7 Budgeting systems (and how to choose the right one for you)
Managing basic aspects of adult life—cleaning, eating well, and budgeting—is crucial. Whether using an app or paper, controlling your finances helps avoid stress and debt. While no single budgeting system fits everyone, using any system is better than none.
Choosing a budgeting system that matches your goals and personality increases your chances of success. A tailored approach helps you stay committed and motivated, making it easier to track spending, save effectively, and meet financial goals.
Regularly reviewing and adjusting your budget ensures it continues to serve your needs, adapting to changes in income, expenses, and priorities. By mastering these essential life skills, you build a foundation for a more organized, healthy, and financially secure future.
Here are seven popular budgeting systems and their ideal users.
01. The 50/30/20 budget
How it works: Divide your income into needs (50%), wants (30%), and savings or debt reduction (20%). Adjust as needed based on your living costs.
Who it’s for: Great for beginners, this simple system helps you see what you can afford. Start here and move to more complex methods as you get comfortable
02. The envelope system
How it works: Also known as ‘cash-stuffing,’ this method uses cash for each expense category (groceries, rent, etc.) in labeled envelopes. Spend only what’s in each envelope.
Who it’s for: Ideal for those who spend mindlessly, it increases awareness and control by using physical cash. An empty envelope signals you’ve hit your budget limit.
03. Pay yourself first
How it works: Also called the 80/20 Budget, allocate 20% of your income to savings and 80% to everything else.
Who it’s for: Perfect for those prone to lifestyle inflation or who dislike detailed budgeting systems. It ensures savings and requires minimal tracking.
04. Zero-based budgeting
How it works: Allocate every dollar or other currency of your income to a specific purpose, leaving no unassigned money. Adjust expenses to match your income exactly.
Who it’s for: Ideal for those who struggle with tracking spending or find percentage-based budgets unworkable. This method ensures full control of your finances.
05. PERK method
How it works: Developed by Robert Pagliarini, the PERK method categorizes expenses into four groups:
- Postpone: Delay non-essential purchases.
- Eliminate: Remove unnecessary expenses.
- Reduce: Cut back where possible.
- Keep: Maintain essential or important expenses.
Who it’s for: Ideal for those who struggle to stick to budgets, it encourages regular financial reviews to correct spending patterns. It also complements other budgeting systems.
06. Kakeibo Method
How it works: This ancient Japanese system promotes mindful money management through four categories:
- Survival: Essential expenses.
- Extra: One-time costs.
- Optional: Non-essential items.
- Culture: Enriching experiences.
Who it’s for: Ideal for those who find other budgets too rigid. It encourages thoughtful spending without feeling restricted.
07. Values-based budget
How it works: Identify your priorities and allocate money accordingly, adjusting as your priorities change.
Who it’s for: Ideal for those who find other budgets too rigid. It balances funding priorities with essentials, offering flexibility.
Why is budgeting Important?
Budgeting is a practical tool for managing your finances and achieving long-term goals. It helps identify areas where you can curb spending, especially if you struggle with impulse purchases or retail therapy. A budget enables better decision-making, reducing worries about overspending and debt.
Regardless of your income, budgeting is essential—it’s about how much you save and invest, not just how much you earn.
7 Budgeting systems (and how to choose the right one for you) conclusion
Your budget, like your overall finances, is unique to you. It should be realistic, achievable, and aligned with your goals and values. Remember, managing your personal finances with the right budgeting system is a lifelong process, so ensure your plan works for you.
Be flexible and willing to adjust your budget as your circumstances and priorities change. Consistency and regular reviews will help you stay on track, making sure your budget continues to support your financial well-being and long-term aspirations.
