When you’re first starting with a budget, it can be overwhelming and confusing. What should you include? How do you make sure you don’t forget anything? How do you track your spending? The answer to all of these questions is to add budget categories. Categories will tell you what’s included in your budget (and what’s not), how you can spend your money, and how you know you have enough for the purchases you want to make. Today I’m going to share with you some of the most common and useful categories everyone should have in their budget, how I organize my budget, and what to do if you forget something.
Which budget categories should I include?
There are a few basic categories that pretty much everyone is going to have in their budget. The bare minimum is what Dave Ramsey calls The Four Walls. This includes expenses related to food, housing, clothes, and transportation. These are the four areas that everyone needs for basic survival. How you break those down, though, will be different for each person. Then there are other things you may need or want to add based on your priorities. Here are some of the most common categories to include in your budget.
- Eating Out
- Rent or Mortgage
- Cleaning Supplies
- Personal Hygiene Items
- Home Owners/Renters Insurance
- Home taxes (if these are separate from your mortgage or your mortgage is paid off)
- Clothes & Shoes
- Laundry Items (detergent, softener, etc.)
- Car payments
- Gas or public transportation fees
- Regular car maintenance (oil changes, new tires, etc.)
- Car insurance
- License & Taxes for each car
- Spending money
- Other insurances (life, medical, disability, etc)
You may group some of these categories together or maybe you’ll break some down even farther! And you may add other categories or not use some of these categories. It’s really a personal preference and should be determined based on your needs, the information you want from your budget, and how disciplined you are. For instance, we currently keep a separate category for each person in our home to purchase clothes. I used to have just one clothes category, but inevitably all the money would get spent on our kids and my husband and I would be wearing the same old clothes over and over forever. So now we split it up (the kids still get the lion’s share) so that we can buy new clothes for ourselves if and when we need or want to.
How I organize my budget
I’ve changed how I organize my budget many times over the years. But right now I have it broken down into seven main categories with sub-categories under each one. Here’s the overall breakdown.
- Monthly Bills
- TV & Internet
- Car Insurance
- Spending Money (this is money we could take out and spend in cash if we wanted)
- Food & Household Supplies (that includes cleaning, laundry, & personal hygiene products)
- Gas, Oil, & Car Wash
- Clothes (each person in our family currently has their own clothing category)
- Personal Development (books, courses, etc.)
- Fun Money & Toys
- Forgot to Budget/Misc.
- Student Loans (his and mine)
- Spare Change (this is actually a savings category that goes towards our debt payments)
- Non-Monthly Bills
- Trash pickup
- License & Taxes (one category for each car)
- YNAB Subscription (obviously 😉)
- Life Insurance
- Other Subscriptions
- DON’T TOUCH!!!!!!!!!
- Birthdays (one category for each person)
- A few personal savings goals
- New Computer
- New Vehicles (one for me and one for my hubby)
- Medical Expenses
- Home Maintenance/Improvement
- Car Maintenance/Repairs
- Wish Farm
- Things we want to save for but that aren’t currently top priorities so we just fund these as we’re able.
But what happens if you forget to budget for something?
You’ve got your budget all set up and you’ve created categories for every expense you can think of. But somehow you managed to forget something important (or you decided to buy something that doesn’t really fit in any of your categories). What then? How do you account for these things that don’t fit in your budget?
As you may have noticed, I have one little category called “Forgot to budget/Misc.” This is where I keep a little extra cash on hand for just this occasion! When you first start budgeting, you’ll definitely forget to include some things. Often it’s things we don’t pay every month or perhaps subscriptions that have been on auto-pay for years and you don’t even notice anymore. Whatever the case may be, the first several months of budgeting usually includes a lot of learning.
But that’s a good thing! Once you realize you forgot to budget for something, cover the expense with the money you set aside specifically for that purpose and then either add that thing to your budget right away for future months or make sure that expense is eliminated (cancel the subscription or auto payment if necessary).
Another realization you will probably have early on in your budgeting journey is that you really have no clue how much you actually spend on certain things. Most likely, you spend a lot more than you realize on things like food and eating out, gas, clothes, and impulse shopping. And since you don’t have a good grasp on how much you spend, your budget will likely not really meet your needs for the first few months. But don’t worry about that either. It’s all a learning experience.
Cover any overspending with your forgot-to-budget category. Make sure you’re moving the money to the true category and not just taking it directly out of the forgot to budget category – i.e. if you overspent on groceries, take the money from the grocery category and then move money from forgot to budget to groceries to cover it. This way you’ll have an accurate picture of what you’re really spending. After a few months, you’ll start to see what your spending habits really are and you’ll be able to budget more accurately.
When you’re first starting, I highly recommend putting as much extra into your forgot-to-budget category as you can. But as you get better at predicting your spending and knowing what is coming up, you’ll be able to keep less here and know that everything will be covered.
Setting up your first budget should be simple and maybe even fun! Budgeting is meant to reduce your stress levels surrounding finances, so don’t over-complicate this. The best practice is to start small, with the basics, and work from there. The good news is that categories are totally fluid! If you realize that a certain category isn’t working for you (maybe you need to break it down further or you feel confident enough in your good habits to combine a few categories), then just change it! There are no hard and fast rules about which categories you must use or how you should use them. Your budget is yours. Use it in whatever way makes the most sense to you and keeps you on track with your financial goals. Your budget will change and evolve over time as your priorities and goals in life change. There’s always something you can learn and adjust as you go!
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