4 types of budgets and how to use them

In the digital world, managing money should be easier, but it often feels like the opposite. Bills arrive in your email inbox, through the mail, or in apps. Subscription payments are automatically billed to your credit cards. You never know when an emergency expense may require you to spend unplanned money. With so many ways to spend and so many moving parts every month, it's easy to to lose track of payments or overspend without realizing it.

That's why it's so important to have a budget. The right budgeting strategy holds you accountable for every dollar, making it easier to cut out unnecessary spending, reduce stress, and gain control of your income. But there are different types of budgets depending on your financial goals. Here, we dive into four types of budgets to help you stay organized, reduce stress and make the most of every dollar to use toward achieving your financial goals.

What is a budget?

At its core, a budget is a simple plan for your money. It helps you track money coming in (your income) and money going out (your expenses). Your expenses include your regular, recurring expenses — like rent or mortgage payments, groceries, utilities and childcare costs — as well as the smaller purchases that can quietly add up, like coffee runs and streaming subscriptions. 

When you track both your regular (fixed) and changing (variable) expenses, you start to get a clearer picture of where your money is going every month — and how you might be able to adjust. A helpful way to start thinking about your spending is by breaking it into three buckets: needs, wants, and savings/debt. 

•  Needs are your essentials — like housing, food, transportation, healthcare and childcare. These include essential debts like a car loan or a mortgage. 
• Wants are things that add value or joy, but aren’t strictly necessary — like takeout, shopping and entertainment.  
• Savings/debt gives you an extra category to help pay down personal loans, student loans, or credit cards, and set aside money for both short-term and long-term savings goals.

Once you’ve got a handle on your income and expenses, the next step is finding a budgeting method that works for you. Whether you’re just getting started or looking to reset your approach, these four strategies can help bring more structure to your financial life.  

Types of budgets

There are many types of budgets, each designed to help you pursue specific financial goals. To help you get started, these are four of the most common budgeting methods.

Strategy 1: Percent-based budgeting

If you’re looking for a budgeting method that’s simple and flexible, percentage-based rules can be a great place to start. These strategies divide your take-home income into clear spending categories so you can avoid end-of-the-month surprises.  

One common option is the 50/30/20 rule, which breaks your income into: 

• 50% for needs. This includes rent or mortgage, utilities, groceries, transportation. 
• 30% for wants. This is for discretionary spending, like dining out, going to the movies, hobbies, or travel. 
• 20% for savings and debt. Use this portion to build an emergency fund, save for a short-term goal or pay down credit cards or loans. You can also use this money for long-term goals, like retirement contributions, investing through a brokerage account or a 529 plan for your kid’s education. 

Let's look at an example budget: Say you bring home $2,000 a month after taxes. Under this rule, you’d aim to put aside $1,000 for your living expenses, $600 for wants and $400 for your savings and debt. 

What’s nice about these percentage-based rules is that you can alter them however you want to better reflect your financial situation and priorities. Want to put more toward your debts? Or maybe your biggest goal is to start a retirement fund. The key is choosing a formula that works best for you. 

 
Who it's for: Anyone who wants to balance their everyday expenses with their savings goals.

Strategy 2: Zero-based budgeting

The zero-based budgeting method is a great way to make sure you don’t overspend. The idea is simple: At the end of each month (or week), your income minus your expenses should equal zero. 

But that doesn’t mean you spend every dollar. You just assign every dollar a job. If you earn $2,000, for example, you create a plan for exactly how that $2,000 will be used. Nothing is left unaccounted for. If you overspend in one area, you’ll need to adjust somewhere else. If you end up under budget, that “extra” money should still have a purpose — like padding your emergency fund or investing in your future. 

Zero-based budgeting takes a little more effort upfront, since it requires tracking every dollar closely. But for many people, that level of detail builds stronger awareness and helps curb casual spending. It also makes it easier to evaluate your choices: Is this purchase really worth it? Or would I rather put that money toward something bigger down the line? 

Who it's for: People who struggle with overspending and want to cut back. 

Strategy 3: The envelope method 

If you prefer a hands-on approach to managing your money, the envelope method is a classic type of budget that can help you stick to your spending limits — without the need for apps or spreadsheets.  

Here’s how it works: You divide your cash into physical envelopes, each labeled with a specific category like groceries, gas, eating out or savings. Once the money in a given envelope is gone, you’re done spending in that category until your next paycheck. 

It may sound old-school, but for many people, the tactile nature of using cash makes it easier to stay disciplined. You can actually see how much you have left, which can help curb impulse spending and increase your awareness of everyday choices. 

This method is easy to customize, too. You might start with just a few categories where overspending tends to sneak in — like dining out or entertainment — and keep the rest of your budget digital. Or you can go all-in and envelope your entire monthly income. Either way, it’s a powerful tool for staying grounded in your spending habits.  

Who it's for: People who regularly carry cash and want to plan their spending ahead of time.

Strategy 4: Digital budgeting

If the idea of tracking every dollar sounds overwhelming, good news: Technology can take some of the pressure off. Today’s digital budgeting tools are smarter, more intuitive and more connected than ever — and they can help you stay on top of your finances without getting buried in crunching numbers. 

Furthermore, the app automatically categorizes your spending (so you can see where your money goes each month), provides spending trends over time and offers personalized insights that will help you stay ahead of your financial commitments  

Who it's for: Tech-savvy people who want deeper, automated insights into how they spend every month. 

How to start a budget 

Getting started with a budget may feel overwhelming. Regardless of what type of budget you use, this step-by-step process can make it a little easier: 

• List your income: Know exactly how much money is coming in each month (after taxes).
• Track your expenses: Write down everything you spend money on, from rent to takeout. An app like the U.S. Bank Mobile App can help you do this automatically. 
• Separate needs from wants: Prioritize essentials like housing, food and transportation. 
• Set your financial goals: Decide what matters most, like saving or paying down debt. 
• Choose a budgeting method: Pick a method that fits your lifestyle, like zero-based budgeting or the 50/30/20 rule.
• Adjust as needed: Check in regularly and tweak your budget based on real-life changes. 
  

Don’t just set it and forget it

When it comes to personal budgeting, flexibility is key. Nothing is set in stone. In fact, a 2023 report showed that 84 percent of Americans with a budget still end up overspending.¹ This isn’t a sign of failure — it’s a reminder that life changes, and so should your budget. 

If you find yourself breaking your budget or spending more than planned, it’s time for a reassessment. For example, if grocery prices have increased due to inflation, you might need to adjust that line item in next month’s budget.  

The beauty of a budget is that it’s a living document, designed to evolve as your needs and circumstances do.

Discover nine simple ways to save and consider opening a savings account. 

^1. NerdWallet: "Most Americans Have a Monthly Budget, but Many Still Overspend"