Budget Categories: Long list or short list? - Family Budget Services (2024)

Those last few pounds just weren’t coming off even though I thought my diet was foolproof. But I wasn’t tracking what I was eating, and that was the problem.

(What does this have to do with family budget categories? I’ll get there.)

After tracking, I realized I had wildly underestimated my calorie intake and figure out ways I could improve.

Most of the extra calories came in from the little things throughout the day, but it added up. Nothing, and I mean nothing, I ate after 8 p.m. was helping my cause.

Tracking helped me identify where my calories were being eaten. Then I used that info to make some changes, and I lost 10 pounds in five weeks!

Tracking your spending can have the same effect. While the goal of monitoring your eating is to get to your ideal weight, the purpose of budgeting is to improve your spending habits so you can have more money left over at the end of each month.

Budget categories are the meal logging of personal finance. A budget category will help you figure out where you are overspending and give you the awareness to make positive changes in your spending.

A common question is, “How detailed should I get?”

DEFINITELY start with a short list of essential categories, but a long list will work too.

The question is, which will work for YOU?

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A post shared by Family Budget Expert – Rob Bertman (@familybudgetexpert)

What categories should I include in my budget?

It’s better to make progress doing anything rather than get so overwhelmed with mapping out the perfect budget process but be so overwhelmed that it doesn’t end up getting done.

If you love spreadsheets, then get as granular as you’d like.Use essential budget categories and subcategories to your heart’s delight!

If you want an easy-to-maintain system, then use a simple budget and keep the categories to a minimum.This will work for the average family, including my own.

Creating a budget is not a one-size-fits-all thing. Different systems work for different people.

Let’s take the food budget category for example:

• Simple budget categories: groceries, dining out
• Detailed budget categories: groceries, coffee shops, breakfast, lunch, dinner, drinks, fast food, snacks

Now that we have that example, I’ll take you through the detailed list of spending categories first, and then we’ll go through a simplified budget approach.

At the end, I’ll show you my effective, yet bare minimum, three step budget system as a way to organize and track your spending. Often, it’s the easiest to maintain and that has gotten my clients great results.

Before we dive in, think about your budget. Which one of the three options below are you?

Ok, let’s dive in.

Detailed List of Budget Categories

Before we start listing the budget categories, we need to get all of your spending in one place. Sign up for a budgeting app.

Sometimes it’s helpful to start with a comprehensive list of categories to make sure you don’t miss any spending.

Jump to the next section if you want a simple list of budgeting categories.

Start here if a list of 182 separate categories sounds like heaven 🙂

Income

• Salary
• Self-employed income
• Bonus
• Tips
• Regular monthly income
• Tax refund
• Gifts received
• Alimony received
• Child support received
• Rental income
• Dividend income
• Interest earned

Housing

• Mortgage/rent
• Homeowners association (HOA fees)
• Homeowners insurance
• Property insurance (i.e., jewelry)
• Home repairs/Maintenance
• Property taxes
• Home improvement
• Furnishings

Home Services

• House cleaning
• Lawn care
• Security system
• Pest control

Utilities

• Natural gas/Electricity
• Landline/Home phone
• Mobile phone
• Home Internet
• Garbage
• Recycling
• Water
• Sewer

Household Items

• Cleaning supplies
• Paper products
• Tools
• Toiletries
• Laundry supplies
• Postage
• Furniture
• Home décor
• Pool supplies

Food expenses

• Groceries
• Fast food
• Coffee shops
• Breakfast
• Lunch
• Dinner
• Drinks
• Snacks

Transportation

• Car payment/lease payments
• Car insurance
• Gas
• Oil change
• Maintenance Repairs
• Personal property taxes
• Registration
• Public transportation
• Ride sharing (Uber, Lyft)
• Tolls
• Parking
• Roadside assistance (AAA)
• Parking fees
• Public transit

Medical Health

• Health insurance
• Dental insurance
• Vision insurance
• Prescription Medications
• Doctor bills (annual checkups or yearly physicals, specialist)
• Dental appointments
• Hospital bills
• Health care costs
• Optometrist
• Glasses/contacts
• Chiropractor visits
• Vitamins/supplements

