5 Simplified Budget Guidelines To Reclaim Control Over Your Money

Simplify your planning and budgeting process with these best practices.

counting money

Since the onset of the COVID-19 pandemic, its economic and social ramifications have rippled throughout the world. The number of people that live paycheck-to-paycheck or have no savings continues to grow. Meanwhile, inflation and interest rates are sky high.

During these uncertain times, consciously budgeting for your financial future is more important than ever. Believe it or not, we all have a budget. For some people, their income is their budget. For others, they have a strict framework or program they follow. I’ve been actively tracking my expenses down to the dollar over the past couple of years to reach my goal of having a net worth of $100K and saving for a home down payment. But, regardless of our financial situations, we all need to take charge of our finances and ensure that we can ride out all the tough times ahead together.

budget guidelines

Key Takeaways

  • We’ll cover 5 commonly used budget guidelines, including the 50/30/20 budget rule, 80/20 budget, and more.
  • If you are a beginner or want to take a lax approach to your budgeting process, use the 50/30/20 rule, which separates your finances into 3 simple categories.
  • If you struggle with saving money or spending within your limits, use the 80/20 budget or envelope system to make sure you always pay yourself first.
  • If you are more advanced or want to meticulously track your spending, use the zero-based budget or value proposition budget. Both are great options to make sure you know where every dollar of your income is going.
  • Each budget process has its benefits and costs. Depending on your objectives and personal circumstances, you can mix and max different budgetary guidelines or choose one to use.

1. 50/30/20 Budget Rule

50/30/20 budget

Popularized by Elizabeth Warren in her book, All Your Worth: The Ultimate Lifetime Money Plan, the 50/30/20 is a simple and intuitive way to build a financial budget. Think of the 50/30/20 as a rough guideline or template to help you manage and save money. It is not a hard-and-fast rule and does not track your budgeting process down to the wire for you.

This particular rule divides your after-tax income into 3 categories:

  • Needs: 50% of your income
  • Wants: 30% of your income
  • Savings and Debt: 20% of your income

Let’s dive into what each category means, starting with needs.

Needs – Needs are things you absolutely cannot live without – your “must-haves.” They include rent or mortgage payments, groceries, healthcare, insurance, utilities, etc. To reiterate, these are expenditure types that you can’t avoid and are necessary for your survival.

The “needs” category does not include any extras in your life, such as Starbucks, entertainment, subscriptions, vacations, etc. Per this guideline, you should spend roughly half of your take-home income to cover all your needs. If you are spending more than 50%, it may be time to cut down on some expenses or downsize your lifestyle. For example, if you live alone, consider getting roommates to lower the cost of rent. If your family has multiple cars, consider downsizing to 1 to 2 cars instead or taking public transportation more often.

Wants  Next up on the list is wants. That includes anything you can reasonably live without, such as video games, new clothes, plane tickets, streaming services, amusement parks, etc. Whatever you consider as fun or has entertainment value falls in this category.

If we look more closely at our “wants,” they are all optional and are basically all the little things we spend money on that bring joy. For example, I used to have a 24 Hour Fitness membership to supplement my running schedule. However, over the last few years, I bought my own treadmill, resistance bands, and foam rollers, which eliminated the need for my gym membership. I also eat at home more often nowadays instead of ordering takeout every meal, which has helped me significantly increase my savings rate.

Savings and Debt  Finally, there are savings and debt. In terms of savings, this encompasses retirement accounts, emergency funds, and investment accounts. Debt would include anything that has relatively high interest attached to them, such as credit card debt.

We recommend keeping 3-6 months of your expenses in an emergency fund as a general rule of thumb. While the amount you decide to stash away will largely depend on your personal circumstances, having a bit of cash on the side will allow you to have the bandwidth to accommodate any unforeseen expenses. Currently, I set aside roughly 10% of my paychecks each month into a high-yield savings account for emergencies.

Read more on this topic here.

