Which budgeting method is best for you?


For customers

With the cost of living on the rise,1 knowing how to budget effectively has never been more important. Luckily there are plenty of different budgeting methods to choose from, whether you’re just testing the waters or feel ready to seriously crack down on your spending. Here’s some of the most common methods to help you stay in control of your finances.

5 common budgeting methods

1. Traditional budget

The traditional method is where a lot of people begin their budgeting journey. It asks you to create a list of your income and outgoings to get a detailed picture of where you stand. From there, you can set goals for how much you want to spend and save in different categories. For example, you might decide you want to pay more each month into a savings account, or that you want to spend a little less on eating out or buying clothes so that you can save for a holiday.

It can take a few months of tracking to get an accurate idea of your expenses, but it can be a great way to get a full overview of your financial situation.

2. 50-30-20 budget

This method divides your spending into needs, wants and goals – and asks you to dedicate a percentage of your income to each. The split is typically 50% towards needs, 30% towards wants and 20% towards goals – which could include savings or debt repayments. The difficulty here can be defining ‘wants’ over ‘needs’. For example, food is a ‘need’, but the weekly takeaway can go into the ‘want’ category and could be cut back on if necessary.

This method can be flexible. Some people like to swap the percentages around depending on their aims – spending less on their wants and more on their goal of paying down debt, for example.

3. Envelope budget

For those who really need to be strict with their spending, the envelope budget could be worth considering. The idea is that you have an envelope (either physical or digitally) for each spending category – such as food or clothing – and put money in each of them. You can only spend what’s in each envelope, and when it runs out, that’s it for the month.

Traditionally, the envelope budget was a purely cash-based system with physical envelopes, however in recent years the approach has been adopted digitally as we become more of a cashless society. Common ways to do this digitally include splitting money into different bank accounts or using budgeting apps such as Goodbudget.

The caveat to envelope budgeting is that your major expenses need to be paid separately. But for discretionary spending, being able to physically see where the money’s going can be a great motivator to cut back.

4. Pay-yourself-first budget

Otherwise known as the 80-20 or debt repayment budget, the pay-yourself-first budget focuses on you setting aside money for yourself first and then spending the rest however you like. This means putting 20% of your monthly income into savings, a retirement fund or using it to pay down debt – whichever would have the most benefit. From there, you’re free to spend the rest as you normally would, including covering your regular bills and other expenses.

5. Zero-based budget

The zero-based budget takes the traditional method of itemised budgeting to the next level. In this approach, you allocate every pound of your monthly income towards a different purpose or ‘job’ – such as paying for the mortgage, covering household bills, or spending on yourself. If you overspend in one area, you have to reduce your spending elsewhere, so it balances out. For example, if your bills are £20 more than you expected, you could spend £20 less on eating out that month. Once everything’s accounted for, you’ll have zero left over – hence the name.

How can I choose the right budgeting method for me?

With so many different budgeting methods available, it can be difficult to know which one to pick as there’s no one-size-fits-all solution. In many cases, it could be worth combining several methods to find the technique that works for you but there are also a few considerations that can help you decide.

You could start by assessing your finances to get a baseline – ideally by tracking your expenses as in the traditional method – and from there you can better understand your priorities and the areas you want to focus on. For example, if long-term saving is your goal, you may find that the pay-yourself-first budget works best, particularly if you modify it to increase the percentage you save.

How much effort you want to devote to budgeting can also have an impact – some methods can be more time-consuming than others. Your income could also affect your decision.  

Don’t overlook the tools that can help – there are many budgeting apps available that can help you get a handle on things. Our financial wellbeing hub also has a wealth of resources to help you skill up financially.

Ultimately, the method that works best, is the one you feel you can stick to – so don’t be afraid to try a few out to see which one clicks.


1The cost of living, current and upcoming work: March 2022. Data source, Office for National Statistics, March 2022.