5 Best Budgeting Methods for Personal Finance (& Free Downloadable Templates) - Barefoot Minimalists (2024)

When it comes to personal finance, there are a handful of different budgeting methods out there. Each budgeting method has its own unique benefits, and depending on your personal goals and expenses, certain budgeting methods may be better suited than others.

In this post, we’ll dive into the 5 best budgeting methods for personal finance and how to decide which one is right for you. I’ll also share my favorite free downloadable budget templates!

What is a Budgeting Method?

If budgeting is the general term for creating a plan for your money, then a budgeting method is the specific process in which you do it.

Each budgeting method comes with its own set of rules and guidelines. For example, some methods focus on giving every dollar a designated purpose, ensuring that all of your income is allocated and accounted for. Others focus on specific expenses or savings goals. Some methods, like the envelope system, encourage using cash when making purchases, making your budget more tangible and hands-on.

In essence, a budgeting method will help you make decisions about how much to spend, save, and invest based on your unique financial goals, lifestyle, and preferences.

Benefits of Using a Budgeting Method

I don’t know about you, but there are so many things I’d rather do than track my expenses. So, why do I do it?

Well, there are many benefits for using a budgeting method. Here are some.

1. Financial Clarity
   • Sticking to a budgeting method helps you understand not just how much money you have coming in, but where it’s going.
2. Expense Tracking
   • Budgeting helps you keep track of every dollar you spend; from your morning coffee runs to weekend movie nights. This awareness of your spending habits will help you make better financial decisions and save more.
3. Goal Setting
   • One of the key benefits of budgeting is helping you set and achieve financial goals. Whether it’s building an emergency fund, paying off debt, or saving for a home, a budgeting method provides a roadmap to make it happen.
4. Debt Management
   • Tackling debt isn’t easy, but budgeting makes it more manageable. It breaks down your debt into manageable chunks, helping you pay it off bit by bit. Instead of just hoping that you’ll have enough money to put towards your debt each month, budgeting makes it a sure thing.
5. Peace of Mind
   • Although setting up a budget may feel overwhelming at first, it’ll have the opposite effect in the long run. Knowing exactly where your money is going provides peace of mind!

With these benefits in mind, let’s break down the 5 best personal finance budgeting methods and how to choose the right method for you!

5 Best Personal Finance Budgeting Methods

The best personal finance budgeting methods are simple enough to actually want to use, but elaborate and comprehensive enough to be effective.

Below are the 5 best personal finance budgeting methods as well as my favorite free budget templates and spreadsheets!

1. Zero-Based Budgeting

When I first learned about the zero-based budgeting method, I must admit it felt like a complete contradiction to what I thought budgeting was all about. I mean, it tells you to spend every single dollar you earn each month! Sounds crazy, doesn’t it? But there’s a twist: it’s not about reckless spending. Instead, every single dollar from your monthly income is given a purpose.

Here’s how it works: first, you list all your income sources for the month. Then, you allocate funds for essential expenses like rent or mortgage, utilities, groceries, and transportation. The key difference with zero-based budgeting is that you don’t stop there. Every remaining dollar gets a job, whether it’s padding your emergency fund, paying off debt, saving for a vacation, or investing in your future. Even if it’s just a few dollars, every bit is allocated, down to zero.

Unlike other budgeting methods, you don’t just carry over the previous month’s budget. Each month, you start your budget from scratch. You begin with zero dollars and assign a specific purpose to every dollar you earn.

The zero-based budgeting method forces you to be intentional about your spending and saving, making you aware of where every dollar of your paycheck is going and why.

Zero-Based Budgeting: Pros and Cons

Is the zero-based budgeting method right for you? Here are some pros and cons to consider.

Pros:

1. Every Dollar Has a Purpose
   • Zero-based budgeting ensures that every dollar you earn has a specific purpose. This will make your budget more effective.
2. Encourages Detailed Planning
   • Zero-based budgeting forces you to plan and justify each purchase and expense. This process will uncover any unnecessary spending – even if it’s just a $4 coffee.
3. Flexible and Adaptive
   • Zero-based budgeting is super flexible! If your income or expenses fluctuate, you can easily adjust your budget to accommodate these changes.

Cons:

1. Time-Consuming
   • Because you need to create a new budget each month, zero-based budgeting can be time consuming.
2. Unsustainable
   • Managing a zero-based budget requires meticulous record-keeping and constant attention to your finances. For some people, this might be difficult to sustain over the long term.
3. Potential for Overlooked Expenses
   • Since you’re giving each dollar you earn a specific purpose, you may not have money set aside for unexpected expenses. This can seriously disrupt your budget. I recommend setting aside some money in an emergency fund each month for this reason.
4. Emotional Strain
   • Constantly evaluating and justifying every expense can be emotionally draining. It may lead to feelings of guilt or anxiety.

