Four Common Budget Types

Have you tried one or more of these four common budget types? Learn more about zero-balance, 50/30/20, envelope and anti-budgets.

1. Zero-Balance (Traditional) Budget
2. 50/30/20 Budget
3. The Envelope Budget
4. The Anti-Budget

Learn more about zero-balance, 50/30/20, envelope and anti-budgets and follow the links to try out a new method. 

The Zero-Balance (Traditional) Budget

Zero-based budgeting is a traditional budgeting method that focuses on expenses, savings and debt payments. In a zero-based budget all the money that you earn is allocated to one of these categories so that your income minus expenditures equals zero. The expectation is that you will repeat the budget each month with very little deviation. 

A zero-based budget assumes that your income, spending and saving will remain relatively constant from month to month. 

May be good for people who:

• are new to budgeting, who need a place to start.
• do not experience large fluctuations in income or spending each month.
• want to have clear spending and saving targets.

May not be ideal for people who:

• have tried unsuccessfully to use this budget type in the past.
• experience large fluctuations in income or spending each month.
• need more flexibility in their budget. 
• want to try another method.

The 50/30/20 Budget

The 50/30/20 approach is based on a needs, wants and savings hierarchy. Each category is assigned a target percentage of your income. In order to satisfy the budget all of your expenses must be sorted into one of these three categories, and when added, remain below the target threshold. 

A Typical 50/30/20 Budget Breakdown:

A 50/30/20 budget can help answer the question “can I afford x.” Simply add the expense to the proper category and if the category total stays below the desired threshold, the answer would be, “yes.”

Determining which expenses are needs and wants can be a gray area for some people. Even so, the method can easily help you evaluate future needs once you have successfully sorted all of your expenses. 

May be good for people who:

• need to regularly evaluate the affordability of irregular expenses.
• want to simplify their budget by only focusing on three large categories.
• would like to evaluate their current spending habits against the 50/30/20 threshold.
• have irregular income and need to reevaluate their spending habits monthly.

May not be good for people who:

• have values or needs do not align with these budget percentages.
• are low-income or earn below the poverty threshold in their area.
• have a high-income and could allocate more than 20% to savings.

The Envelope Budget

The envelope budgeting system prevents overspending through the use of cash envelopes that allocate a specific amount each month for certain spending categories. 

In order to use envelope budgeting, first establish which spending categories from your budget could benefit from envelopes, and then set spending limits based on your needs. Each category envelope is filled with cash at the beginning of the month.

The method is somewhat old-school and proponents point to the tactile nature of the method as one of its best features because touching the money reinforces it as a finite resource. Nowadays there are now envelope budgeting apps that will simulate the system with a few clicks. 

The envelope method may work best when paired with another method, like the traditional or 50/30/20 budget which can help you set spending limits for your envelope categories like: groceries, shopping, clothing, dining out and more. 

The strength of envelope budgeting is that it forces you to stay in touch with spending habits.

May be good for people who:

• have balanced a budget in the past.
• need a little help controlling spending in a few categories.
• easily lose track of how much they spend.
• are inclined to overspend when using a debit card.

May not be good for people who:

• are prone to losing cash.
• do not know how to set appropriate spending limits for each envelope.

The Anti-Budget

The anti-budget is a concept created by personal finance blogger Paula Pant of Afford Anything. With this method you follow three straightforward rules: 

1. pay your savings
2. pay your bills
3. use whatever is left any way you want 

The method does away with target spending or tracking categories and is considered a straightforward alternative for those who have struggled to maintain a traditional budget in the past. It is very similar to the “pay yourself first” budget method.

The anti-budget prioritizes your financial responsibilities while also giving you ample freedom to spend the money you have leftover after the essentials are covered. 

Anti-budgets offer a lot of freedom for those who have trouble focusing on or maintaining other budgeting methods. However, the system may not be sustainable for those who live paycheck to paycheck with little to no wiggle room in their income for recreational spending or those who have unmanageable debt and have not implemented a payoff strategy. 

May be good for people who can:

• easily automate their bill payments and savings.
• earn enough income to easily cover their bills each month.
• afford greater spending freedom without jeopardizing their savings goals.

May not be good for people who:

• need to pull back on spending to save for a specific goal.
• cannot automate their bill payments because they live paycheck to paycheck.
• have unmanageable debt or persistent impulse spending problems.
• earn income on an irregular schedule. 

Other Budgeting Resources

• Roommate Budget Spreadsheet
• Back to School Budget Planner
• Budgeting for Teens – Calculator
• What Should My Food Budget Be?
• Holiday Budgeting Spreadsheet
• Are Budgeting Myths Holding You Back?
• 7 Tips to Get the Most Out of Your Holiday Budget