Money management is a crucial part of many people’s financial success, but it can be hard to know where to start. If you want to have a successful budget, you need to start by tracking your income and expenses. In order to do that, you need a good method of categorising expenses. In this article, we’re going to discuss some popular budgeting categories for categorising your personal expenses so that you can easily track your spending.
Budgeting is one of the most important steps in creating a personal finance plan. By planning how you spend your money, you can set aside funds for future purchases and emergencies. When you budget, you can also see where your money goes each month and where you might need to cut corners. While the suggested amount you should budget depends on your individual needs, there are certain expenses that can be grouped together to manage your finances easily.
How often do you find yourself with no money left in your bank account? Or, better yet, how often do you spend more money than you have? If you’re like most people, the answer is too often. The most important thing to do when you realize that you are spending more than you have is to stop. If you want to change your future, you’ll need to make some changes to your present.
Why is Budgeting So Important?
It’s crucial to sit down and understand why budgeting is so important. The best way to do this is to first talk about what budgeting truly is. A budget is essentially a financial plan that you create that outlines how much money you have coming in and how much you have going out. It helps you make better decisions about your finances, which can help ensure that you are using your money to achieve your financial goals.
The importance of budgeting can’t be stressed enough. In fact, many people fail to budget at all. While it’s not always easy to fit a budget into your financial plan, it is critical to your future success. A budget helps define your financial goals and keeps you from spending money on things you don’t need. It also keeps you accountable for your spending decisions and can help reduce debt.
Budgeting Categories
Housing & Utilities
This is one of the most important categories in your budget as we need to make sure we have a roof over our heads and that it is properly maintained to ensure safety for us and our families.
Expenses you might include in this category are:
- Mortgage / Rent
- Property Tax
- Home & Content Insurance
- Home Improvements
- Council Tax
- Water
- Gas & Electricity
- Broadband
- TV Licence
Food
Okay, I may have lied. This is probably the most important budgeting category because we need food to survive. However, it is usually the category that gets left out and tends to lead to overspending if we don’t manage our food budget properly.
There are a wide range of things you can do to decrease your food spending such as meal prepping, taking a shopping list with you to the grocery store, and utilising loyalty points and rewards.
However, my number one tip is to use a different bank account just for food spending! This includes your grocery budget and a realistic estimate of other food spending during the month, such as takeaway and eating out.
Not sure how much you need towards food? Print off two to three months’ bank statements and go through with a highlighter, highlighting all food spends. Work out an average and this is your food budget. If you want to, reduce this a bit.
Transport
Do you have to commute to and from work? Your transport costs should cover the following:
- Vehicle Lease
- Road Tax
- Car Insurance
- Fuel
- Maintenance
- Parking Fines
- Parking Fees
- Public Transport
- Travel Cards
- Rail Cards
Home Supplies
These are those things that you don’t NEED (toilet roll is arguable here), but they creep up on you and all of a sudden you’re laden with extra expenses you weren’t expecting and your budget is all out of whack for the month. Especially if you use Zero Based Budgeting.
- Tools
- Home Decor
- Cleaning Products
- Toilet Roll
Saving & Investing
This is an important one, and there’s a reason why I’ve put this ahead of some of the other categories. We often leave Saving and Investing to the end of our budget and save what’s leftover but this often leads to slow progress and dipping in.
Instead, we should work out exactly what our saving and investing goals are, and how much we need to save each month, working our budget around this. This is otherwise called paying yourself first and is a phrase thrown around a lot in the personal finance space.
When we pay ourselves first, our savings are secure and our goals are actively being worked towards which in turn can lead to a positive money mindset, and belief in your ability to achieve goals.
Debt
Another important one that should be considered as paying yourself first is if you have high-interest debt that needs paying off. When we have high-interest debt, we’re paying a fee for the money we spend months, and sometimes years ago. We want to minimise this as quickly as we can so we can focus all our money on our current needs and desires, and our future goals.
If you have high-interest debt do this:
- List our your debts from highest interest to lowest
- Focus your cash at the highest interest debt while continuing to pay minimums on the others
- Once the top one is paid off, move to the next. You should have more cash available to put towards this second one.
- As each debt is paid off, you should have more cash available that was previously going towards their monthly minimums until they are all paid off
This is called the avalanche method and is typically recommended as not only do you pay off debt quicker, but this also saves you money in the long run via interest payments.
Children & Pets
Seeing as they usually can’t look after themselves, we need to ensure these costs are covered before spending on ourselves and others generally.
- Toys
- Pocket Money
- After School Clubs
- Weekend Activities
- Baby Necessities
- Tuition
- School Uniform
- School Suppies
- Baby Sitters
- Pet Food
- Pet Insurance
- Doggy Daycare / Cat Sitters
Self Care
Now we move to the ‘optional extras’ section where it’s still important to spend but to become more conscious of our financial goals and intentional spending.
- Haircuts
- Cosmetics
- Nails
- Eyebrows
- Holidays
Gifts
- Birthday Gifts
- Christmas Gifts (bonus points if you buy these well in advance)
- Engagement or Wedding Gifts
Fun Money
This is yours to spend. Sometimes we need that extra buffer in our budget to ensure we can be flexible and attend social events. This may include nights out, new clothes, cinema trips, books, etc…
This budgeting category should also include any non-essential subscriptions such as streaming services, magazines, gym memberships, and software.
Conclusion
Money management is a crucial part of many people’s financial success, but it can be hard to know where to start. If you want to have a successful budget, you need to start by tracking your income and expenses. In order to do that, you need a good method of categorising expenses. Have you added any new budgeting categories?
