Here’s your shortcut to creating a budget that works.
Some budgets are overwhelming because they have way too many categories. We’re not likely to keep engaging with something that feels complicated. We want to feel good about our budget.
Other budgets have so few categories that they don’t account for all the spending you do and so the budget doesn’t work. There are categories like gifts and home supplies that most of us never think to include in our budgets – and then we think that budgets don’t work.
To make sure we have enough to cover everything we spend money on while not creating a hundred different spending categories, we need to group purchases into categories that make sense.
Grouping categories has the added bonus of creating categories that represent our values. The categories that I recommend are meaningful ones that reflect how much we care about the things we spend our money on. That’s why I refer to my budget as a values-based budget – because you set up a plan to spend your money in proportion to how much each of your spending categories matter to you.
Here are the critical categories you need to create a budget that you’ll actually want to stay on track with.
Transcript:
The categories that you pick for your budget matter more than you think. The spending categories in your budget represent your values. If you’re not sure how, be sure to check out the video where I explain why that is. Now, if you’re on board, then let’s dive into the 20 budget categories that I recommend. Before we do, please know that you don’t need all of these categories. If you don’t spend any money on a certain category, then obviously you don’t need it. But if you spend even a little on that category, it deserves to go on your list. Also, if you want to combine some of the categories, that’s fine too. I’ll let you know some of the common ones that get combined. And also, I’ll show you which categories sometimes get broken down into other categories. The question to keep in the back of your mind is, where did all my money go? Because that’s the fourth question of my five question financially fit test.
And when you answer that question, you’ll know how much money went towards each of these categories. And finally, at the end, I’ll explain what categories I don’t have and the reasons I recommend that you don’t have them either. All right, so here are those categories. One, housing. This is your rent or mortgage payment. If you own your home, this also includes property taxes and insurance, which are usually impounded and paid monthly with your mortgage payment. If you rent, this category also includes renter’s insurance, which you should most definitely have. All right, number two, home furnishings. These are the items you buy for your home that last a year or longer, so the more permanent things. Number three, home utilities, electricity, trash, water, you know the basic services. Number four, home repairs and maintenance. If you rent, you can probably skip this category.
If you’re a homeowner, this is probably your most hated category. Number five, home supplies. These are the little things that last less than a year and that need restocking. You can think of it in subcategories, but these shouldn’t be separate categories, so like kitchen supplies, bathroom supplies, home office supplies, laundry supplies. You get what I mean? Yeah? All right, six is your category four kiddos. If you have any children or people in your life that you take care of regularly, they should get their own category. Lucky number seven is for pets, eight is for groceries, which can be combined with home supplies if you buy both of them from the grocery store. I personally prefer to make them their own categories though. Number nine, everyone’s favorite, dining out, everything you eat and drink outside of your home. Number 10 is every and any expense related to your car. And 11 is every cost associated with health insurance. If you are like me and pay for your own policy, that would include premiums, and also copays and whatever bill you’re left with after your insurance claims they’ve paid their part. Whatever. Clearly no bitterness.
All right. Number 12, health. Love this category. It’s the category for everything health related that you pay for that has nothing to do with insurance. And lucky number 13 is personal development and education. Number 14 is entertainment. And this one can be further broken down by any subcategories that you spend a significant amount of money on, like travel. Moving on to 15, charitable contributions, money you give to 501(c)(3) nonprofit organizations. 16 is political donations and social causes, so money that goes to candidates, organizations, and individuals you give money to, but that are not tax deductible. Number 17, gifts and celebrations that you buy for everyone for every holiday. And 18 includes everything that you wear and services that take care of those things, like dry cleaning and tailoring. Number 19 is grooming, which are the services that keep you looking your best, while number 20 is toiletries, the products that keep you looking your best.
Now, those last two could be combined, grooming and toiletries, under one category called I’m way more vain than I thought I was. Wait, sorry, I think I’m projecting, but I like to keep them separate. Now, categories that I do not have are catchall ones like miscellaneous, or meaningless ones like retail. I also don’t have one called bank fees because I don’t believe in paying them. But if you want to pay more to a bank that’s already making a ton of money off of your money, then you can have a bank fees category. Once you have categories that mean something to you, you’re set up to create a values-based budget that you can actually enjoy sticking with. Before you can actually start putting in the numbers on your budget, there’s a ritual I recommend you go through to make sure that the budget you create is an accurate reflection of your best self. Be sure to check out that video before you build that budget. See in the next video.