Using the 50/30/20 Budget Rule

The 50/30/20 is a way for you to become aware of how much you are spending and proactively limit yourself from overspending and under-saving. There are several steps you can take to put it to practice.

First, you should calculate your monthly income. How much are you making after taxes? That will be the amount you use for this budgetary guideline. If you have an employer-sponsored retirement plan, such as a 401(k), make sure to include the amount you are investing into the savings category.

Next, group all your expenses into the 3 categories of needs, wants, and financial goals. Once you do this, calculate how much you are spending in each category. Then, double-check if you are expensing the ideal amount on each one. If you are overspending on your needs or wants, figure out ways to cut down on expenses under those categories. For example, if you currently spend 70% of your money on needs, you should look more closely at individual items in this section and cut back wherever possible.

Lastly, once you’ve crunched all the numbers, keep track of your monthly expenses and adjust where necessary. You do not need to follow the 50/30/20 budget rule religiously. It’s more important to tailor it according to your financial situation. If you have a lot of high-interest debt, it may make more sense to prioritize that, thus increasing your 20% allocation for savings. Look closely at your budgeting goals and objectives to align them with these spending categories.

2. 80/20 Budget

80/20 budget

The 80/20 budget is a simplified version of the 50/30/20, but it takes a “pay yourself first” approach to the budget process. Instead of setting aside money after all your expenses get paid, you put 20% of your after-tax income immediately into your savings and investments accounts before spending the rest, or 80%. This rule is an easy way to reach your financial goals as it ensures that you are always saving money.

To apply this to your finances, first multiply your take-home pay by 20%, which is how much you should set aside for your savings and investments. For example, if you get $1,000 for each paycheck, put $200 directly into your savings and investment accounts. You will then have $800, or 80% left, to cover all your needs and wants, including rent, utilities, gas, entertainment, etc.

To make this easier for yourself, schedule a recurring automatic withdrawal from your bank account. That way, when you get paid, your bank will automatically deposit 20% of your paycheck into a savings or investment account of your choice.

For people who don’t want to have a rigid structure or constantly track their spending, the 80/20 budget is a great way to get started. The plan is simple to follow, easy to maintain, and allows for flexibility. With this plan, you do not need to identify all your needs and wants line by line, which can be pretty subjective from person to person anyways.

However, that can also be considered a drawback as it leaves a lot of room for uncertainty and discretionary spending. Because you are not actively tracking your categories of expenses, it’s much easier to overspend on various spending buckets without realizing it.

If you are a beginner, we recommend using this plan as a springboard for your financial planning process rather than as the endpoint. Think of 20% as the minimum you should save rather than the maximum. If you can save more than 20%, push for a 70/30 savings rate and then try escalating from there.

The more you save and invest, the larger your nest egg will be, which will give you more flexibility and opportunities in your financial future. If you aggressively save and invest early on, you can use that money in the future to buy real estate, start your own business, take more career risks, retire earlier, etc.

3. Envelope System

envelope system

Compared to the 50/30/20, the envelope system is a much more old-school and hands-on budgeting approach. As the name implies, you are essentially putting spending limits on various categories. The “envelope” portion refers to physically putting cash into envelopes and marking them with a particular expense category, such as groceries, rent, restaurants, entertainment, etc.

The goal of the envelope system is to put a lid on your spending habits. By stashing a set amount of cash into each envelope, you will know exactly how much you spend in each category every month and how much you have left at the end of the month. If you tend to overspend in a specific category, such as restaurants, having this system forces you to spend less.

Using the envelope system will keep you on track and enforce discipline. Once you spend all the cash in each envelope, that’s it for the month. By aggressively sticking to only the amount in each envelope, you can hold yourself accountable and make it less likely for you to overspend.

This strategy is a common practice when it comes to gambling. Let’s say that you are in Las Vegas and plan to have a gambling budget of $300 in cash. To ensure that you stick to your allotted amount, you would withdraw $300 in cash, stick it in an envelope, and only play with that amount.

