Have you ever wondered what budget categories you should actually use in order to create a meaningful budget?
When I first realized I needed to take a look at our family’s finances, it was nothing short of an awakening. I had heard about budgeting before, and I had made some attempts in the past that worked for a little while. In reality, we were overspending in ways we didn’t even realize, and that started to show up in debt we were suddenly unable to manage. There was no emergency fund, college fund, vacation planning, or savings account. Everything was all day-to-day. Once we sat down to actually make a budget that was workable, we were overwhelmed with where to even start. If you are finding yourself in the same position, this post will give you a short lesson in budget categories and what categories you should actually have in your budget.
When starting with a budget for your family, my best advice is to choose a system that will work with your lifestyle so you use it consistently. You might set up a paper budget planner like the ones I have in my shop or one you create on your own, a cash envelope system, or a mobile app.
Whichever you choose, one of the first steps you will want to take is setting up your monthly budget categories, or a list of your monthly expenses. I will share my list below, and I have created a convenient printable for you as well.
This may be the largest expense category in your budget and includes your mortgage or rent as well as any taxes. Don’t forget to include your homeowner’s or renter’s insurance. Your utilities such as natural gas, electricity, and water go into this category. Dues for homeowner’s association would count in this category; they are easy to forget since they may only be assessed annually.
Tools and home repairs get factored into the Household budget category. It may be challenging to budget for this category since you may or may not know what would need to be repaired over the course of a year. Set aside a little each month just in case, or if you have a special renovation project you are planning, divide the estimated total by 12 to get a budget amount.
This is probably intuitive, but the Automobile category is anything around your vehicle. Car maintenance, annual registration fees, gas, tolls, and so on. Do not put your monthly car payments here if you are still paying down a car note; there is a separate category for your debts.
We practice regular giving within my family, and perhaps you do too. So the Giving budget category would include charities you donate to, tithing with your local church or religious organization, or monies you give to others in need. My family gives to Operation Christmas Child during the holidays, and we allocate a set amount to buy gifts to be included in the boxes.
Collect all your expenses related to schooling here. Tuition payments and books may only be due twice a year, and books may be due once or twice. Again, you want to factor this into your budget every month so you have the money set aside, and it’s not a large surprise expense when the bill comes due.
Expenses in this category that are sometimes overlooked are things like field trip expenses, school lunch money expenses, school pictures or yearbooks, and so on. Be diligent when totaling what gets included in your budget categories.
The obvious one here is your monthly grocery bill, and once you realize how much of your monthly income is being spent on groceries, you may want to make some adjustments. This is exactly what happened to me. I realized we were overspending on groceries AND in restaurants and take out meals. We course-corrected and started meal planning; I was able to feed my family for many years on $150 a week using my freezer meal plans and learning how to shop at Aldi for great deals.
Coffee goes into this category too. You may be accustomed to stopping at Dunkin or Starbucks every morning or on afternoons. This can quickly amount to $10 – $60 a week if not more although you may not realize it at the time since it’s a few dollars each day.
Lots of insurance can fall into this category: automobile, life insurance, disability insurance, or umbrella insurance. You may even have a service for roadside assistance like AAA or some vehicles have Starlink and similar systems. These premiums may be due once a year, but instead, factor their payments over the course of the year and set monies aside each month.
If you find these totals are really high and take up a large portion of your budget, there are some ways you can save on your insurance each month. It may be worth looking into.
This is where you will include all of the payments on money you owe EXCEPT your mortgage. So this would be your credit card minimum payments, school loan payments, auto loan payments, any healthcare debts, or miscellaneous debts you owe. Perhaps a relative lent you money and you are paying them back, etc.
If you’ve been following me for a while, you know I made a goal of living debt-free and I am doing so successfully now. I do suggest you consider a debt payoff plan when you are able, but for now, we are simply including the minimum payments for each bill.
Our pets are like family members, so don’t forget them when setting up your budget categories. Regular food, vet bills, grooming, any supplies or toys should be included.
I firmly believe in enjoying life while you are living within a budget and working to be debt-free. Managing your finances should not equal suffering! So be sure to allow yourself money for date nights, television (cable bill?), streaming services like Netflix or Hulu, family activities or outings, sporting goods, magazines (one-offs or subscriptions), and any miscellaneous things you and your family do for fun.
Any of these items CAN be expensive. But there are also creative ways to do them within your budget too. My husband and I have enjoyed some date nights for free, and I have learned my way around getting great deals on Netflix.
Healthcare is a necessity, so budget for expenses like premiums, medicine, any doctor visit copays, or supplements your family may take.
If you are one of the many families who aren’t provided with healthcare options through an employer, you may want to research some alternative healthcare options like I did. I was able to save thousands on my healthcare premium each year.
Include your charges for your cell phone, home phone (yes, people still have landlines!), and internet expenses here. These can be pricey! I’ve shared a recent article on how to lower your cell phone bill or you can see if there is an option for a service like Mint Mobile in your area.
I debated merging this with “Entertainment,” but opted to keep it in its own budget category. Use this one for items like toys, video games, subscription services, and music.
One of my favorites! It seems to be a debate about whether you should wait to save and invest until you have paid off your debt, or whether you should be doing both. I believe you should pay off your debt BEFORE you start investing, but I also believe you need an emergency fund fast if you don’t already have one.
Whatever you are working towards at the moment, include items like your emergency fund, retirement, college funds, and any other investments here. You’ll also want to set aside a “reserved” category for upcoming expenses.
If you have children, you may be paying on regular daycare or babysitter expenses, perhaps occasional date night sitters, before/after school care, and so on. If you are paying for child support, include that here as well.
Clothes need to be updated either because they become outgrown, worn out, or styles change. So include this as one of your budget categories. There are ways to save on your clothing expenses such as shopping on Poshmark or ThredUp.
Last, but not least, gifts. Brainstorm an average amount you might spend on the birthdays, anniversaries, and holidays within your family. Next, try to estimate how many weddings or baby showers you might have coming up. It may not be possible to know, but you should be able to get a rough idea.
Fixed costs are any of the items in your budget that remain constant. These would be things like your mortgage or rent, insurance premiums, debt payments, tuition, and so on.
Variable expenses are those that can be flexible or change each month. Maybe for you, this is clothing, food, entertainment, or gifts. Be creative in finding ways to reduce expenses in these categories. It’s essential if you find your expenses are exceeding your income, or if you need to pay more on something like debt repayment or building an emergency fund.
As you are getting started setting up your budget planner, you might be confused about how to sort all of your expenses into budget categories.
I suggest 14 basic categories including household, automotive, giving, education, insurance, debts, pet care, entertainment, healthcare, communication, hobbies, savings, childcare, clothing, and gifts. I have created a printable download for you to keep as a reference of what falls into each area that you can get as part of my Flip Your Debt Course.
You’ll notice some of the areas are fixed and some are variable. Find creative ways to reduce expenses in variable categories. Then use those monies to set up your emergency fund and a debt snowball.
Have patience with yourself as you go!
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