This strategy is best for: 

People who are focused on long-term savings goals.

People who need less help meeting everday expenses. 

3. Zero-based budgeting

Zero-based budgeting means every dollar you spend has a predetermined use or meaning that you plan ahead of time. You start with a “zero base,” then add up how much money you’ll need to cover each of your expenses for a set period of time. Add up categories from most important to least important, depending on your own set of values.

Zero-based budgeting can be a good option if you have a fluctuating income. Freelancers and service industry workers that rely on tips can use this type of budgeting to assess how much work they’ll have to do in a set time period to cover all their expenses. Those expenses could be needs, like rent or insurance copays, or wants, like vacations or new clothes — it’s up to you.

This strategy is best for: 

People with fluctuating income, such as freelancers or service industry workers. 

People who prefer planning their spending ahead of time. 

4. Envelope budgeting

If you’re on a tight budget and struggle to control your spending, the envelope method may be worth a try. Essentially, you put cash in an envelope for spending rather than using a credit or debit card. The idea is that you spend less when you see the money physically leaving your wallet.

With envelope budgeting, you deposit cash into envelopes for different categories of spending, and once the money for that month or pay period is gone, you’re done spending in that category. 

Envelope budgeting can be especially useful for visual learners and those on tight budgets. When you see that the money is gone, you won’t be tempted to add more to the wallet or charge things to a credit card. 

This strategy is best for: 

People who struggle with controlling their spending.

People who prefer planning their spending ahead of time. 

5. Values-based budgeting

Values-based budgeting is a more high-level approach to spending and saving: You simply let your life’s priorities dictate where you spend your money. For example, you could value travel more than living in an upscale home or rental. If you're a values-based budgeter, you might choose to live somewhere more affordable with fewer amenities, so you can set aside more money each month for your next vacation.

Values-based budgeting works well for people who think about things from a big-picture perspective. If you have a goal of retiring at 50, values-based budgeting and a tenacious attitude might be enough to get you there, but a more concrete, numbers-based budgeting style might get you there more efficiently.

This strategy is best for:

Long-term planners who prioritize major goals above immediate expenses. 

People who already live frugally. 

6. Automatic budgeting

Automatic budgeting is a set-it-and-forget-it budgeting style that relies on automatic deposits into predetermined accounts. All you have to do is decide how much money goes where, and set up your paycheck to be distributed accordingly. This could be as simple as splitting up deposits between a checking and savings account, or as complex as dividing funds between health savings accounts, Roth IRA retirement funds and more.

Automatic budgeting is a good way to build an emergency fund and contribute to retirement savings without putting too much energy into crunching numbers each month. If you don’t have any specific savings goal in mind right now, there’s nothing wrong with defaulting to automatic budgeting to take care of things. You can even use the U.S. Bank Mobile App to automatically transfer money from checking into savings in order to meet a time-bound goal.

This strategy is best for:

People who don't want to pay too close attention to their budget. 

People with complex finances who don't want to forget about money money each month. 

How to choose the best budget strategy for you 

The right budgeting strategy for you may not be the same for someone else. Before you settle on an option, consider these tips: 

• Track your spending before picking a budget: Before you choose a method, it can be helpful to look over your last few months of credit card and bank statements. Itemize your spending so you understand where your money goes each month. That can inform which method is right for you.  
• Weigh your priorities and habits: Do you want to save for a house or just make sure you’re covering your bills every month? Do you have a hard time keeping your spending under control? Be honest about your habits and accountable about your savings and priorities as they’ll help you find the right budget for you. 
• Try a couple of options: If you’re drawn to more than one budgeting method, try them both out! One month, do proportional budgeting. Then the next month, try zero-based budgeting. You don’t have to stick with a budgeting strategy forever.  

Tips for sticking to a budget strategy 

Budgeting can feel like a challenge or a chore. The most important thing is that you stick with it. These tips can help make it feel less daunting. 

• Use an app: Personal finance apps can connect to your accounts and track your spending automatically. Many have budgeting features that make it easy to see how much you’re spending in each category in real-time, so you can make changes when you need to. The U.S. Bank Mobile App offers robust budgeting and money management tools to help you stay on top of your finances. 
• Automate transfers: You don’t have to fully adopt automatic budgeting to utilize automatic transfers. Most budgeting strategies involve savings goals, and setting up automatic transfers on pay days is a convenient way to hold yourself accountable.  
• Review monthly: Your budget will change based on lifestyle changes, job promotions and many other factors. It’s important to review your budget (and your budgeting strategy) monthly to make sure it’s still serving you well. 

Want to learn more about how to build a budget? Check out more saving and budgeting strategies.

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