Which Personal Budget Categories You Actually Need

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    Let’s be honest – the idea of budgeting freaks a lot of people out. Budget basics can be hard enough – and then toss a bunch of budget categories into the mix? No wonder the majority of folks nope right outta there and never come back.

    Not that I can blame them. Think about it like ice cream. If you’ve never had it – and then get hit with a zillion questions about flavors, sprinkles, nuts, candy, whipped cream, and cherries – it can be overwhelming. 

    Budgeting is like deciding what flavor of ice cream to use in your sundae. Everyone has a preference, right? It’s a basic of ice cream building 101. And, it’s the same for building a budget.

    Budgeting categories are like all the fancy (yummy) stuff that you throw on top of that cup/cone – they enhance the ice cream (budget), but you still have to have a substantial scoop of ice cream (budget basics) underneath.

    So before we get into aaaaalll the commonly used budget categories we can add to our budget, let’s start by covering a budgets’ basics.

    Why Should I Use Budget Categories?

    Budget categories are important to your overall financial plan. They’re a great way to figure out if you’re spending your money on what’s important to you. When it comes to personal finance – it’s just that, personal. What one person deems a necessary expense, another is more than happy to spend in completely different categories. Neither are wrong, and both are right. Money is a tool to help you achieve your goals and find your happy place with family and friends.

    Let’s say you grew up working on cars with your dad, and it was your happy place. To you, cars are a passion and an important part of your past – and future. Once you assess your spending and budget categories, you realize you’re spending more on clothes, eating out, and entertainment than you are on your passion. By reviewing your categories and making adjustments, you then are able to spend your money on what’s really important to you. Sometimes we just don’t realize that our spending has gone off track,and our priorities have slipped. By doing a quick assessment, you can figure out what’s important to you,and readjust your budget categories to reflect that.

    Assessing your spending and figuring out your budget is easier than you think. Next, let’s talk about the basic elements of a budget, what budget categories to include, how to assess your spending, and how to make adjustments.

    The Basic Elements of a Budget

    couple working on their budgetThere are many different budgets you can go with – from YNAB (You Need a Budget) to Mint to old school spreadsheets or cash envelopes – but we’re going to keep it simple. If you start with simple budget categories, you’re more likely to stick with it for the long run.

    One of the best budgeting methods to use is the 50%/30%/20% budget. It uses three main budget categories so that it’s much easier to organize your spending. 

    The three main budget categories are: needs, wants, and savings.

    Or, as I like to call them: 

    1. I can’t live without these (housing expenses, utilities, transportation, health insurance, food)
    2. I want it now (and don’t wanna give it up) (extra food budget, fun, clothes, hobbies, grooming, pets, etc.)
    3. What future me wants (paying off debt, savings, investing)

    The first step is to start by looking all at the income you earn in a month. Your earnings can include:

    • Paycheck
    • Side hustles
    • Bonuses
    • Job reimbursements
    • Tips
    • Alimony
    • Child support
    • Gifts

    I only like to include a line item if it’s consistent and reliable. For me, anything extra goes towards my financial goals, whether they be debt payoff, savings, or investing. 

    Once you have this amount, divide it into our three percentages. For example, let’s say you bring home $4,000 a month after taxes. That means you’ll have this much money in each category:

    • Needs (50%): $2,000
    • Wants (30%): 1,200
    • Savings (20%): $800

    Now that you have your basic categories and amount of money set, you’ll want to determine which budget categories fall into each of these three main categories.

    Which Budget Categories Should I Use?

    Now that you’ve picked what flavor of ice cream you want (the type of budget), it’s time for adding the good stuff. The beauty of budgeting is that it’s personal – one person’s budget won’t work for another because not everyone has the same circumstances.

    Review the budget categories below and pick out the ones that make sense to you and fit your spending plan and life. It’s that simple!

    Some line items might make more sense to you in another category; for example, homeowner’s insurance can go under Housing or Insurance. It’s all about how you want to break things up. Everyone is different, which means everyone’s budget is different. Make it work for you.

    The “Needs” Budgeting Category 

    50% of your budget

    Needs are any important thing you cannot live without – housing, transportation, insurance, food, and more. Below are suggested budget categories that I consider needs and the percentage of your total income it should generally use:

    1. Housing: 24 – 35% (typically the largest chunk of the pie)
      • Mortgage payment or rent
      • Property taxes
      • HOA fees
      • Home maintenance, repairs, or upgrades
      • Home warranty
      • Landscapers
      • Home security services
      • Pest control
    2. Transportation: 10 – 15%
      • Car loan / car payments (including leased cars)
      • Maintenance and oil changes
      • Gas
      • Tires
      • Parking fees
      • Repairs
      • Annual DMV fees / registration
      • Public transportation
      • Tools
      • Roadside assistance
    3. Food: 10 – 15%
    4. Utilities: 5 – 10%
      • Electricity
      • Water
      • Garbage
      • Phones
      • Cable
      • Internet
      • Recycling
      • Sewer
      • Natural Gas
    5. Insurance: 10 – 25%
      • Medical
      • Dental
      • Vision
      • Long-term care
      • Pet insurance
      • Homeowner’s / Renters insurance
      • Umbrella policy
      • Auto insurance
      • Life insurance
      • Disability insurance
      • Identity theft
    6. Medical/Healthcare: 5- 10%
      • Copays
      • Dental
      • Medical bills
      • Over the counter medications
      • Prescriptions
      • Medical devices / medical expenses
      • Eyecare
      • Pharmacy
      • Vitamins / supplements
      • HSA / FSA
      • First aid items
      • Chiropractor
      • Counseling or therapy
    7. Clothing
    8. Household Items / Supplies
      • Toiletries
      • Cleaning supplies
      • Furniture
      • Home decor
      • Pool supplies
      • Postage
      • Paper products
      • Small appliances
      • Emergency kits
    9. Taxes
      • Federal
      • State
      • Local
      • Sales tax
      • Property tax

    You’ll notice that the percentages that I put next to each category above have a range. Where you live, if you own a home or rent, and the cost of insurance all factor into your budget, so I’ve given a general amount that each should use. 

