Managing finances can feel overwhelming, but the right budgeting method can make it much easier. Choosing the best budgeting system depends on your household’s financial goals, spending habits, and level of discipline. The key is to find one that you can stick to consistently.
With so many options available, you can find the technique that best fits your household’s needs and spending habits. Whether you prefer a detailed approach or a simpler method, one of the following methods can help you manage your finances effectively in 2025 and beyond.
Percentage-Based Budgeting
Percentage-based budgeting methods provide a structured yet flexible approach to managing finances by allocating specific portions of your income to various categories. These methods help you maintain a balanced budget and ensure that all aspects of your financial life are covered.
A general percentage-based budgeting approach allocate specific percentages of income to various categories based on individual needs and goals. For example, a household with a $95,000 annual income:
- Housing: 30% = $28,500
- Transportation: 15% = $14,250
- Groceries: 10% = $9,500
- Entertainment: 10% = $9,500
- Savings: 20% = $19,000
- Miscellaneous: 15% = $14,250
Percentage-based budgeting methods are best for those who want flexibility in creating a budget tailored to their specific financial situation and priorities.
1. The 50/30/20 Rule
The 50/30/20 rule is a straightforward budgeting method that divides your income into three categories:
- 50% for needs (essentials like housing, utilities, groceries, transportation, and insurance)
- 30% for wants (non-essentials like dining out, entertainment, hobbies, and vacations)
- 20% for savings and debt repayment (emergency fund, retirement accounts, investments, and paying off debt)
For a household with a $95,000 annual income:
- Needs: $47,500
- Wants: $28,500
- Savings/Debt Repayment: $19,000
This method is great for those who want a simple, balanced approach to budgeting without having to track every single expense. It’s particularly useful for middle-income households who have a mix of fixed and variable expenses.
2. The 70/20/10 Rule
Similarly, the 70/20/10 rule allocates your income into three categories:
- 70% for living expenses (rent/mortgage, utilities, groceries, transportation)
- 20% for financial goals (savings, investments, debt repayment)
- 10% for fun (leisure activities, dining out, hobbies)
For example, a household with a $95,000 annual income:
- Living expenses: $66,500
- Financial goals: $19,000
- Fun: $9,500
This method may be better for those on a low income who need to spend less on fun than those with more expendable earnings.
3. The 80/20 Rule
This method is a simplified version of the 50/30/20 method that focuses on just two categories:
- 80% for all spending (both needs and wants)
- 20% for savings and debt repayment
For a household with a $95,000 annual income:
- Spending: $76,000
- Savings/Debt Repayment: $19,000
This method can be ideal for those who find detailed budgeting tedious and prefer a simpler approach while still prioritizing savings.
Budgeting That Focuses on Savings
Budgeting methods that focus on savings prioritize setting aside money before addressing other expenses. These methods are ideal for individuals who want to ensure they meet their savings targets, whether for specific goals or general financial security.
4. Pay Yourself First
With the Pay Yourself First method, you prioritize saving a set amount of money before allocating funds to other expenses. Automatically transfer a percentage of your income to savings before paying bills and spending on wants.
For a household with a $95,000 annual income, decide to save 20% first:
- Savings: $19,000
- Remaining for expenses: $76,000
This approach may be good for people who have trouble saving money but want to ensure they meet their savings goals before spending on other things. This method is not too dissimilar to the 80/20 method but prioritizes savings over other expenses, making it ideal for those focused on saving for something specific.
5. Reverse Budgeting
Reverse Budgeting also focuses on setting and achieving savings goals first. Likewise, you decide how much you want to save, then allocate the remaining income to expenses.
For a household with a $95,000 annual income, if you aim to save 25%:
- Savings: $23,750
- Remaining for expenses: $71,250
This may be ideal for people with specific savings goals, such as buying a house or saving for retirement, and who want to ensure they meet these goals before spending on other things.
6. The 60% Solution
This method divides your income into different percentages for committed expenses, savings, and fun:
- 60% for committed expenses (essential spending like housing, bills, food)
- 10% for retirement savings
- 10% for long-term savings (emergency fund, big purchases)
- 10% for short-term savings (vacations, holiday spending)
- 10% for fun (dining out, entertainment)
For a household with a $95,000 annual income:
- Committed expenses: $57,000
- Retirement savings: $9,500
- Long-term savings: $9,500
- Short-term savings: $9,500
- Fun: $9,500
The 60% Solution can be ideal for those who want a more detailed allocation of their savings, focusing on different types but still ensuring fun spending is included.
7. The Anti-Budget
Instead of tracking every expense, focus on setting aside a certain amount of savings each month. Spend the rest as you see fit.
For a household with a $95,000 annual income, decide to save 20% first:
- Savings: $19,000
- Remaining for expenses: $76,000
People who dislike detailed budgeting and prefer a more relaxed approach to managing their finances may enjoy this method.
Hands-On Budgeting Methods
For those who prefer a detailed and hands-on approach to managing their finances, the Zero-Based Budget and Envelope System offer structured, disciplined methods to keep spending in check. These methods are ideal for individuals who want to maintain tight control over their finances and track every dollar.
8. Zero-Based Budget
With a zero-based budget, every dollar of income is allocated to specific expenses, savings, or debt repayment, so the budget balances to zero. This requires tracking every expense.
For a household with a $95,000 annual income, you would plan out expenses down to the last dollar. For example:
- Housing: $25,000
- Utilities: $5,000
- Groceries: $10,000
- Transportation: $8,000
- Insurance: $5,000
- Dining out: $4,000
- Entertainment: $4,000
- Savings: $19,000
- Miscellaneous: $15,000
This method often works well for detail-oriented people who want to have complete control over their finances and are willing to track every expense.
9. Envelope System
The Envelope System uses physical or virtual envelopes to allocate cash for different spending categories, promoting mindful spending by limiting expenses to the amount in each envelope. Once an envelope is empty, no more spending in that category until the next period.
For a household with a $95,000 annual income:
- Groceries envelope: $10,000
- Entertainment envelope: $4,000
- Gas envelope: $3,000
This method may be best for those who prefer using cash and want a tactile, visual way to manage their spending. This method is excellent for controlling discretionary spending and is particularly suitable for individuals who receive cash tips or avoid using electronic means.
However, the cash envelope method can also be done electronically with virtual envelopes or pre-paid cards, which can be easier in the modern day when everyone uses plastic.
By Admin –