Insurance

• Life insurance
• Disability insurance
• Long-term care insurance
• Umbrella policy
• Identity theft

Kids

• Tuition
• Daycare
• Babysitter/Nanny
• Baby necessities, formula
• Summer camp
• School or extra-curricular activities
• School supplies
• School lunches
• Lessons
• Allowance
• Toys
• Kids’ discretionary spending
• Child support
• Clothing

Pets

• Veterinarian
• Pet food
• Pet medication (i.e., flea prevention, shots, heartworm medication)
• Pet toys/beds
• Pet accessories (i.e.,leash, collar, etc.)
• Pet grooming
• Pet insurance

Subscriptions/Streaming Services

• Netflix, Hulu
• Amazon Prime
• Music (Spotify, Pandora)
• Sports TV subscription (i.e., ESPN, Fox Sports)
• Software subscriptions
• Magazines
• Professional society annual fees

Clothing

• Work clothing
• Athletic clothing
• Leisure clothing
• Alterations
• Dry cleaning

Personal Care

• Haircuts
• Hair coloring
• Hair products
• Cosmetics
• Nail salon
• Eyebrows
• Massages
• Spa services
• Grooming
• Gym membership
• Counseling Therapy

Personal Development

• Books
• Personal coach
• Self-improvement
• Conferences
• Online courses
• In-person courses

Financial/Professional Fees

• Financial advisor
• Lawyer/Attorney fees
• Tax professional (CPA, online accounting firm)
• Business consultant

Recreation/Fun

• Movies
• Concert tickets
• Hobbies/Crafts
• Hosting parties
• Books
• Entertainment
• Sporting events

Travel

• Vacation
• Vacation food
• Vacation activities
• Trips to see family
• Trips for weddings, bachelor/bachelorette parties
• Souvenirs
• Baggage fees
• TSA precheck or global entry

Technology

• Mobile phone
• Computer/Computer accessories
• Speaker system
• WI-FI mesh system / WI-FI extender
• Smart home (i.e., Amazon Echo, Fire, Nest, Google)
• Gaming system/Video games/Gaming accessories

Gifts

• Family birthday gifts
• Friend birthday gifts
• Wedding shower gifts
• Anniversary gifts
• Baby shower gifts
• Teacher gifts
• Service-person gifts (mail carrier, home service, personal assistant)
• Thank you gifts
• Holiday gifts
• Special occasions

Charitable Giving

• Charity Donations
• Tithing
• Religious
• Community
• Political
• Non-cash donations (i.e., Goodwill, Salvation Army, clothing, canned food, electronics, stock, etc)

Savings Goals/Investing

• College savings
• Retirement savings
• New car savings
• Health savings account
• Emergency fund
• Brokerage investments
• Traditional/Roth IRA
• Down payment savings

Debt Payments

• Credit card debt
• Student loan debt
• Medical debt
• Personal loans
• Payment plans (Affirm, Afterpay, Sezzle)
• Auto loan payments
• Back taxes
• Past due bills
• Alimony
• Other debt repayment

If I’m being honest, this is a little overboard.

If it becomes intimidating to create a budget, then simplify your categories.

Simple list of budget categories

Let’s condense all 182 listed above into 12 general categories.

Here’s what it would look like to simplify every major budget category and many subcategories.

• Housing – all housing, home services, utilities and household items
• Food – all food
• Transportation – all costs of getting around town
• Health – all medical, health, personal care, insurance
• Kids – any kid-related expense
• Personal development/Recreation – Includes fun, streaming services/subscriptions, travel
• Clothing
• Technology
• Pets – Pet Food, veterinarian visits, pet insurance
• Giving – charitable and personal gifts
• Financial, Legal and Professional fees
• Net worth building – saving, investing, debt payments

The Family Budget Expert Three Step Budgeting Process

Your monthly expenses should ultimately be a reflection of your values and priorities.

The monthly budget you set should be aligned with living your best life today while also working towards your financial goals.

Financial experts out there LOVE a good percentage-based budgeting method.

