Envelope, zero-based, and 50/30/20, without the evangelism
Envelope budgeting caps each category at an amount set aside in advance, and zero-based budgeting gives every unit of income a job until none is left unassigned. The 50/30/20 rule sets less in advance: it splits take-home pay into 3 shares, for needs, wants, and savings.
Each method has people who swear by it. Each asks you to decide something different in advance. Below, each runs on the same 2,800 a month, and each breaks somewhere predictable.
The same 2,800, 3 ways
The household in every example takes home 2,800 a month. Its essential costs are rent of 1,050, bills of 190, groceries of 330, and transport of 120: 1,690 in all.
Envelope
Rent and bills leave by standing order. Each flexible category gets an envelope with a set amount in it: groceries 330, eating out 180, fun 120, and clothes 80, which is 710 across 4 envelopes.
When an envelope is empty, spending in that category stops until the next period. The only way round it is to move money in from another envelope, which takes it from something else. If eating out is empty on the 19th, the next meal out comes from the fun envelope or waits.
The original envelopes held cash. Today they can also be separate accounts, or budgets in an app, with the same rule.
Zero-based
Before the month starts, every unit of income is given a job, until income minus jobs is zero. Savings is a job. So is a buffer for things nobody saw coming.
| Job | Amount |
|---|---|
| Rent | 1,050 |
| Bills | 190 |
| Groceries | 330 |
| Transport | 120 |
| Eating out | 180 |
| Fun | 120 |
| Clothes | 80 |
| Gifts | 40 |
| Savings | 560 |
| Buffer | 130 |
| Left to assign | 0 |
You set 10 numbers, and you set them again every month, because each month's income and costs are a little different.
50/30/20
The rule divides take-home pay into 3 shares. Half goes on needs, the costs you cannot avoid. Another 30 percent goes on wants, everything you could do without. The last 20 percent goes to savings and to paying off debt.
You set 3 numbers once, and you track 3 totals rather than every category. On 2,800, the rule asks for 1,400 of needs, 840 of wants, and 560 of savings and debt. This household's needs come to 1,690, which is 60 percent, not 50. Something has to give:
| Share | If savings stay | If wants stay |
|---|---|---|
| Needs | 1,690 | 1,690 |
| Wants | 550 | 840 |
| Savings and debt | 560 | 270 |
| Total | 2,800 | 2,800 |
If savings stay at 560, wants shrink to 550, which is 20 percent, and the household runs 60/20/20. If wants stay at 840, savings shrink to 270, about 10 percent, and it runs 60/30/10.
Where each one breaks
Envelope breaks with cards and lumpy costs
Envelopes were built for cash, where an empty envelope physically stops you. With a card, the envelope is a number, and nothing stops the payment.
Costs that arrive once a year do not fit a monthly envelope, unless you keep an envelope just for them and feed it every month.
Moving money between envelopes is allowed. When it happens every month, the envelopes stop describing anything, because the amounts in them no longer match how you spend.
Zero-based breaks when time or income runs short
It takes time. Every month, every line has to be assigned before the month starts, and the more lines there are, the longer that takes.
It needs to know the income. With pay that changes month to month, you cannot give a job to money that has not arrived. One way round it is to assign last month's income instead, which means holding a month in reserve first.
A surprise means reassigning. A car repair of 200 on the 9th empties the 130 buffer and takes 70 more from other lines, mid-month. That is the method working as designed, and it can still feel like bookkeeping that never ends.
50/30/20 breaks when essential costs are high
Where rent is high, needs pass 50 percent before the first meal out, as they do here at 60. The rule then has nothing to say about which of the other 2 shares gives way.
The line between needs and wants is also yours to draw. A phone is a need. The newest phone is a want. Groceries are a need, and part of a large weekly shop may not be. People running the same rule can draw the line in different places, and both believe they are on 50/30/20.
And it has no signal inside the month. It sets 3 shares, but it does not tell you on the 12th that this week is running over.
What the 3 have in common
All 3 are decisions made before the money is spent. All 3 depend on a record of what was actually spent, and without one, none of them tells you anything. They also mix: some households use 50/30/20 for the overall shape and envelopes for the categories that tend to run over.
Any of them can run in a budgeting app that lets a budget cover any set of categories. In Skarb, a budget can cover one category, several, or every expense, so a budget can be an envelope, a line of a zero-based month, or the needs or wants share of 50/30/20.
What to do on Monday
- Write down your take-home pay and your essential costs for a month.
- Work out what share of the take-home pay those costs are.
- For each method, write down the first number it would ask you to set.
- If you try one, give it 2 full months before you judge it.