SoFi

Budgets come in all shapes and sizes, from the old-fashioned, “write down everything you spend” approach to using apps that automatically track and categorize your expenses. There is likely at least one method out there that can help you gain insight and manage your finances effectively. Once a budget is up and running, it can help you wrangle your spending and reach your savings goals, too.

Below, we break down seven popular budgeting strategies, including their benefits and potential drawbacks so you can choose the best fit for your needs and lifestyle.

Line-Item Budget

A line-item budget is what you may first imagine when you think of a “typical” type of budgeting. They’re commonly used by small businesses, but individuals can also benefit from keeping close tabs on cash flowing in and out of their checking accounts.

You can set up a basic line-item budget using pen and paper, or you might find it easier to use a spreadsheet on your computer. Either way, you’ll want to list income and expenses vertically in the first column, then make columns for each month of the year. It’s also a good idea to set spending targets for each category. As you log actual spending numbers into your budget, you can see how they line up to your targets.

Benefits and Drawbacks of Line-Item Budgeting

Pros:

•   For new budgeters, this method is relatively easy to create and intuitive.

•   Due to its detail, a line-time budget can be a good starting place for tracking expenses.

•   This method is well-suited for someone who needs more control over their spending.

Cons:

•   It can be time-consuming to set up and requires a high level of commitment to stick with.

•   It may feel restrictive for those who prefer more flexible spending.

•   It does not easily accommodate unexpected expenses.

Recommended: How to Make a Budget in Excel

Proportional Budgets

A proportional budget divides your after-tax income into several broad spending categories (or buckets) and allocates a set percentage for each. This budgeting strategy helps ensure you cover all of your needs, wants, and savings goals without having to account for every penny you spend.

How to Divide Your Income Proportionally

•   50/30/20 Rule (50% needs, 30% wants, 20% savings)

•   60/40 Rule (60% expenses, 40% savings/extras)

•   Custom variations based on individual priorities and financial situations

Proportional budgeting offers a structured yet flexible financial plan. You might try one method of allocating funds for a month or two, then adjust the proportions to better fit your living expenses and goals. (Read on for more details on how to set up a 50/30/20 and 60/40 proportional budget.)

Paying Yourself First

The “pay yourself first” approach is a simple budgeting method that prioritizes savings before anything else. Rather than wait to see what’s left over after covering all of your expenses, you siphon off a predetermined amount for savings as soon as your paycheck hits your bank account. This keeps the money out of sight and (hopefully) out of mind, so you’re less likely to spend it on something else.

Prioritizing Savings With the Pay Yourself First Method

Some tips for using this method effectively:

•   Put savings on auto pilot: Consider setting up an automated transfer from checking to savings for a set amount on the same day each month, perhaps the day after you get paid.

•   Set up a split direct deposit. Another way to automate savings is to ask your employer to do a split direct deposit, where most of your paycheck goes into checking but a portion goes directly into your savings account.

•   Watch your spending. You may need to adjust nonessential (discretionary) spending to ensure you can cover all of your fixed expenses, like rent, utilities, and debt payments, once saving has been deducted.

Envelope Budget

Also known as “cash stuffing,” the envelope budgeting method involves dividing your expenses into categories (such as rent, groceries, transportation) and assigns an envelope to each one. You then decide how much you can spend on each category and stuff your envelopes with the allotted amount.

You use your envelope money to spend throughout the month. Once an envelope is empty, no more spending is allowed in that category until the next month.

To update this approach for today’s digital world, many budgeting apps allow you to create digital “envelopes” and follow the same principals as the original envelope system.

How to Effectively Use the Envelope Budgeting System

Here’a how to get started with the envelope system:

•   Consider the types of expenses you have and sort them into categories. You can be highly specific (such as “eating out”) or more broad (like “discretionary spending”).

•   Decide how much you will spend on each category, or envelope, per month and portion out the money.

•   Once an envelope is empty, you’ll want to stop spending in that category.

•   If you have remaining funds in an envelope at the end of the month, you could roll over the funds into the same envelope for the next month, move them to a different envelope, or put them in a savings account.

