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Best budgeting strategies

We break down the most popular budgeting methods in Australia to help you find the one that suits you.

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Barefoot Investor budget

Bestselling finance author Scott Pape, the "Barefoot Investor", popularised this "back of the serviette" budgeting strategy. He suggests dividing your income between 3 separate buckets, each with its own bank account, that allows you to cover your day-to-day living expenses, build your wealth and leave enough spare to cover any emergencies.

How it works

When first setting up your buckets, it's easiest to schedule automatic transfers so that your funds are immediately directed to the right account. The 3 accounts are divided like this:

1. You Inc (~60% of your income)

This is your main bucket and is used to cover all your regular living expenses. This will include rent (or mortgage repayments), utilities, groceries and all the other costs that crop up in your day-to-day life. While it's recommended you devote around 60% of your income to cover these costs, this percentage may be higher or lower depending on your income and standard of living. Either way, having a clear understanding of how much you need to cover your living expenses each month is extremely useful.

2. Savings (20% of your income)

This bucket should first be used to pay off any existing debts, and then to build your savings via a high-interest savings account. If you have multiple debts, concentrate on paying off the smallest first, and then knock them over one by one.

3. Splurge (20% of your income)

Once you've covered your living expenses and emergency fund, the remaining 20% of your income can be devoted to a separate account that can be used on things that make you happy. This could be anything from a holiday to a new TV, but Pape recommends trying to avoid "lifestyle creep" as your income increases or you save more money. While you may be able to afford a new car after a promotion, that money might be better spent on something that truly makes you smile.


  • Highly structured and automated
  • Easy to follow for beginners


  • May not work for all incomes
  • Relatively conservative approach to saving

Who is the Barefoot Investor budget good for?

The Barefoot Investor budget approach should suit those looking for a structured budget that is still relatively hands-off. By using separate accounts with automatic transfers, the budget should take care of itself, and give you a better sense of where you're spending your money each month.

The 50/30/20 budget

Arguably the most famous budget strategy, the 50/30/20 method goes by many names but remains a tried-and-tested approach to saving. It was made popular by US senator Elizabeth Warren in her 2005 book "All Your Worth: The Ultimate Lifetime Money Plan."

How it works

Like the Barefoot Investor budget, the 50/30/20 rule divides your income into 3 separate pots, each of which is allocated a certain percentage of your income:

1. Needs (50% of your income)

Your "needs" are your basic living expenses, which includes things like housing, bills and other necessities. If you find that these costs come to more than 50% of your income, it may be worth breaking down your expenses to see if there's anywhere you could save money. Otherwise, you may have to move a couple of percent from your "wants" pot to cover the difference.

2. Wants (30% of your income)

This covers all your discretionary spending, whether that's your Netflix subscription, socialising or hobbies. It may be that the cost of your "wants" accounts for less than 30% of your income, so feel free to add whatever is left over to your savings account. But make sure you aren't deliberately scrimping on your discretionary spending, as this could make the budget unsustainable over the long-term.

3. Savings (20% of your income)

After covering your wants and needs, you should hopefully be able to allocate the remaining 20% of your income to long-term savings. You could choose to leave this money in a savings account, or invest it in an index fund, but this account should also be used to pay off any long-term debts first.


  • Easy to understand and stick to
  • Offers a good balance


  • Spending only 50% on "must haves" may be unrealistic for some
  • Can be confusing knowing what category some things belong to

Who is the 50/30/20 budget good for?

The 50/30/20 budget is popular for a reason – it's easy to follow, and strikes a nice balance between responsible and discretionary spending. With 30% of your income devoted to things you enjoy, it should suit those who struggle to remain disciplined when budgeting, but those with unstable income or higher-than-average living costs may find it hard to manage.

Pay yourself first

Also known as the "anti-budget", this approach flips the usual spending breakdown. Instead of starting with your living expenses, you decide how much you want to save and work backwards from there. This might be a defined amount, such as enough to cover a house deposit, or it might be a certain percentage of your income. For example, say you wanted to save $6,000 over the course of a year. You'd need to set aside $500 each month, and can then spend the rest of your income as needed.

How it works

  1. Work out your savings goal, whether it's a specific figure or percentage.
  2. Set up an automatic transfer so that the required savings amount is sent to a dedicated account each time you get paid.
  3. Use the rest of your money to cover your living expenses and discretionary spending.


  • Offers a clear budgeting goal to strive for
  • More flexibility with how you spend the rest of your money


  • Requires discipline
  • Spending habits won't necessarily improve

Who is the "anti-budget" good for?

The pay yourself first approach is a good option for anyone with a clearly defined savings goal, or looking for a temporary budgeting approach. However, those looking to get a better overall handle on their spending or improve their finances long-term may want to consider a more structured budgeting strategy.

Zero-based budget

Traditionally used more for business budgeting, the zero-based budget strategy is an extremely hands-on approach where every dollar of your income gets assigned to a spending category.

How it works

Simply put, a zero-based budget requires you to put together a detailed budget each month that breaks down exactly where you'll be spending your money that month. How granular you get is up to you, but you'll generally need to go deeper than assigning money to generic categories like "living expenses". You'll almost certainly need to use a free budgeting template or your own spreadsheet to keep track of everything.

If your actual spending differs slightly from your budget, you can readjust your figures for the next month, and roll over any excess money to where you think it is needed.


  • Offers the most comprehensive approach to budgeting
  • Detailed view of where all your money is going


  • Requires a big time commitment
  • Can be confusing for inexperienced budgeters

Who is the zero-based budget good for?

The zero-based budget is best suited to committed budgeters who want to learn as much about their spending habits as possible. It's unlikely to work for anyone just looking to get a better handle on their finances, or who want some help setting up a basic savings or budgeting goal.

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