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Bottom Line Up Front

  • Regardless of what method you use, making a budget and sticking to it is the first step in reaching your financial goals.
  • There are pros and cons to all budgeting plans.
  • Choosing a budgeting method based on your personal financial goals will make sticking with it even easier. 

Time to Read

4 minutes

April 26, 2022

Looking to organize your personal finances? Want to avoid overspending, improve your credit score or build a retirement account? Your first step should be choosing the right budget for your needs. A budget is a summary of your expected income and expenses over a given period. It allows you to track money in your bank accounts and minimize unnecessary spending. 

The key to any successful personal budget is how well you manage your income and expenses. Start by making a list of what money is coming in and where it's going.

Everyone’s budget categories will be different. The important thing is to include the ones you need. The sooner you’re aware of increased spending, the sooner you can take steps to adjust if necessary.

Income: Include all cash flow sources (full-time work, part-time jobs, commissions, birthday money, etc.). 

Expenses: Household expenditures can include:

  • mortgage or rent
  • debts (credit cards, auto loans, student loans, etc.)
  • utilities (water, power, telephone, internet, cable)
  • insurance (home, life, auto, health, disability, long-term care)
  • savings & investments
  • groceries
  • entertainment & vacations
  • childcare
  • auto maintenance 
  • pet care

So where should you start? Let’s look at 5 different methods of budgeting and the pros and cons of each.

Traditional Budgeting

The traditional budgeting process requires work up front, but it can give a detailed picture of spending. Make a list that breaks out income and expenses. You can do this by creating a budget spreadsheet to update monthly. Use our monthly budget worksheet to see how your income and expenses stack up. This allows you to reduce spending and set savings goals. Each month, you can review and adjust the amounts budgeted for your spending and savings goals. 

Pros: A traditional budget is great for reining in spending. 

Cons: The level of detail can be time-consuming and difficult to maintain.

50-20-30 Budgeting

One way to assign monthly income is dividing proportionally among 3 categories: essentials, financial obligations and “fun money.” This is known as proportional budgeting, or a 50-20-30 budget. The first 50% goes to necessities like rent, food and utilities. The next 20% pays for expenses you should prioritize (getting out of debt, retirement savings). The final 30% is for non-essentials like shopping, travel and entertainment.

Pros: This method is easy and gives leeway to save money for fun stuff. 

Cons: Debt repayment and savings are lumped in the smallest category, so you could fall behind in those areas.

Reverse Budgeting

Reverse budgeting prioritizes debt repayment and savings goals. You focus on one big goal every month—maybe paying $300 toward credit card debt or adding $500 to savings. You complete your monthly goal first, then cover the rest of your expenses.

Pros: This is the simplest method since you don’t spend much time tracking expenses, and it’s rewarding to accomplish one goal every month. 

Cons: This method doesn’t provide much visibility into spending, so it’s easy to overspend.

Value-Based Budgeting

This method focuses on saving for what you value most. Start by making a list of your passions in order of importance. Every month, pay all bills and necessities first. Then, you put disposable income toward your top priorities. If you have $500 left in your budget, you might save $300 for a down payment on a home, $150 for travel and $50 for charitable giving.

Pros: This works if you want to focus on the big picture and stop spending on things that don’t matter.

Cons: It’s easy to overlook less exciting goals like retirement savings or an emergency fund.

Something as simple as following a budget and creating a spending plan can improve your financial situation. And, when you choose a financial plan that’s right for you, you’ll be more likely to stick with it.

Next Steps Next Steps

  1. If you’re ready to create your own budget, use our Monthly Spending Calculator to begin tracking your monthly expenses. 
  2. For more information about goal setting, budget and financial recovery, see how our Personal Finance Counseling team can help.


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.