While zero-based budgeting offers a structured and purposeful way to manage your finances, it requires a significant amount of time, attention, and emotional energy. Therefor, it may not be the right budgeting method for you.

However, if you do want to give zero-based budgeting a shot, below are a couple of free budget templates to help you get started!

Zero-Based Budgeting: Free Budget Templates

I’m a big fan of using online budget templates to track my expenses. It’s so much easier than the old school pen and paper approach to budgeting.

Luckily, most popular budgeting methods have plenty of free budget templates out there to download and use. In fact, sometimes wading through all of the templates available can be pretty overwhelming! That’s why I’ve decided to do the work for you.

Below are the best zero-based budget templates!

1. Vertex42 Zero-Based Budget Template: Vertex42 is a popular resource for budgeting templates. They have thousands of templates on their site! You can download any format – an Excel Sheet, Google Sheet or Printable PDF. But, keep in mind that there are a lot of ads on the Vertex24 website which can make the browsing experience pretty overwhelming.
2. WallStreetMojo Zero-Based Budget Template: WallStreetMojo is a resource for all things finance so it’s no surprise that they offer some pretty great budget templates on their website too. The WallStreetMojo zero-based budget template is simple to use and can be downloaded as either an Excel or Google Sheet. The only downside is that you do need to share an email address in order to complete your download.

Now let’s get into the next best budgeting method for personal finance, the 50/30/20 budget!

2. 50/30/20 Budget

The 50/30/20 budget rule is my favorite personal budget method for one important reason; it’s so simple and straightforward.

The 50/30/20 rule divides your take-home income into three categories – needs, wants and savings/debt repayment. 50% of your income goes to your needs, 30% to your wants and 20% to savings/debt repayment.

The“needs”are your monthly essentials – think rent or mortgage payments, utility bills, groceries, transportation costs, and minimum debt payments.

Then, there are“wants”—the fun stuff! This category covers the things that aren’t essential (even though sometimes they feel like they are). Think movie nights, streaming subscriptions, hobbies, and concert tickets.

Lastly, there’s the“savings/debt repayment”category. This includes contributions to savings accounts, retirement funds, emergency funds and the extra cash you can put towards yourdebtto pay it down quicker.

50/30/20 Budget: Pros and Cons

Now despite the fact that the 50/30/20 rule is my favorite budgeting method, I’ll try my best to be as unbiased as possible.

Here are some pros and cons to consider when deciding whether this budget is right for you!

Pros:

1. Simplicity
   • One of the main advantages of the 50/30/20 rule is how simple it is. Your money is neatly divided, making it super easy to manage.
2. Encourages Savings
   • By allocating 20% of your income to savings and debt repayment, the rule encourages you to build an emergency fund, pay off debt, and save for future goals. This will help you develop a habit of saving.
3. Flexibility and Adaptability
   • You may find it difficult to fit your expenses neatly into the 50/30/20 budget framework. But you don’t have to! You can change up the percentages to fit your needs. For instance, you split your expenses into a 70/20/10 or 50/20/30 framework – whatever is sustainable but still challenges you to save and live within your means.

Cons:

1. Ignores Individual Goals and Circ*mstances
   • The 50/30/20 rule doesn’t account for your unique financial goals and life circ*mstances. Let’s say you’re saving for a wedding? You may want to save a bit more than 20% of your income for at least a few months to reach your goals. As a result, this rule may feel a bit too generic at times.
2. Doesn’t Address Income Fluctuations
   • The 50/30/20 rule isn’t the best option if you have an unpredictable and fluctuating income. You might find it frustrating and impossible to stick to the fixed-percentages during low-income months.

If the 50/30/20 rule sounds like your match made in budget method heaven, below is my favorite free 50/30/20 budget template.

50/30/20 Budget: Best Budget Template

When I first started budgeting using the 50/30/20 method, I scoured the internet for a template that fit my needs. Unfortunately, all the spreadsheets I found were either too complicated or way too basic. So, I created my own.

I understand that this is very shameless self promo-y of me, but the 50/30/20 budget template I created is genuinely my favorite and the only one I use. It’s built on Microsoft Excel but you can also download it as a PDF or Google Spreadsheet. I wrote an entire blog post about how to download the sheet in your preferred format as well as some fun ways to customize it to your unique financial situation.

