Stop Spending and Start Saving

Budgeting Styles: Create Yours Based On What Matters Most

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budgeting types

Budgeting is a four-letter word. Nobody cares to do it. It’s not glamorous. Plus, it feels like work. Tracking your monthly expenses isn’t exactly what I’d call a good time.

What if it didn’t have to be that way? What if the problem wasn’t budgeting, but the lens through which it’s viewed? People talk about how to budget, but maybe we need to talk about budgeting styles. One man’s trash is another man’s treasure.

Your budget lets you kick serious financial ass. Whether it’s for retirement savings or an emergency fund, knowing your why and your what will keep you on point. What do you hope to achieve with your budget?

It’ll guide your way. But first, you’ve got to know where you’re going. You wouldn’t think of going somewhere without a map. Otherwise, you’d get lost.

I’m going to show you how to leverage your budgeting style to hit your financial goals, and why knowing what those goals are before you attempt to budget is essential. I’m also going to show you budgeting tools to compliment you on your journey to financial freedom.

If you want to go further, Andrew and Thomas dive into a few budgeting confessions in this podcast episode. Have a listen to their thoughts on different budgeting styles, how those styles work, and which ones won’t make you want to pull your hair out.

The hard and fast budgeting rule: Use the one that works and spend less than you earn.

Budgeting Styles

60% Solution 

This one comes from Richard Jenkins, the former MSN Money editor-in-chief. After two decades of budgeting, he arrived at a simple conclusion which breaks down like this:

The 60% Solution stems from the periods in his life when he and his wife felt relatively in control of their finances – even when they were making less money.

It’s a 60/40 split with two buckets. 60% of your income goes to committed expenses while the other 40% (split four ways) goes towards savings.

Let’s break it down.

60% Committed Expenses. Food, clothing, household expenses, insurance, all bills, and taxes.

Mr. Jenkins views “committed expenses” like this:

I call these ‘committed’ expenses rather than ‘fixed’ nor ‘non-discretionary’ expenses because things like music lessons are neither fixed in amount nor absolute necessities, but rather commitments my wife and I have made to provide for our children.

Back to that 40%

10% Retirement Savings. Your 401(k), Traditional, Roth, and SEP IRAs, and any other retirement accounts.

10% Long-Term Savings. Your emergency fund, down payments for a home or car, and debt payments.

10% Short-Term Savings (aka Irregular Expenses). You know Xmas happens every year, but how many people save for it? Home repairs, birthdays, and upcoming vacations are “predictable irregular” expenses.

10% Fun Money. Spend it on anything you like during the month. Hobbies, dining out, and monthly memberships live here.

The simpler you make it, the easier it will be to follow. If you automatically deposit money into the appropriate buckets, you never have to think about it again.

Balanced Money Formula (aka 50/30/20 Method)


Elizabeth Warren and Amelia Tyagi coined this term in their book: All Your Worth: The Ultimate Lifetime Money Plan. It breaks down like this…

Set aside:

  • 50% Needs (must-haves / non-negotiables)
  • 30% Wants (dinner out with your significant other or those jiu-jitsu classes you’ve been eyeballing)
  • 20% Savings (credit card payments, retirement, short-term goals like an emergency fund or student loans)

This one is an extension of the 60% Solution. It uses three buckets and is still relatively easy to follow. Instead of classifying it under committed expenses, it breaks down into needs, wants, and savings. This method also works regardless of how much money you earn.

The Envelope System (aka Envelope Budgeting)

Tech-free and old school envelope budgeting system using cash. It doesn’t even require an Excel spreadsheet. Ideal for those unwilling to share their financial data or are wary of technology. Break up your monthly cash flow into categories. What are your living expenses? Your budget categories might look like this:

  • Cell phone
  • Health insurance/health care
  • Car payment / car insurance
  • Eating out
  • Rent
  • Utilities
  • Debt payments / loan payments
  • Gas / transportation

The envelope method works like this:

Grab an envelope and assign it a spending category. For example, one envelope will be labeled ‘rent’ while another will be marked ‘debt payment.’ Assign enough money to each category based on your monthly expenses.

Fill each envelope with that month’s cash. Once you spend the money in each envelope, you’re not allowed to spend any more.

envelope system

If you’re desperate for cash, borrow the money from one of your other categories to cover it (or wait until next paycheck). The idea is not to go tapping your emergency fund or retirement savings to cover a night of bar hopping. That’s how the cash envelope system helps you save money.

Reverse Budgeting

Paying yourself first is the number one habit to build. Think of it as your present self taking care of your future self. Take a percentage of your monthly income and set it aside. This money goes towards your emergency fund, retirement, and long-term savings goals.

