Personal Budgeting:
Creating Categories for Your Budget

No one likes budgets - at least no one that I know. But personal budgeting can help us to spend less and save more.



One way to make your budget fit your needs is to create categories for the different expenses that you have. That makes it more meaningful to you and your family.

Getting Organized: Finding Your Categories
Categories help keep expenses organized within your overall budget. Having a pile of ATM receipts doesn't help you know where the cash went. Even lines on a bank statement may not help much if you can't add your own details. When you add category information to what you spend, you get a better idea of where you are spending your money.

To figure out which main categories you need to start with, list all of the income and expenses from the last full month. Start with a few simple ones in your budget worksheet. Don’t make things complicated right away. Having too many categories could make you throw in the towel as that will make this really tedious, really fast. They do need to make sense to you, though. Here are some suggestions on different ways to figure out your best personal budgeting categories.

  • Use broad categories. This will let you put things into place easier because they can be used for many items. This approach would use categories like “Income”, “Insurance”, “Housing Costs”, “Entertainment”, “Living Expenses”, and “Savings Account.” As you get more experience or feel like you need more detail, you can add subcategories. This would include things like "Mortgage Payment" and "Electricity" under "Housing Costs." You may want to use broad categories if you are tracking spending in a specific area. That one spending area can be more detailed while the rest of the expenses get lumped into bigger categories.
  • Use smaller categories or names of family members. In this method, you start at a more precise view of the expenses although you still want to have categories to group expenses in your household budget. Under this method, a payment to the water company would go under “Utilities.” Your son’s soccer uniform payment can fall under “Entertainment”. If you have more than one child, you can create a category under each of their names for any expenses related to their hobbies.
  • Let home budgeting software give you the categories. If you are using home budgeting software, it often comes preloaded with common budget categories. You can add your own, of course, but there is a usually a very good list that you can use without having to come up with many new ones.

This can actually the fun part (if you can believe that budgeting can be fun!). There is no limit on categories so you can let your imagination run wild. Maybe not completely wild - you have to maintain this into the future plus you will want it to make sense as you review your expenses. It is this tracking and review that sets you up for making personal budgeting really work for you. You can use your budget to:

  • Figure out where you are really spending your money. Look at what the wants vs. needs and where you can reduce the expenses that don't rise to the top of your priority list. (This works best with more specific categories, but is doable with any level of detail.)
  • Increase your savings through your reduced spending.
  • Get your finances organized. It's hard to know where you are going if you don't have a good handle on where you are. A budget gives you that picture. This can be true for personal budgeting, household budgeting and business budgeting.
  • Get you in the habit of paying attention to your money habits on a regular basis. To make your budget work as hard as you do, you need to update it once a week or every two weeks. You can do this in a notebook, on a home budget worksheet in Excel or in home budgeting software depending on what works best for you.

Getting on the right personal budgeting path is one of the best first steps you can take for your family money management. Using categories to make it work for you is an even better way to make that first step count.


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