If the categories that I included in the spreadsheet don’t fit your needs, here is a list of over 100 Budget Categories and Subcategories to Include in Your Personal Budget.

Click here to download the Barefoot Minimalists 50/30/20 Budget template!

3. Pay Yourself First (Reverse Budgeting)

Reverse budgeting, also known as the Pay Yourself First budgeting method, flips the traditional budgeting approach on its head. Instead of allocating money to various expenses after deducting savings, reverse budgeting prioritizes saving and investing before anything else.

The fundamental idea is simple: you determine your savings goals, set aside a portion of your income for those goals first, and then use what’s left for your living expenses and non-essential expenses.

In this approach, saving becomes a non-negotiable expense, treated with the same priority as paying bills or rent.

Here’s how to get started with reverse budgeting:

1. Determine Your Financial Goals: Start by defining your short-term and long-term financial goals. Be specific about the amount you need for each goal and the timeline with which you want to achieve them.
2. Calculate Your Income: Determine your total income, including your salary, freelance work, investments, and any other sources of income.
3. Set Up Automatic Transfers: Set up automatic transfers to your savings and investment accounts right after payday. This step is crucial as it ensures that your savings goals are met before you have the chance to spend the money elsewhere.
4. Determine Your Living Expenses: Calculate your basic living expenses like rent, utilities, groceries, and transportation.
5. Watch Your Spending: Whatever’s left after these basic living expenses are covered is your play money – the cash you can use for eating out, movies, shopping, and other fun stuff. Make sure to keep an eye on this spending!
6. Review and Adjust: Every now and then, check if your goals and income have changed. Adjust your savings and spending accordingly.

Pay Yourself First: Pros and Cons

Below are the pros and cons for using the Pay Yourself First budgeting method.

Pros:

1. Financial Discipline
   • Paying Yourself First enforces a disciplined savings habit. By prioritizing savings before any other expenses, it ensures that you consistently contribute to your financial goals, fostering a healthy financial future.
2. Financial Security
   • Building an emergency fund and saving for the future are crucial for financial security. The Pay Yourself First method ensures that these savings goals are met consistently, providing a safety net for unexpected expenses and future needs.

Cons:

1. Potential Neglect of Essential Expenses
   • If not done mindfully, the Pay Yourself First budgeting method might lead to neglecting essential expenses like rent, utilities, or groceries. It’s crucial to strike a balance and ensure that necessary living costs are covered before allocating funds to savings.

So, while the Pay Yourself First budgeting method encourages saving, discipline and financial security, it requires careful planning to ensure your essential expenses are met.

Pay Yourself First: Best Budget Template

Are you interested in trying out the Pay Yourself First budgeting method?

If so, the Best Wallet Hacks 20-30-50 Pay Yourself First Worksheet is the best budget template I’ve found.

Best Wallet Hacks is a trusted source, known for sharing free resources with their readers to help them make more money, invest better and enjoy financial freedom.

Their free budget template utilizes the 50/30/20 rule but with a twist. Instead of prioritizing the 50% needs category as most 50/30/20 templates do, this one prioritizes the 20% savings category.

Click here to download the Excel Spreadsheet.

4. Bi-Weekly or Weekly Budgeting

I don’t know about you, but sometimes I feel like I need more financial structure than what a monthly budget can offer. This is where the bi-weekly and weekly budgeting method come in handy.

Weekly budgeting, as the name suggests, breaks down your expenses on a weekly basis. A bi-weekly budget breaks down your expenses on a bi-weekly basis.

These methods provide a more granular view of your financial situation, allowing you to manage your day-to-day expenses more effectively.

Remember how I said that the 50/30/20 method of budgeting isn’t best for those who have fluctuating or unpredictable incomes? Well, bi-weekly and weekly budgeting is a great alternative!

By planning out your expenses more frequently, you can make real-time adjustments. This will help you maintain better control over your finances.

Bi-Weekly or Weekly Budget: Pros and Cons

Below are some pros and cons for bi-weekly and weekly budgeting.

Pros:

1. Fits Your Payday
   • By budgeting weekly or bi-weekly, your budget aligns with your paycheck. This can make it easier to allocate your income to different expenses.
2. Detailed Planning, Better Habits
   • Bi-weekly and weekly budgeting allows you to plan your spending in detail, encouraging smarter financial choices.
3. Quick Adjustments
   • Bi-weekly and weekly budgeting lets you adapt your spending habits easily, giving you financial flexibility.
4. Handles Irregular Incomes
   • Bi-weekly and weekly budgeting is perfect for those who have varying and unpredictable paychecks.