Second, pay your fixed expenses like rent, food, and utilities. Lastly, use what’s leftover for discretionary spending. Things that aren’t necessities like bars and restaurants.

For example, if you’re using the Balanced Money Formula from above, you’d take 20% of your income and put it towards your savings.

Keep it simple. The fewer moving parts, the better. Think of your monthly income as buckets and think in terms of percentages – not dollar amounts. Why?

Because percentages ensure you’re contributing the right amount to each category. They’re more accurate than dollar amounts and help to increase your savings rate (or curb your spending).

What if one week you earn $200 and the next week you make $550? Your 20% will look different week to week (especially true for those with variable income).

Budgeting Tools to Keep You On Track

Setting up a monthly budget allows you greater insight into your spending habits. Start with your take-home pay.

Look at your bank statements for help. A reasonable budget considers two factors: what’s coming in and what’s going out. Creating a spending plan helps when you have the right tools.

Here are a few worth a look.

Personal Capital

Personal Capital is a budgeting and wealth management tool catered to investors. It tracks your spending along with your investments. The tool analyzes your portfolio for weaknesses and helps you avoid overpaying in fees. It also offers suggestions on ways you can improve.

You Need a Budget

You Need A Budget (YNAB) is zero-based budgeting where you assign every dollar a job. Your financials are all in one place, divided into categories, and lets you anticipate upcoming expenses. Similar to the Envelope System (which financial guru Dave Ramsey is a fan). We interviewed YNAB’s creator. Have a listen here.


Mint is software that lets you create a budget, keeps you up to date with your spending, looks for patterns, and ways you can cut costs. It even looks for deals that align with your spending habits.

For example, if you spend a lot of money at grocery stores, Mint will suggest a rewards credit card that compliments that spending habit. It also offers budgeting tips, sends alerts for unusual account charges, and reminds you of upcoming bills.

We even wrote a book about it because we thought it was that important. It’s called Mastering Mint. We also wrote a few others too.


Mvelopes is a digital version of the Envelope System. They offer three plans for their customers from a basic version letting you create an online budget and linking your bank accounts; to having your own financial coach who calls you monthly and helps you create and follow a personalized financial roadmap.


Quicken is a money management tool offering several different plans depending on your needs. Their software lets you view and pay bills, create a budget, plan for retirement; as well as run your business and handle property management.


Moneydance is personal finance software equipped with several features to help you run your budget like a champ. They offer online banking, bill payment, account management, budgeting, and investment tracking.

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Prioritize: Know What’s Important and Why You’re Saving

In his book, Mastering Mint, Andrew talks about creating budgets that fit your life based on your core needs and desires. What do you love? Travel? Artisanal imported coffee? Live sporting events? Location independence?

Keep your list short with three to four core needs. For me, it’s location independence, travel, and providing experiences for my family.

Andrew refers to your budget as a tool that lets you “maximize your happiness while building financial security.”

When you focus your budget towards your goals, using one of the styles mentioned above, it should start becoming clear what’s worth spending money on and what’s not. Suddenly, tracking monthly expenses doesn’t seem as dull.

Ramit Sethi calls this conscious spending:

Spend extravagantly on things you love, and cut costs mercilessly on things you don’t.


Put your financial infrastructure on autopilot, so you never have to think about it again. Set up recurring deposits into your savings accounts. Set up auto bill pay on monthly expenses. Make it even easier and set them to pay all on a specific date.

Having a separate checking account to handle fixed (and variable expenses) while another handles long-term savings goals like retirement and emergency funds are ok! It’s part of having a savings plan.

You're more likely to follow through with a budget when you've got individual savings accounts for each goal.

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Final Thoughts

Your first budget takes the most time to set up. Going through your bank statements isn’t my idea of a good time. But it’s revealing. You’ll notice spending patterns and discover things about yourself you weren’t paying attention to.

Having money left over at the end of the month feels fantastic. Allow yourself some wiggle room. If you’re too strict with yourself, you’ll be less inclined to follow it. Know that you’ll have unexpected expenses and roll with it.

You don’t have to do it alone; there’s plenty of budgeting apps to help you hit your savings goals. Are you setting money aside for your soon-to-be little girl arriving into the world? Putting money aside to hit financial independence sooner?

A budget with a goal behind it is likely to be far more successful than one without. You’re far more likely to go to battle for something that supports your core needs and desires.

Sean Brison - Senior Editor
Sean Brison is a personal finance writer based in Los Angeles, California. After spending the better part of his early forties educating himself on the subject and turning around his financial situation, he’s logged thousands of hours researching and writing on matters revolving around budgeting, investing, and retirement. He’s passionate about teaching others what he’s learned and has been a contributor to Listen Money Matters for over a year.
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