How To Determine Your Budget Categories

When you start budgeting, it can seem so daunting.  At least it was for us.  We knew we wanted to get out of debt, and learning how to efficiently budget our money was made a little easier since our income and bills were pretty straight forward.  For us, it was the “other” expenses that were harder to sort out.  Those small expense leaks in our budget.  There always seemed to be categories that I forgot about month to month, and then the random category expenses that weren’t consistent each month.  It was exhausting!  How exactly could we determine our budget categories down to the penny?

When we started to focus on getting these smaller expenses under control, I did a lot of research on how much we needed to budget for each category.  What I found was a lot of answers out there on what percentage of our budget should go to specific categories.  This was exactly what I was looking for!  Something that would tell me how much to spend for certain categories, down to the penny!  In order to get a good look to see if our budget met these specific percentages, I needed to look over our spending.  So I did a deep dive into our bank statements and receipts.

What I found was that our budget didn’t meet the percentages so widely recommended.  It just added to our already high level of confusion and frustration.

For example, our car expenses were much higher than the percentages, but we live in a rural area and need a car to get anywhere.  Our rent at the time was within the percentage recommendation, but it was drowning us because the rental market in our area spiked with the influx of Marcellus Shale workers.  We had minimal savings at the time… and our budget was already stretched so thin you could forget about even setting anything aside consistently in our savings accounts.

It was time to take a step back, and look back over bank statements and receipts again.  Time to find out what our statements said we spent our money on.

What I found, among many things, was that most of our health expenses at the time were dealt with through Hubs’ employer.  We only had minimal contributions from his check {so I personally didn’t include it}, and then very minimal expenses once we hit our deductible, which at the time was $400 for the year for the family.

All of our insurance costs lumped into our one monthly bill weren’t even close to the minimum percentage, and we were very happy with our coverage.

Our food was exceptionally high, even based on percentages.  Since I couldn’t change medical costs very much, food was something we could work on.  I started monthly meal planning, shopping sales, and even using coupons to help get our grocery bill down.

But there was something else that we needed to do.  We needed to sit down, takes some time, and figure out what our spending priorities are, and from there, we could figure out our budgeting categories.

 

How To Determine Your Budget Categories When You’re Just Starting

Write down where you think you’re spending your money.

For us, I know we spend on groceries, household {yes, it’s a separate category for us because I don’t want household expenses to be a huge chunk of our grocery budget for the week}, fuel, and medical costs like copays and out of pocket portions.

But what you may be forgetting are the irregular categories.  What about pet grooming, hair care, new shoes for your kids and the occasional school fundraiser?

Using an expense tracker is really good for this. You can learn more about TRACKING YOUR EXPENSES HERE.

Look at your past bank statements.

Yeah, I said it.  But it really is critical to see where your spending priority.  When I did this with our 2018 expenses, I found out that we spent nearly $3,000 on medical costs last year.  We spent nearly $1000 on repairs and maintenance for our car.  And then there’s clothing.  We spent money on clothing {aside from our clothing cash envelope} and I some of it completely forgot about it.  How, I don’t know, because my kids have been growing out of shoe sizes so fast!

Make a realistic plan for moving forward.

Are there categories you can cut out?  Are some categories a complete surprise?  Did you blow your estimate on some categories out of the water?  What were some categories you forgot about., or categories you thought you were spending money on, but really weren’t?

Whatever the case, go through each category and plan what you will do with each.

What categories will you continue to use your debit card for?  Are there any categories you’ll want to take out cash for?  Will you have them in a savings account?  I personally use all three, depending on the category.

 

Point is, you just need to have a realistic idea of what your spending habits have been, what you want your spending priorities to be, and how you plan to stick to those priorities.

 

To help you get started, I created a printable list of budgeting categories that you can fill in.  It’s available for free in my resource library, which you can sign up for here.

Please keep in mind, this is by no means an exhaustive list of all the possible categories you would need.  It’s simply a starting point.  There are some blank spaces at bottom so that you can fill in your own if I happened to leave some out.

Tailor this printable for how you’ll use it.  I filled in some of our expenses over the course of 2018, but you can fill it in monthly if you choose.  If you don’t need a category, use some white-out and write in a category you do need.

The takeaway I want you to see is that budgeting by someone else’s generic standard won’t always accurately reflect your own situation.  By analyzing your own spending habits and priortites, you will have a much easier time determining your own budget categories.