What Is a Budget Strategy? 12 Effective Methods and Tips

Dave Lee

Updated September 21, 2022

Published January 13, 2021

Dave Lee is a passionate writer and editor with 15-plus years of experience writing for print and online media in the United States and United Kingdom. His topical expertise includes finance, technology, sports, social media, start-ups, security, piracy and government policy.

An office employee signs papers on a desk near a laptop.

Budgeting is an important personal and professional skill for people in many industries. It helps you ensure financial stability and allows you to facilitate the growth of a company. Learning effective budgeting strategies can help you manage your finances and improve your financial skills to advance your career.

In this article, we explain what a budget strategy is, list several budget strategies to consider and provide tips for maintaining your budget.

What is a budget strategy?

A budget strategy is a formal approach to managing a collection of funds. Many people use budget strategies in their personal lives to ensure their expenses don't exceed their income. Others use budgeting strategies to help reach financial goals, like purchasing a new car or saving a certain amount for retirement. Many professionals also use budgeting strategies at work to help ensure a department or organization can pay for all its expenses and potentially invest in future opportunities.

Related: 7 Reasons Why Budgeting Is Vital for Successful Businesses

12 effective budget strategies to try

You can try several budgeting strategies to find one that best aligns with your goals and needs. Here's a list of 12 effective budget strategies you can use to reach your financial objectives:

1. Subtraction budgeting

Subtraction budgeting is one of the simplest forms of budgeting. To use this method, you add all your monthly expenditures and subtract that total from your overall monthly earnings. The amount you have left over is what you can use for savings and entertainment.

Related: How To Create Subtraction Formula in Excel (With Steps)

2. Cash budgeting

Cash budgeting, which some people call envelope budgeting, has you use actual cash for purchases and expenses instead of managing digital currency. Having cash often helps those who have trouble imagining their money in digital form track it more easily.

With a cash budgeting system, rather than putting your paycheck into your bank account, you cash it and use the physical bills and coins to pay for your expenses. Some people put the specific amount of cash they need for expenses, like rent and utilities, into sealed envelopes until they pay those bills, so they can avoid spending it on other things.

Related: Capital Budgeting: Definition, Importance and Different Methods

3. Proportional budgeting

With a proportional budgeting strategy, you divide all your expenditures into three categories, which are savings, needs and wants. From there, you determine which percentage of your income you want to dedicate to each of these categories. Then, you can divide your income into those categories accordingly.

4. Two-bank budgeting

Using the two-bank budgeting strategy, you pay yourself before paying any other expenses. This allows you to add to any savings plans or purchase any items you want. One effective method of this strategy is to open a checking account in which you deposit your paycheck. Then, set up an automatic transfer from that account to a secondary bank account, leaving a small portion of your paycheck behind in the original account. You then can live off the money in your secondary account and leave the savings from your original account for emergencies or other purchasing goals.

Related: What Are Budgeting Risks? (Plus 5 Ways To Limit Them)

5. Automatic budgeting

Automatic budgeting allows you to benefit from the built-in budgeting systems many banks provide. Consider setting up automatic bill pay and automatic transfers. This ensures you pay all your expenses on time and meet your savings goals without having to make any actual payments or deposits.

6. Online or app budgeting

Many applications help you track your spending and effectively create a personalized budget that meets your goals and needs. Budget applications are software applications that sync to your financial accounts and aggregate all your information in one place, so you always know the amount of money you're spending and earning. Consider using one of these programs to help you establish a unique budgeting system specifically for you and your spending patterns.

Related: Web Apps vs. Mobile Apps: A Definitive Guide

7. 50/30/20 budgeting

The 50/30/20 system is a traditional budgeting strategy that uses ratios to help you manage your money. Essentially, with this strategy, 50% of your income goes to your needs or non-negotiable essentials, like rent and utilities, 30% goes to your wants or personal expenses, like dinners out and other entertainment, and 20% goes toward savings and paying off any debt you have. People who want to buy a property or create an emergency savings account can benefit from using the 50/30/20 budgeting strategy.

Read More: 50-20-30 Rule: Budget Strategy for Beginners

8. Multi-account budgeting

The multi-accounting budgeting system is a digital version of the cash envelope budgeting strategy. Using this system, you open multiple bank accounts and dedicate each to a specific expenditure or savings goal. You can use automatic transfers to send the appropriate amount of money to each account and automatic bill pay programs to ensure you pay your expenses on time.

9. Zero-based budgeting

A zero-based budgeting approach is another traditional strategy that focuses on ensuring you have enough of your income set aside to cover your necessary expenses. With this method, you subtract expenditures from your monthly income until you have a remainder that fully funds whatever is most important that month. This means you're working toward a zero-waste situation with your funds, ensure you account for all of your income.

Read more: How To Start Using Zero-Based Budgeting

10. Savings and emergency budgeting

If you want to maximize your savings, a savings and emergency budgeting strategy may be highly effective. With this method, a certain percentage of your income goes into a general savings account you can use for specific purchasing goals, like a house or a car. Another percentage goes into an emergency fund for unexpected expenses, like a car repair or loss of a job.

11. Prepaid debit card budgeting

A strategic budgeting approach for those who dislike carrying cash but struggle to limit their credit card use is the prepaid debit card budgeting strategy. It functions as a combination of the cash envelope system and the multi-account budgeting strategy, but it uses prepaid debit cards for daily expenses instead of using cash or a card for your bank account. This ensures you can't overdraw your account and spend outside of your means.

RelatedWhat Is a Debit and How Does It Work?

12. Priority budget

A priority budget includes determining your priorities instead of relying on predetermined priorities others set. You make a list of all your expenses and spending priorities and arrange them in the order that's most important to you. From there, you can determine how much money you want to dedicate to each category.

RelatedHow To Manage a Budget

Tips for maintaining your budget

Deciding on a budget strategy is an excellent first step in effectively saving your money. Ensuring you follow the guidelines you establish in your budget can help you meet your short- and long-term budgeting goals. Here are a few tips to help you maintain your budget:

  • Track spending. One of the best ways to maximize your budget is to track your spending and see where you can make changes to meet your short- and long-term financial goals.

  • Review and update. Regularly review the budget you've created to ensure you're spending within the limits. Update and change your budget as needed to reflect spending patterns and changing goals.

  • Establish goals. Ensure the goals you set for your budget are realistic and attainable. Consider using the SMART goals to help you create effective financial goals.

  • Use tools. Use tools like apps and online money trackers to help you get a clear sense of your spending and saving.

  • Stay motivated. Regularly remind yourself why you're using a budget by looking at your long-term goals to help you stay motivated to save.

  • Reduce credit card use. It can be easy to overspend with a credit card. If you often accrue unnecessary credit card debt, consider using cash or debit cards instead to keep you from spending more money than you have.

This article is for informational purposes only and does not constitute financial advice. Consult with a licensed financial professional for any issues you may be experiencing.


Explore more articles