Cons:

1. Labor Intensive and Time-Consuming
   • Creating a new budget every week or every two weeks can be labor intensive and time-consuming.

Bi-Weekly or Weekly Budget: Best Budget Templates

There are plenty of great bi-weekly and weekly budget spreadsheets out there!

Here are a few of my favorites:

1. Word Templates Online Free Bi-weekly Budget Templates (for Bi-weekly Paychecks): Word Templates Online is a great source for budget templates. What makes them stand out is that they don’t just provide the templates, they also provide invaluable information on how to use the templates. By clicking this link you’ll find 6 simple yet effective bi-weekly budget spreadsheets that’ll open via your preferred spreadsheet software – mine opened in Microsoft Excel.
2. Smartsheet Bi-Weekly Budget: Smartsheet is a powerhouse when it comes to spreadsheets for personal finance and businesses so it’s no surprise that their bi-weekly budget template is as great as it is. It’s a simple yet super effective Google Spreadsheet that has many different categories and subcategories.
3. General Blue Budget Template: If you have a hard time fitting your expenses into predetermined categories and subcategories, the General Blue Budget Template is perfect for you. It’s a super simple Microsoft Excel template that gives you the freedom to fill in your own expenses.

Last but not least, the envelope system.

5. The Envelope System

The envelope system is a budgeting method that operates on a simple yet powerful principle: if the money isn’t in the envelope, you can’t spend it.

Here’s how it works:

1. Create Categories: First, you need to identify your different spending categories, such as groceries, entertainment, dining out, transportation, etc.
2. Allocate Cash: Determine how much money you want to allocate to each category for a specific period, like a week or a month. Take this amount out in cash.
3. Label Envelopes: Get envelopes for each category and label them accordingly. For instance, if you allocate $200 for groceries, put $200 cash in the “Groceries” envelope.
4. Use Cash for Expenses: Whenever you need to make a purchase within a specific category, use the money from the corresponding envelope. For example, if you’re buying groceries, use the money from the “Groceries” envelope.
5. Track Expenses: Keep track of your spending. When the envelope for a particular category is empty, that means you’ve reached your budgeted limit for that category. You can’t spend more on that category until the next budgeting period (week or month) unless you take money from another envelope.

The envelope system can be particularly helpful for people who struggle with impulse spending or find it difficult to stick to a traditional budget.

The Envelope System: Pros and Cons

The envelope system is a pretty unique way to handle your personal finance budgeting, especially in today’s digital age. As a result, some people love it and some people really hate it.

Below are some pros and cons to consider before trying out the envelope system for budgeting.

Pros:

1. Tangible and Visual
   • Using physical envelopes provides a tangible and visual representation of your budget which can encourage mindfulness.
2. Prevents Overspending
   • Since you can only spend what’s in the envelope, it helps prevent impulsive purchases and overspending.
3. Simplicity
   • If apps and spreadsheets aren’t really your thing, the envelope system provides a refreshing alternative. There’s no need for complicated budgeting software or tools.

Cons:

1. Security Risks
   • Carrying around cash can be risky. Unlike digital transactions, cash can’t be recovered if it’s stolen.
2. Lack of Convenience
   • Using physical cash for all transactions can be inconvenient, especially when dealing with online purchases or bills that require electronic payments.
3. Limited Credit Building
   • Using cash won’t help you build credit history. If you’re looking to boost your credit score, the envelope system won’t support that goal.
4. Difficulty for Large Expenses
   • Managing large expenses, such as rent or mortgage payments with cash can be impractical and risky. These transactions often require checks or electronic transfers.
5. No Rewards
   • Unlike credit cards that offer cash back rewards or points for spending, the envelope system doesn’t provide any incentives for your purchases.

So while the envelope system offers a straightforward and effective way to manage your budget and curb overspending, it also has some significant drawbacks.

How to Choose the Right Budgeting Method?

Now comes the hard part – choosing the right budgeting method for you.

Choosing the best budgeting method for you boils down to your lifestyle and preferences. Think about which approach resonates with you the most. Are you someone who likes a strict plan, or do you prefer flexibility? Do you mind diving into the nitty-gritty details, or do you prefer a more straightforward approach?

Ultimately, there’s no one-size-fits-all answer. The key is to find a method that matches your style, so budgeting feels less like a chore and more like a natural part of your financial journey. Think about your spending habits, your financial goals, and how much time and effort you’re willing to put into budgeting.