    The “Wants” Budgeting Category

    30% of your budget

    These are all of the things you can live without – but probably don’t want to. These expenses are going to vary significantly compared to the needs category. Some people have kids, some pets, some both. Some are going back to school, or traveling, or have expensive hobbies. This is a one that you’ll want to make your own category and personalize it to your liking. Some of the items that fall into this budget category are:

    1. Education
      • Kid’s college
      • Your college
      • School supplies
      • Books
      • Tuition
      • Daycare
      • Before/after school care
      • Summer camp
      • Registration fees
      • Tutoring
      • School lunches
      • School field trips
    2. Personal Care
      • Subscriptions
      • Gym memberships
      • Haircuts (and tips for your barber)
      • Hair and nail salon
      • Cosmetics
      • Microblading
      • Massages (don’t forget to include the tip for the massage!)
      • Spa / beauty treatments
      • Life coach
      • Online courses/self-improvement
    3. Gifts/Donations
      • Birthdays / Birthday Parties
      • Christmas
      • Anniversaries
      • Weddings, engagement parties, bachelor/bachelorette parties (learn more about affordable wedding rings alternatives here)
      • Baby showers
      • Special occasions
      • Charity donations
      • Teacher gifts
      • Service gifts (mail person, garbage person, etc.)
      • Political donations
      • Community donations
      • Tithing
      • Non-cash donations to Goodwill, food pantry, etc.
    4. Entertainment
      • Alcohol / bars
      • Movies
      • Concerts
      • Vacations
      • TV Subscriptions (Netflix, Hulu, Disney+)
      • Newspapers & Magazines
      • Music subscriptions
      • Amazon prime
      • Software subscriptions
      • Books
      • Spending money
      • Sporting events
      • Hobbies/crafting
      • Electronics, such as cell phones, laptops, etc.
    5. Kids
      • Extra-curricular activities
      • Toys
      • Sports equipment
      • Allowance
      • Baby supplies
      • School uniforms
      • Babysitter
      • Nanny
      • Child support
    6. Pets
      • Grooming
      • Pet food
      • Pet supplies
      • Accessories, toys, beds
      • Vet visits
      • Pet medication
    7. Miscellaneous
      • Bank fees
      • Credit card fees
      • Professional dues
    8. Travel
    9. Professional services 
      • Financial advisor
      • Lawyer
      • Tax professional
      • Business consultant
      • Any other business expense

    The “Savings” Budgeting Category

    20% of your budget

    These are the personal budget categories that are going to help out future you. They’re your retirement, savings, investments, and debt payoff to make a happier you:

    1. Debt
      • Personal loans
      • Student loans
      • Credit card debt
      • Past due bills
      • Back taxes
      • Medical debt
    2. Retirement
      • Financial Planning
      • Investing
    3. Savings

    Altogether, savings, investing, and debt payments should use approximately 20% of your budget. 

    Assess Your Current Spending vs. Where You Want Your Budget to Be

    Now’s a great time to do a quick analysis of your spending. A great way to do so is to grab your last three months of your bank account, savings account, and credit card statements. You’ll want three months so you can figure out what your average spending in each category is. 

    You’ll want to look for spending patterns and see where you need or want to adjust. It’s a lot easier to see these patterns when you look back over several months.

    Is your spending in line with the budget categories that are important to you? If not, why? If not, you can ask yourself some questions to figure out where things are going wrong:

    1. Am I not following my desired budget categories due to too much debt, mindless spending, or something else?
    2. What am I spending the most on? Is this something that’s important to me?
    3. How can I adjust my personal spending so it’s in line with my passions and financial goals?
    4. Do I need to start bringing in extra money with a side gig to offset my expenses?

    Adjusting Your Budget Categories

    Now that you have a basic budget and categories divvied up, what can you do if you’re over the percentages?

    While the percentages are a guideline and not a rule, it’s essential to adjust if you are massively over in any category.

    Once you pinpoint those spending patterns that you want to adjust, start small. It’s easier to cut and change a bit at a time than make a huge change for your first time adjusting your budget. 

    What if you’re already living paycheck to paycheck and are on a super tight budget? There are some excellent services like Trim or Truebill that can help analyze your bills and negotiate on your behalf. They can review and help you save on internet service, credit card interest, electricity, subscriptions, and more. Read more about how I saved $240 in about five minutes using Trim.

    Check out other great ways to adjust your spending and save more money:

    Next Steps and Sinking Funds

    Now that your budget is in place don’t forget that it’s is a living document. Your budget is not set in stone and is meant to be flexible. 

    If one month you need to spend more money on kids’ clothes, adjust another category to make up the difference.

    If there are upcoming expenses that you know are heading your way, you can create sinking funds to help pay for them. 

    For example, we all know that Christmas shows up every December 25th, like clockwork. By reviewing what you spent last year and planning for this year, you can avoid putting everything on credit cards.

    Creating a sinking fund for Christmas is the best way to get ahead and avoid taking on additional debt. Learn more about sinking funds here.

    Now that you have a good idea of how to budget and what categories you need, let’s get to it! Let me know what bumps you run into or questions you have in the comments below

    Text that reads welcome to Debt Free Forties

    A forty-ish web designer/developer by day, a budget & financial fanatic by night. I’m a mom, wife, avid reader, and DIY enthusiast who’s tracking our journey to debt freedom. Read More

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