This budgeting method can work well for those who need a tangible way to control their spending. However, it may not be practical unless you’re using a digital tool.

Zero-Sum Budgeting

The idea here is to spend every dollar that you have. That doesn’t mean going on a shopping spree, however. Instead, you assign a specific purpose to each dollar that you earn, whether it’s expenses, savings, debt repayment, or discretionary spending.

It’s called a zero-sum budget because the goal is to have income minus expenses equal zero, meaning there is no unaccounted-for money. This budgeting strategy not only ensures all of your needs are met, but that you also have room in your budget for future needs and fun.

Balancing Income and Expenses With Zero-Sum Budgeting

To create a zero-sum budget:

1.    Go through the past three to six months of financial statements to determine your average monthly take-home income and typical expenses.

2.    Assign dollars to each of your non-negotiable bills, such as rent, insurance, student loan payments, and groceries.

3.    Assess how much money you have left for saving, paying more than minimum on debts, and discretionary spending, then assign where your remaining money is going to go.

Though this approach requires meticulous tracking, it can be ideal for those who want complete control over their finances and ensure they are using their money efficiently.

50/30/20 Budget

The 50/30/20 budget is type of proportional budget that divides your monthly income into three buckets:

•   50% for “needs:” This includes essential expenses like housing, food, transportation to work, as well as minimum payments due on debt.

•   30% for “wants:” This is anything that you buy for personal enjoyment, such as eating out, traveling, and shopping for clothes (beyond basic needs). You may also hear these called discretionary expenses.

•   20% for goals: This category includes saving for short-term goals like building an emergency fund, saving for long-term goals like retirement, as well as paying more than minimum on debts.

This budgeting method can be a great fit for someone who likes a simple framework or just beginning to budget. However, others may crave more structure, such as pre-assigned spending limits for individual categories.

60/40 Budget

Another type of proportional budget, the 60/40 budget divides your monthly income into only two buckets:

•   60% for expenses: This includes fixed costs like rent, utilities, and nonessential bills (like streaming services or a gym membership). The idea is that 60% of your budget goes to regular spending, rather than out-of-the-ordinary expenses like concert tickets or a vacation.

•   40% for everything else: This represents the rest of your income and it goes towards savings goals and spending that is outside your usual lifestyle.

Adjusting for Savings and Spending Needs

You can take the 40% bucket and allocate it however you wish. One allocation you might consider is:

•   20% for retirement/other long-term goals

•   10% for short-term savings goals, such as building an emergency fund, saving for a vacation, or making a major purchase.

•   10% for “fun” spending, like going out to dinner, seeing a show, or other occasional splurges.

The simplicity of the plan can be a positive for people who don’t like complicated, time-consuming budgets, but it may not provide enough guidance for those who really need to take control of their finances.

Sticking to a Budget

Whatever approach you pick, a budgeting method only works if you stick with it. Here’s a look at some ways to make it sustainable.

Overcoming Mental Barriers

Having financial discipline and sticking to a budget can be difficult. If you are struggling with discipline, you might try these tactics:

•   Acknowledge the issue that is holding you back. Out loud. You can only fix a problem if it’s been identified.

•   Create space for yourself to succeed. For example, you might put a 20-minute block on your calendar to look over your budget every week.

•   Anchor the task of budgeting to another activity that you do regularly and enjoy (such as making coffee on Sunday morning). This way, you’ll start to associate the two tasks and think about them in tandem.

Setting Realistic Expectations

A common pitfall when setting a budget is to be too restrictive in your spending targets right out of the gate. While it’s great to be ambitious, it’s unlikely that you’ll make sweeping changes in your spending just because you set lofty targets. And in fact, missing big targets could be disheartening.

Instead, try to set yourself up for success by choosing realistic goals for the upcoming months. You can gradually decrease spending and increase saving as you get used to budgeting.

Considering Irregular Expenses

No matter what type of budget you choose, there will always be the issue of irregular expenses. Irregular expenses may be expected (like annual membership fees or holiday gifts) or unexpected (like car repairs). Some solutions:

•   Turn irregular expenses into monthly expenses. To account for occasional or seasonal expenses, add up the total expected cost for the year, divide that number by 12, then factor it into your monthly budget.