Some like the 50/30/20 budget (50% to needs, 30% to wants, 20% to save money and pay off debt). I like the 20% savings rate here, but what is a need versus a want? What if you value traveling more than a house?

Others like zero-based budgeting. The goal is to have a monthly budget where every single dollar allocated. No dollar unaccounted for. This usually works best when using the prior month of income instead of trying to predict the current month’s income.

Honestly, these budget techniques don’t work for many people. They are hard to stick to, especially if you’re trying to figure out how to live below your means when you already have the lifestyle you’re accustomed to.

The biggest mistake I see is when people create a budget before first knowing where their money is going.

So, no matter how you budget, the first step with budgeting is to track your spending.

That will inform how you can make changes and cut your spending so that you can save more money, invest for the future and pay off your pesky debt. (Remember the meal logging example from above?)

For example, if I asked you to cut your spending by 10%, where would you start?

Most people go through each category, looking at the total spending and the budget percentages and see what they can cut back based on other people’s judgements and where they spend their money.

But a budget that sticks is one that resonates with how YOU want to live YOUR life, spending in alignment with YOUR values and priorities.

Step 1: Fixed, Flexible, Net Worth Building – Simple Budget Categories

First, let’s see what expenses we can change without uprooting our lives.

Fixed expenses

A fixed expense is something that is the same amount every month without fail.

Cutting your spending here means making a fairly drastic lifestyle change such as moving, selling a car, possibly changing your kids’ school and the like.

Here are examples of fixed expenses:

• Mortgage/rent
• Auto payment, gas and maintenance, auto insurance
• Utilities
• School tuition/Daycare expenses
• Health insurance
• Pet expenses

*Fixed expenses can be different from the traditional “necessities” or “needs” budget categories. For example, the mortgage on a $400,000 house is not a necessity, neither are $500 per month car payments, but they would be considered fixed expenses.

Flexible expenses

A flexible expense is anything that you have some level of control over without making a drastic change. It would include all discretionary spending, anything you could cancel or places you could spend less money if you wanted to.

Examples of flexible expenses include the following:

• Travel
• Technology
• Clothing
• Dining out
• Groceries (yes, groceries are flexible to some extent)
• Personal care/Personal development
• Gifts (charitable and personal)
• Entertainment

Net Worth

How much of your money is going toward building your wealth?

A net-worth building activity is when money flows to a form of saving or investing, and yes paying down debt. Fun fact: Any debt reduction counts as a net worth-building activity.

Exclude housing payments/rent and auto payments from this, because they’re included in the fixed expenses section.

The money in this budget category is not an expense. Think of it more as a transfer. For example, if you put $1,000 from your savings into your Roth IRA, the money is staying with you.

Paying down debt can get a little complicated, because part of the payment is an interest expense. The other part goes to paying down the loan principal. We won’t worry about that nuance right now. Let’s just account for the full debt payment.

Here are places your money can go to build your net worth:

• Credit card payments
• Student loan payments
• Personal loan payments
• Retirement savings (401k, 403b, IRA)
• Savings account transfers
• 529 Plan savings for college
• Short-term and long-term savings goals.

Remember other expenses might not be the same per month. Think about travel and the holidays. They happen with regularity throughout the year but not every month. Make sure you account for these irregular expenses.

Check out this article here if you want to learn more.

What comes after fixed, flexible and net worth?

OK, so now you have your fixed and flexible spending, as well as how much money is going towards building your net worth.

Can we use these budget categories to cut spending and find more money to save, invest and pay off debt?

Heck yeah! Here’s how.

Step 2: Keep, Cut Back, Eliminate

The goal is for your spending to be fully aligned with your values and priorities. All other expenses can be cut.

Start with the flexible spending budget category. This is the easiest and least disruptive category to make changes to.

Then apply my Keep, Cut Back or Eliminate framework.

KEEP

This spending is in full alignment with your values and priorities. You not only like what you got for your money, but you also feel good about the amount you spent on it.

What do you want to KEEP as individuals, as a couple and as a family.