While this wouldn’t necessarily make sense to apply for other expense categories, such as a mortgage payment or car payment, there are plenty of digital envelope apps that can assist you in marking expense category data and putting a spending cap on them. Currently, I have several expense categories set up in Mint that I use as my digital envelopes. I’ll check my account a couple of times a month to see if I am overspending in any categories and adjust my spending as necessary.

You can use both the envelope system and the 50/30/20 rule at the same time. Once you budget your expenses under each category of the 50/30/20, you can then put cash in different envelopes that fall under those 3 buckets. Remember, the purpose of doing this is be more mindful of your spending habits and set healthy financial systems.

4. Zero-Based Budgeting (ZBB)

Zero-based budgeting, or zero-sum budgeting, is a time-consuming process created by Peter Pyhrr, a former Texas Instruments account manager, in the 1960s. Under this plan, you start from a “zero base” and then take a strategic, high-level approach to your budget process. Each penny of your income is accounted for as you give a purpose to every expense.

When you use a zero-based budget, you will know exactly how much you are spending and where your money is going. Rather than spending mindlessly every month, use this as a framework to prioritize your most important expenses and gain visibility into your spending habits. That includes figuring out how much to budget for your needs, wants, debt, investments, etc.

The goal here is to follow this simple equation:

After-tax income – Expenditures (Expenses + Savings & Investments) = 0

The best way to demonstrate this would be through a graphic example of zero-based budgeting. Let’s use the real median personal income of the average American as an example. According to PolicyAdvice, that would be $35,977 a year, or roughly $2,998 per month.

Example of a budget

As you can see in the table above, all your expenses get sorted by category. The total monthly income is equal to all of those categories combined, or $2,998. Of course, your budget may not look exactly like this. You should customize the time horizon and spending categories to fit your financial situation.

The downsides of using a zero-based budget are that it can be time-consuming to create and does not work well if you have unpredictable income or variable expenses. With this budgeting plan, you are tracking every last dollar of your take-home pay, which can be difficult if your income fluctuates monthly or if you have frequent unexpected expenses.

I currently use a (very) rough outline of a zero-based budget in my financial planning process. I actively track where every single dollar of my paychecks is going. However, I do not feel the need to justify every individual expense item. I also do not have a hard stop on various categories, such as restaurants or vacations. Because I am in my early 20s, I want to prioritize having fun and enjoying my youth, which is why I do not mind occasionally splurging on experiences. With that said, I compromise by trying to save and invest a significant portion of my income in anticipation of my financial future.

5. Value Proposition Budgeting

value proposition budgeting

Unlike the previous budget methods, value proposition budgeting is geared towards those who want to be very frugal with their money and spending habits. Budgeting involves questioning each spending choice with this simple challenge: “Is this expenditure providing me with any value?”

There are many ways to look at this. For example, would you rather purchase a $6 cup of coffee or make one at home for less than $1? Would you rather buy a brand new car or do some due diligence and purchase a well-maintained used, older car for less? Would you rather wear limited edition designer brand clothing or head to your nearest vintage or thrift shop?

Once you apply these types of questions in your everyday budgeting and spending activities, you will begin to see minor savings stack up over time. Value proposition budgeting is more of a money mindset than anything. Although it may mold you to become a stickler with your money, it is worth adding to your budget guidelines to help you achieve your financial goals.

Over the past few years, I’ve spent a lot of time thinking through my previous expenses and heavily reevaluating them. In college, I used to go to Starbucks or The Coffee Bean almost every day on my way to campus or work, which typically cost $5-6. Now, I mostly make my coffee at home for less than $1 and only occasionally buy coffee at a local coffee shop. I used to buy takeout or dine out almost every meal, which left a massive dent in my wallet. Nowadays, I try to limit myself to dining out on the weekends only.

For me, value proposition budgeting (and budgeting in general) is all about spending intentionally and not keeping with the Joneses. With that said, it’s not necessarily about being as cheap as possible. Nobody wants to be known as a cheapskate or penny pincher.