•   Set up an emergency fund for unexpected expenses. It’s a good idea to have three to six months’ worth of living expenses set aside in a separate savings account to cover any unexpected costs or financial bumps in the road.

Staying Out of the Weeds

To avoid getting overwhelmed by the details when budgeting, consider these tips:

•   Steer clear of strategies that feel complicated or require hours of effort. You need a budget you will stick with, and that is likely one that suits your style and feels manageable.

•   Test-drive a couple of budgets to see which works best.

•   Recognize that a budget is never going to be perfect. And that’s okay! If you forget a category or overspend here and there, it may feel like a failure when it’s not.

Tips for Maintaining Motivation

These strategies can help ensure you stick with your budget long-term:

•   Set clear, meaningful goals: Budgeting can feel easier when you have a purpose behind it. Instead of just tracking expenses, consider setting specific goals like saving for a vacation or buying a car.

•   Make it fun: If budgeting feels like a chore, you’re less likely to stick with it. You might use an app that makes tracking finances fun or gamify the experience by setting challenges, such as a no-spend challenge or the 52-week savings challenge.

•   Celebrate your successes: Even small wins, like saving an extra $50 a month, deserve recognition. Reward yourself in non-financial ways, such as a relaxing day off or a favorite activity.

Leveraging Technology

Budgeting apps and tools can simplify financial management and automate tracking, making it easier to stick with a budget.

Apps to Simplify Budgeting

Your bank may offer a free spending tracker as part of their mobile app. If not, consider downloading a separate budgeting app. Some popular options include:

•   Goodbudget: A digital version of the envelope system, this app helps you divide up your salary into spending categories, then tracks your spending and helps you stick to the plan.

•   YNAB (You Need A Budget): YNAB helps you create a budget then monitors your spending and charts your progress as you work towards your goals.

•   PocketGuard: This tool connects to all of your financial accounts and syncs transactions in real-time, helping you stick to your budget.

The Takeaway

Budgeting is a system that can help you track and manage your money better, which in turn can optimize your spending and saving. There are many different budgeting methods. Popular ones include the 50/30/20 budget rule, the zero-sum system, and the envelope technique. Take some time experimenting to find the system that works best for you. A good budget and the right banking partner can help you along the path to financial wellness.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What’s the best budget plan?

The best budget plan is one that works for you. To find the best fit, consider your goals and personal preferences. Some people want to control their spending and like a really detailed budget, such as a line-item budget. Other people are more focused on making sure they allocate funds towards savings, in which case a 50/30/20 rule could be a good option.

What are the simplest ways to budget?

A simple way to start budgeting is to look at the past several months of financial statements, then determine the average amount of money you have coming and going out of your bank account each month. If you see that monthly outflows are close to (or, worse, exceed) monthly inflows, you’ll want to comb through your nonessential expenses and find places to cut back. Any funds you free up can be funnelled into saving and, if you have debt, paying it down.

What is the 50/30/20 rule budget?

The 50/30/20 rule is a simple budgeting framework that recommends putting 50% of your money toward needs (like housing, food, and utilities); 30% toward wants (including entertainment and dining out); and 20% towards goals (savings, investments, and debt repayment beyond the minimum).

This budgeting method can work well for beginners and those who are looking for a simple approach to personal finance. However, you may need to adjust percentages based on your needs and goals.

What tools can help with sticking to a budget?

All you really need to start budgeting is a pen and a notebook, where you keep track of income and expenses. But tech tools can simplify and streamline the process. Spreadsheets, like Microsoft Excel or Google Sheets, are easy to update and offer built-in formulas for automatic calculations. Budgeting apps, on the other hand, can link to outside accounts, track spending in real time, and categorize expenses automatically, which can save time.

How can budgeting methods be adapted for families?

You can adapt any budgeting method for a family by coming up with your total monthly household income and expenses. Plan for essential costs like housing, food, and childcare first, then set aside savings for emergencies and future expenses. You can involve children by teaching financial literacy through allowances and savings goals.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

SOBNK-Q125-064