The Top 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.

Budget 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.

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.

The best budgeting method 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, utilities, transportation, insurance, food)
  2. I want it now (and don’t wanna give it up) (food, fun, clothes, hobbies, grooming, pets, etc.)
  3. What future me wants (paying off debt, savings, investing)

You’ll want 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 items that are consistent and reliable. For me, anything extra goes towards my savings goals or debt payoff. 

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 in each category:

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

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

What categories should I include in a budget?

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 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 the things 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 or rent
    • Property taxes
    • HOA fees
    • Home maintenance, repairs, or upgrades
    • Home warranty
    • Landscapers
    • Home security services
    • Pest control
  2. Transportation: 10 – 15%
    • Car payment
    • Maintenance and oil changes
    • Gas
    • Tires
    • Parking fees
    • Repairs
    • Annual DMV fees / registration
    • Public transportation
    • Tools
    • Roadside assistance
  3. Food: 10 – 15%
    • Groceries
    • Restaurants
    • Coffee shops
    • Fast food
    • Restaurants
  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
    • 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. 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
    • Hair and nail salon
    • Cosmetics
    • Microblading
    • Massages
    • Spa / beauty treatments
    • Life coach
    • Online courses/self-improvement
  3. Gifts/Donations
    • Birthdays
    • Christmas
    • Anniversaries
    • Weddings, engagement parties, bachelor/bachelorette parties
    • 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
    • Flights
    • Hotels, AirBnBs, VRBO, etc.
    • Gas
    • Car rentals
    • Activities while traveling
    • Food
  9. Professional services 
    • Financial advisor
    • Lawyer
    • Tax professional
    • Business consultant

The “Savings” Budgeting Category

20% of your budget

These are the 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
    • Emergency fund
    • Sinking funds

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

Adjusting Your Budget

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.

Now’s a great time to do a quick analysis of your spending. Grab your last three months of checking account, savings, 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.

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 adjustment. 

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.

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 a credit card.

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

Now that you know 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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