4 budgeting strategies: Which one is right for you?

Every year, a top priority for millions of Americans is saving more money. In fact, nearly half (49%) of Americans want to save more cash, and even add it to their list of New Year’s resolutions. The idea sounds great in theory, but then life happens. Between bills and everything else you have to pay for, it’s really hard to follow through with the goals you set. Take a moment to check in with your finances — Are you where you want to be? If not, it may be time to reexamine how you’re managing your money. We have some methods that might help.

Budgeting might seem like a hard (or scary!) topic, but in reality, it just helps you understand how much money you have coming in, where it’s going, what your expenses are, and how you can improve on your spending. Keeping track of your money can also help you reach a goal you may have, like adding to a vacation fund or emergency savings account for unexpected expenses. As the old saying goes, “What gets measured, gets managed.”

There are so many different types of budgeting strategies, from simple and easy to execute, to far more detailed plans that require more upfront work and ongoing tracking and maintenance. These methods are a long way from when people used to keep their money under their mattress or in a sock drawer. When trying to decide what budgeting method is best for you, you’ll need to decide how much time and effort you can really commit to, not only in creating the budget, but also by tracking it every week. Methods like the 50/30/20 method or the pay-yourself-first budget take a little less time than things like the zero-based budget or envelope system.

Like anything new, most people are usually super excited and motivated to start budgeting — and it can be easy to get discouraged when obstacles like emotional spending, inconsistent tracking or unrealistic expectations arise. That’s why it’s so important to determine which money management style will be best for you, so that you can stick to it long term. Let’s discuss some of the most popular budgeting strategies, who they’re best for and what they entail, so you can decide which one will be most beneficial for you.

Best for: those who want to take control of their money, but don’t need to know where every dollar goes, specifically.

To describe this method simply, you’ll break your income into three categories — allotting 50% for needs, 30% for wants, and 20% for savings. This is a great method if you’re looking for a simple way to reach your financial goals.

Needs are expenses that you absolutely have to pay, like your rent or mortgage, car payments, groceries, insurance, health care, credit card payments, student loans, and utilities. Wants are optional expenses like subscriptions to streaming services, getting your hair done, nights out with friends and other non-essentials.

Once you’ve put 50% of your income toward your needs and 30% toward your wants, you’ll have the remaining 20% going toward your savings. We know 20% can be tough to save. This is particularly true for families when kids are constantly growing out of their sneakers and need money to pay for school activities. That’s why the 50/30/20 budget rule is so helpful — it brings awareness to how you spend money, so you can figure out opportunities to cut expenses and save more. You can learn more about the 50/30/20 budgeting method here.

Best for: people looking to increase their savings without investing too much time and energy into budgeting

For this money management method, you’ll need to decide how much you want to save each month. For example, let’s say you want to save 10% of your income. You’ll then need to set up and automate your account so that every time your paycheck is deposited, 10% will be automatically transferred to the savings account that you chose. Most banks, including Citizens, have this capability. The rest is used for expenses or whatever else you’d like. The nice part about this budget is that the money is out of sight and out of mind — just set it and forget it! You don’t have to worry about actually “doing” anything. Once you feel good with the amount that you initially budgeted to save, you can always increase it.

Best for: serious budgeters who want to know the details of where every dollar is going

With this budget, every month should zero out (so you have $0 left) between the money coming in and money going out. It’s a little complicated, so let me break it down for you:

The whole purpose of this budget is to give every dollar a purpose. First, you’ll start by listing your take-home pay for the month. Then, you’ll list all your expenses based on the past few months of your bank statements, receipts and credit card payments in order to get the most accurate figures. It’s up to you if you want to list them all out individually or lump the expenses into categories. You’ll want to start with the most important ones like housing, food, utilities, and transportation. After that you’ll list out your other categories — things like entertainment, subscriptions, gifts, and other incidentals. You’ll also want to consider what you want to “spend” on things like your short- or long-term savings goals. What’s left over at the end can be used for something else or added to your savings, but it must be assigned somewhere, so that at the end, you’re left with $0.

Best for: people who want to get a strong grasp on their money and how their dollars are spent, and are also willing to put the time and energy into managing their various “envelopes”

The envelope system is a little outdated, but worth mentioning because we can put a 21^st century spin on it. Originally this budgeting method involved taking physical envelopes and labeling them with a name and a dollar amount based on monthly spending categories like rent, utilities, and savings. Envelopes were also created for things like gas, entertainment, or a vacation fund. Each time you got paid, you would withdraw cash to put the appropriate portion in each envelope until you spend it.

For example, let’s say you get paid twice a month. If your monthly utilities cost $300 a month, then you’ll add $150 per paycheck to your “utilities” envelope.

Money is personal for everyone — and so is choosing a budgeting method. That’s why selecting the best option for you and sticking to it is crucial for savings success. Citizens is here to help you reach your financial goals — whether it’s saving $1,000 in your emergency fund, a new car, or to go on a family vacation. If you’re ready to take that next step, head to our savings page to see what account will work best for you.