A budget is an amazing tool to help you meet your financial goals. A budget can help you retire early, take a dream vacation, or pay for your kids’ college tuition.
Creating a budget can seem overwhelming, especially when you’re trying to figure out what budget categories to include. When I created my first budget, I really struggled to identify budget categories. I’ve included 7 key budget categories below to help pick budget categories for your own budget. With these tips, you won’t forget any key categories to include in your budget!
1. Charitable Contributions
It may seem strange to put charitable contributions at the top of a budget categories list. In the past, I put charitable contributions at the very end of my budget category list. That meant that charitable contributions got whatever was left over in my budget after I allocated my income to every other category. And there usually wasn’t very much left.
I wanted to prioritize charitable contributions, so I bumped this category to the top of my list. With this change, charitable contributions got the full amount that I wanted to allocate to it during the month. And other categories that were less important to me got a little less. It was a simple mental change that helped me give a little more to the causes that are important to me.
Like charitable contributions, savings used to be at the very bottom of my budget category list. Which meant I was saving much less than I wanted. I definitely wasn’t saving enough to meet my financial goals.
I bumped my savings category up to the front and allocated the full amount I wanted to save for the month to this category. Then that money was off the table and I was less tempted to allocate that money to other spending categories that weren’t important to me in the long run.
You can use your savings categories to save for long-term goals, like buying a house or car, going on a trip, or retiring early. If you don’t already have an emergency fund, you can also create an emergency fund savings category.
My savings categories are:
- Emergency Fund
3. Credit Card Debt
If you have existing credit card debt, allocate a portion of your budget to pay off the debt each month. If funds are tight, you may want to reduce your monthly savings amount until you pay off the old credit card debt.
Think of budgeting like dieting – if you are too strict with your diet, you’re much more likely to cheat on the diet. Same goes with budgeting – if you are too strict with your budget and don’t set aside any money for things you enjoy, you’re much more likely to cheat and go over budget.
To help you stick with the budget, it’s important to allow for some entertainment. It doesn’t have to be a huge sum – just a little bit every month so that you can get out of the house and enjoy yourself a little.
When I first started budgeting, I didn’t include “Gifts” as one of my budget categories. So when engagement parties, bridal showers, birthday parties, and other events that required a gift came up, I was immediately over my budget for the month.
I now have a “Gifts” category in my budget. Some months, I don’t buy any gifts. Other months, I need to buy several. To help me budget for this, I set aside a little each month for gifts. For months when I don’t buy any gifts, I set aside and save that money until a month when I do buy gifts. That way I have enough set aside for months when I need to buy multiple gifts.
6. Irregular Expenses
Irregular expenses are non-monthly payments. They include things like your twice-a-year home insurance or your annual property tax. Non-monthly payments can be especially hard to remember to include in your budget. And because they don’t occur monthly, these can be pretty big costs. It’s a sure budget-buster if you don’t include them in your budget.
I recommend taking a look at your bank statements or credit card history for the last 12 months to help you identify these irregular payments. For more info on how to identify and include irregular expenses in your budget, check out How to Stop Irregular Expenses from Derailing Your Budget.
7. Categories Unique to You
It’s important that your budget categories reflect your unique needs and spending habits. For example, is fitness important to you, so you need to budget for gym memberships or fitness classes? Do you have a bad back that requires a regular chiropractor? I have a bad hip, so I need to budget for extra trips to the doctor and special fitness classes that accommodate my injury.
There might be categories that may seem unnecessary, but contribute to your personal happiness. I drive in Washington, DC rush hour traffic every weekday. I consider a satellite radio subscription essential to surviving my crazy commute with most of my sanity. Items like Netflix, Starbucks, and Amazon Prime might not be entirely necessary. But if they contribute to your personal happiness, consider including them in your budget. You can allocate money to these areas and reduce the budget for other categories that aren’t as important to you.
You’re much more likely to stick to a budget if it aligns with your unique situation.
And All the Rest…
The categories above are the ones that I found hard to include in my budget. To make sure you include all the budget categories that cover your savings and spending needs, I recommend looking at your bank or credit card purchase history. You can use your purchase history to create a complete list of budgeting categories that meet your needs. For instructions on how to use your purchase history to create budget categories, go to Easy Budgeting: How to Use Past Purchases to Create a Budget.
In my experience, my first few budgets didn’t turn out all that well. Most of my problems came from missing key budget categories. With the tips above, I’m hoping that you’ll have fewer missed categories in your budget. But even if you do miss some categories – don’t give up! Keep revising and updating your budget until you get one that works for you. When you get your budget right, you’ll be on your way to meeting those amazing financial goals.