Find the right balance for you while keeping your big-picture dreams in focus. You do not need to deprive yourself of things that bring you joy to save money or mull over a $10 or $20 expense. Life is way too short for that! Instead, think about the value of the purchases you make and intentionally choose what you want to keep in your life and what you want to give away.

Best Budgeting Apps


Mint is a free app that allows you to connect all your financial accounts, including cash accounts, credit cards, loans, investments, and properties. Once all your accounts get added, you’ll be able to see all your recent transactions in one place and add notes or tags to them. You can also create monthly budgets in specific categories and get alerts when you overspend or whenever there are any suspicious activities on your account. Other notable features include credit card monitoring, goals setting, and financial resources.

Personal Capital

Similar to Mint, Personal Capital allows you to link your cash accounts, investments, and credit cards to the app. However, Personal Capital is primarily an investment app rather than a budgeting app. While you can create monthly budgets, its more powerful features include a net worth tracker, cash flow monitoring, portfolio breakdowns, holdings and allocations recommendations, and retirement planning. What I like about the app is that it displays charts of your net worth and the aggressiveness of your portfolio allocation based on your data.

You Need a Budget (YNAB)

If you are serious about budgeting, YNAB is the perfect choice for you as the platform uses the zero-based budgeting strategy. When you use YNAB, the money will go directly into a “To be budgeted” bucket whenever you get paid. Then from there, you need to assign a purpose to every dollar. If you overspend in one category, you need to compensate by moving money out of another area. For example, if your friend invites you to a fancy dinner party, but you used your budget for restaurants already, you would move money from another category, such as entertainment, into the restaurant bucket.

You can connect all your accounts, set goals, personalize spending categories, contribute to your savings accounts, and access resources such as budgeting tips and free daily workshops. Note that YNAB will cost $14.99 a month or $99 a year (as of June 2023). However, you can sign up for a 34-day free trial and students can get a 1-year subscription for free.


If you want to take a modern approach to the envelope system, Goodbudget is your best bet. With Goodbudget, you can assign your after-tax income to virtual envelopes to keep track of your finances. The app allows you to connect multiple devices to the same account, which is helpful for families who share a budget.

Unlike the apps mentioned above, you have to manually add account balances and assign money to each spending category, or envelope. However, you can create weekly, monthly, and 6-month envelopes, track your debt payoff process, and set aside money for big-ticket expenses.

Bonus: Spreadsheets

If you’re a stickler for details, many of these apps will not be able to do everything you want. For example, I currently use both Mint and Personal Capital, but I have had issues in the past with linking certain investment accounts or accurately tracking all my expenses down to the dollar.

That’s why I started building my own spreadsheet instead. While this process has been much more manual than I would like, I have been adding automation to simplify the process. With spreadsheets, you can go all out in your free time or find a free template online to use. I’ve tried out a few on Reddit before myself, such as this, which I’ve repurposed in my own spreadsheet.

The Bottom Line

We’ve covered several different types of budgetary guidelines. As you begin your budget process, you may discover that you are spending an insane amount of money in various categories or living paycheck-to-paycheck when you really don’t have to.

By reviewing your spending habits consistently, you can become more conscientious of your money and see where you can improve. It’s time to start adding purpose to your income and keep yourself grounded in reality with your expenses! If you spot problem areas, make sure to make adjustments as necessary and keep moving forward.

Ultimately, your financial goals and personal circumstances should be factored into your budget, regardless of which budgeting process you decide to follow. Different budgeting methods will work for different personal finance objectives. Feel free to mix and match the budgeting methods to figure out the best process for you.

*Special thanks to Ryan Chew for co-writing this article.*

We are not financial advisors. The content on this website and our YouTube videos are for educational purposes only and merely cite our own personal opinions. In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a licensed financial advisor if necessary. Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won't experience any loss when investing. Always remember to make smart decisions and do your own research!

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