Budgeting methods explained: 50/30/20, zero-based, envelope, pay yourself first and values-based

No budgeting method is best for everyone. The right one depends on how you're paid and how much detail you'll keep up with.

This post covers five common budgeting methods. For each one, you'll see how it works, who it fits, and how to run it when your income arrives in paychecks instead of on the 1st of the month. Each section links to a longer guide.

First, a note on paychecks

Most budgeting methods are written for a calendar month. Plenty of people aren't paid once a month. They're paid every week, every other week, twice a month, or whenever a client pays.

Any method on this list works better when you apply it to each paycheck. You take one paycheck, split it the way the method says, and cover what's due before the next one. Here's how to budget by paycheck if you want the steps.

1. The 50/30/20 rule

Elizabeth Warren and Amelia Warren Tyagi laid out this split in their 2005 book All Your Worth. You divide after-tax income into three groups:

• 50% to needs, like housing, utilities, groceries, insurance and minimum debt payments
• 30% to wants, like eating out, hobbies and streaming
• 20% to savings and extra debt payments

It fits people who want a simple target and don't want to track every category. It's a weak fit if your needs already take far more than half your pay, because you'll miss the 50% target from the start.

By paycheck, apply the split to each check. A $2,000 paycheck becomes $1,000, $600 and $400. Full guide: the 50/30/20 rule for busy families.

2. Zero-based budgeting

You give every dollar a job before you spend any of it. Income minus everything you assigned equals zero. Savings, bills and spending all get a specific amount.

It fits people who want full control and will check in often. It takes more time than 50/30/20, especially at the start.

By paycheck, you zero out each paycheck when it lands, covering only what's due before the next one. That avoids the monthly version's problem of assigning money that hasn't arrived yet. Full guide: zero-based budgeting, one paycheck at a time.

YNAB and EveryDollar are both built around this method. If you like the method but not the learning curve, here are some simpler, cheaper YNAB alternatives.

3. The envelope system

You split your spending money into envelopes, one per category. You spend each envelope only on what it says. When it's empty, that spending stops until the next fill. The original version used cash. You can also run it digitally.

It fits people who overspend in a few categories and need a hard limit they can see. It's less useful for bills, since you likely pay those by transfer anyway.

People have always filled envelopes on payday, so this method is already paycheck-based. Full guide: how the cash envelope system works. If you want an app for it, here's what envelope budgeting by paycheck looks like in Budgey.

4. Pay yourself first

You move money to savings the day you're paid, before you pay bills or spend anything. Then you spend from what's left of your paycheck without tracking every category.

It fits people whose main problem is that savings never happens. It doesn't help if you're overspending on bills or running short before payday, because it doesn't plan the rest of the paycheck.

By paycheck, it's one automatic transfer the day after each payday. Pair it with a quick check of your bills so the transfer doesn't leave you short. Full guide: automating savings on payday.

5. Values-based budgeting

You decide what you care about most and spend freely there. You cut hard on things you don't care about. It sets no numbers. Before each purchase, you ask whether it matches what you care about.

It fits people who already cover their bills and save, and want spending to match their priorities. It's hard to use alone if money is tight, because it doesn't set limits.

By paycheck, pick one or two "spend here" categories and fund them first after bills and savings. Cut the rest.

How to pick one

You can combine them. One combination is to pay yourself first, then use envelopes for the spending categories where you overspend. Another is to use 50/30/20 as a target and zero-base inside each group.

Start with one. Run it for three or four paychecks before you decide it doesn't work.

Methods for specific situations

A few situations need their own approach on top of whichever method you pick.

• Irregular income. Base your budget on your slowest months and keep a cash buffer. Here's how to budget with irregular income.
• Big costs that come once or twice a year. Set up sinking funds and fund them every payday.
• Paying off debt. Choose between paying the highest interest rate first or the smallest balance first. Here's debt avalanche vs snowball.

Running a method in an app

You can run any of these on paper. An app does the math and shows you where you stand before you buy.

Budgey is an app that plans each paycheck. The budget period runs from payday to the day before the next payday. You set categories however your method needs them, Auto builds the period from your real money once you connect a bank, and the top number is what's left of your paycheck. Core is $5/mo or $20/yr with live sync for 1 bank and shared budgets. Plus is $10/mo or $100/yr for 2 or more banks or budgets.

FAQ

What is the easiest budgeting method for beginners?
The 50/30/20 rule. It's three numbers, and you don't have to track every category.

Which budgeting method saves the most money?
The one you keep doing. Pay yourself first is the most direct if saving is the goal, because the money moves before you can spend it.

Can I switch methods?
Yes. Switch at the start of a new paycheck so you're not running two systems on the same money.