What are the things you enjoy doing that keep your relationship strong? What keeps your family strong and helps you raise your kids with the values you want them to grow up with?

Please remember the things you enjoy doing on your own too. As parents, this often is an afterthought.

It could be a social activity, a hobby or an interest that is important to you but others in your family don’t normally participate in it.

If you’re married or financially attached, KEEPs as individuals can be tricky, because your spouse/partner might wonder why you’d spend your money here (and vice versa for their interests).

Just remember that you might not understand why they say it’s a KEEP, but it’s important to them. It stays a KEEP. You don’t have to agree here, as long as one of you isn’t destroying your family finances.

Now that you know what’s important, it’s time to find some agreement.

CUT BACK

CUT BACKs are things you enjoy, but there’s a way to do them for less money. Normally we can find spending cuts of 20%-25% without feeling like we are drastically changing our lives.

Do it less often or lower what you spend on it.

Going out to eat (or ordering in these days) is a perfect example. If your normal food bill is $80, can you do it for $60? If you get lunch out five days a week, can you just pick just one day to make it at home?

Next time you book a vacation, would the $200/night room be fine compared to the $250/night room?

A CUT BACK should not feel drastic. You should be able to continue to do what you want but in a more budget conscious way.

Review your spending to see if you can find any patterns where you could cut back the traditional budget categories. Most people I work with pick dining out, Target, or Amazon.

If you’re having trouble figuring out how to make this happen, there are plenty of creative ways to save money.

ELIMINATE

ELIMINATE is easy to identify. This is spending you can 100% get rid of and won’t even miss it.

It could be that extra streaming service you’re not using. It could be something that’s detrimental to your health or your relationship. It could be something you simply forgot you were paying for until you saw it. These are things you cancel outright.

Don’t let FOMO get in the way. You can always pick it back up if you really miss it. Netflix will take you back 🙂

ELIMINATE items are not at all aligned with your values and priorities. No need wasting your discretionary income here.

It would be better served building your net worth than spending it on something you don’t care about all that much.

Step 3: Track your spending in three budget categories or less + Track your net income

Why focus on the budget?

Simply put, you can’t reach your goals if you don’t have money left over.

Monthly expenses compared to your income (personal savings rate) is a key indicator of future financial success.

It’s easier to decide whether to pay off debt or invest when there’s extra at the end of the month.

Budgeting is the key skill that will help you find that extra money to help you reach financial independence and fully implement your financial plan.

It will also help you build an emergency fund and have money to cover unexpected expenses that come up.

Remember, there’s no right or wrong way to create a budget.

You can decide if you want to use 100+ budget categories or keep it simple. The most important thing is that you pick a system that you can stick to consistently.

Simpler is better. It’s more important to know your total expenses than it is to know every single granular detail of where you spend money.

Budgeting is the #1 skill in personal finance

Why focus on the budget?

Even the best financial plan won’t work if you don’t have money left over.

What good is it to have financial goals like saving, investing and debt repayment if you can’t come up with the money to put toward these financial goals?

Figuring out whether you should pay off debt or invest comes after.

Budgeting is the key skill that will help you find that extra money to help you reach financial independence. It will also help ensure that you have money to cover unexpected expenses that come up.

You can decide if you want to use 100+ budget categories or keep it simple. Honestly, there’s no right or wrong way to do it. The most important thing is that you pick a system that works for YOU.

And that’s approach that you can stick to consistently.

Need Family Budget Help?

Just getting started creating your family budget? Not sure how many budget categories to include or how to start the process?

Tried budgeting before but it hasn’t worked?

I’m here to help you create a budget that sticks while you spend in alignment with your values and priorities as individuals, as a couple and as a family.

Let’s start with a free 30-minute consult to see the kind of help you’re looking for, the challenges you’re trying to overcome and if I can help you get there.

Want help but not ready to talk?

For informational and educational purposes only. Information was previously posted by Rob Bertman, Family Budget Services, formally Family Budget Expert, prior to Mr. Bertman joining Buckingham Wealth Partners. The opinions expressed may not accurately reflect those of Buckingham Wealth Partners.