Personal budget categories – the key to tracking your money

By glblguy

Creating and maintaining a personal budget isn’t hard. There are many different options including the old tried and true paper and pen method, using a spreadsheet, and even specialized software packages like You Need a Budget (my personal favorite). Regardless of which option you choose to use, all options require selecting categories.

What are personal budget categories?

Personal budget categories are a way of grouping your expenses so you can track where your money is going each month. When creating a budget, you’ll allocate a particular amount of money to a category then track your expenses against it. Once your expenses meet the amount allocated in that category, you have no more money to spend in that particular category.

In the original envelope budget method, a budget category is a a physical envelope. Using envelope based budgeting software like Mvelopes or Neobudget, they are “virtual” envelopes.

Ready, Fire, Aim

When I created my first “real” zero based, month-to-month budget, I spent a great deal of time thinking through the categories required. I logged into online banking, analyzed all of my various transactions, looked at other example budgets, looked at books, thought about them some more, etc, etc. Bottom line: I spent way too much time thinking them through and as a result ended up with way too many categories. Needless to say, my budget was difficult to manage that month.

Since my first budget, I’ve added sub-categories in some places, and removed them in many others. Overall, I removed far more sub-categories than I added. In other words, I’ve significantly simplified my budget.

Don’t get caught up trying to come up with every little category you think you will need. While I took the more detailed to less detailed path, a better approach is to start off with high level budget categories and add sub-categories where when you want to break things out a bit, manage your money a little tighter, or just plain want to see a little more detail. Just pick a few high level categories and start budgeting. You’ll figure out pretty quick which categories you need and which ones you don’t.

For example, one initial category might be food. For the first month track all of your food expenses, including eating out in the food category. When making your budget for the next month, you might wonder “How much did we spend eating out?”  Without going through each transaction, it would difficult to know the exact amount. This amount would become important if you are trying to cut back on your eating out expense or if you are trying to determine what percentage of your overall expenses eating out is. When you begin asking yourself these types of questions, go ahead and break the food category down into sub-categories such as: Groceries and Eating out.

Good starting points for personal budget categories:

Here are some categories that serve as good starting points:

  • Housing
  • Utilities
  • Food
  • Transportation (Car payments, gas, insurance, subway fare)
  • Clothing
  • Personal (things like life insurance, hair care, medical expenses)
  • Education (tuition, daycare fees, school supplies)
  • Savings
  • Credit Cards

Let your personal budget categories evolve over time

I’ve been following a monthly personal budget now for more than 2 years and I’m still tweaking my categories. I even have to create new categories when expenses come up that I haven’t categorized before. The important thing is to just start somewhere, knowing the categories you initially choose won’t be perfect.

Choose the categories that work for you and meet your needs and don’t try to shoe horn your expenses into someone else’s categories. Remember too, don’t make them too detailed. If you do, you’ll just become bogged down in the details which makes your budget more difficult and time consuming to manage. This is a sure way to become discouraged. Keep your budget simple and easy to manage. The easier it is, the more likely you are to do it.

Personal budget categories are easy to adjust and can even be added/removed on the fly as you find you do or don’t need them. If my starting points above aren’t enough to get you kick started, head over to Google and do a quick search on budget categories and you’ll find lots of discussion and examples to choose from.

What categories do you use that I haven’t listed below? Did I miss anything? Any helpful tips you have to share? Add a comment!

Photo by: thievingjoker

20 Responses (including trackbacks) to “Personal budget categories – the key to tracking your money”

  1. Miranda Says:

    Great post! We have budget categories that include “entertainment” as well. When we pull up the budget report from our personal finance software, it is easy to see where we need to cut back. It was amazing the first time I used this feature to counter my husband’s plaintive “But we don’t spend that much! Where are we supposed to cut back?”

  2. Ryan McLean Says:

    These are some really good categories to start. Personally I am good with money so haven’t really budgeted yet (plus I don’t really earn enough) but soon I am getting married and I will need to budget. So thanks for the tips

  3. Luke Says:

    I started off with 7 envelopes four years ago. Now I have 29.

    Unallocated, Car Insurance, Car Gas, Car Maintenance, Tithe, Charity, Mortgage, Electricity, Trash, Server, Phone, Internet, Grocery, Entertainment, Credit Payment, Personal Care, Household Items, Travel, Projects, Medical, Elizabeth’s Money, Luke’s Money, Giving, Home Improvement, Home Maintenance, Clothing, Propane, Savings, Investing

  4. neimanmarxist Says:

    we have some extra budget categories: we have “cosmetics” for things like shampoo, soap, and other toiletries, and “household” for things like new mop heads, cleaners, laundry detergent, etc. I also have a small “ladies nice things ‘ account and I can use it for something nice and small, like a manicure as a treat :) We also put aside money for haircuts even though we both get cheap ones. we just like to have everything predetermined so we aren’t loath to have a trim because it might be taken out of money that could be spent going to the movies :)

  5. Bri Says:

    I use somewhat of a hybrid system. Since bills have to be paid, and I pay them online, I have both of our paychecks direct deposited into our bank account to pay bills. I use our budget and withdraw all cash for our envelope system which includes evelopes for Gas/Car (gas and car maitenenance), Animals (animal food and medical fees), Food (dining out and groceries), Savings, and Tithe. The savings envelope gets whatever cash is left over after paying bills and I use the food budget for personal care items like shampoo/conditioner/lotion/etc.

  6. "Mo" Money Says:

    Good post! A budget is each person’s personal plan on how they intend to spend their money. Therefore a budget and the categories will be different for each person, but you need to start somewhere and this post is a good place to start.

  7. glblguy Says:

    Great suggestions on the categories everyone. Interesting to read other people’s perspectives on budgeting. Just emphasizes that finance is indeed personal.

    @Miranda – Loved your comment. Really hard to argue with the raw data huh? hehe…

  8. Says:

    Great category suggestions! I have included most of these in BTG’s free excel budget template. I always preferred to have a blanket “purchases” category, which forces you to itemize all your purchases. I think it makes it easy to tell how much you spend in a particular “purchase” category (ex: eating out at restaurants), while still reinforcing the idea that these are PURCHASES, not necessities, in many cases, wants rather than needs.

    But a great post to get people started on their budgets!

  9. Mallory Says:

    Nice post! I am about to be out of school so I haven’t personally gotten to start my own budget but when I do in a couple months, I am definitely going to start with these broad categories you suggested. We talked about personal budgets today in our blog at We were talking about how it’s really hard to look at samples of other people’s budgets because everyone’s spending is different. Using these categories is a great way to start!

  10. Blake@youngdough Says:

    I have a fun/recreation category in my budget- and I absolutely love it. I know exactly how much money I can spend on whatever the heck I feel like, without feeling a twinge of guilt that it could be used elsewhere. It really helps me to embrace my budgeting.

    Good post!

  11. Dave Says:

    I use YNAB as well and have been adding/renaming/removing categories as time goes on. I think it is important to be flexible and “roll with the punches”.

    I forget where I read this, but someone wrote that when budgeting, if you want to track it, create a category/sub-category for it. I have a few annual expenses like AAA membership. I could add that to the default subscriptions with all my others, but I like to keep the yearly fees their own so I can track them better.

    I also have different savings categories that I put money into each month. For instance, I have a vacation fund where I put $25-$50 in a month.

    For me this is easy to follow and manage each day and month. Like glblguy said, keep your budget simple and easy to use.

  12. Joe Says:

    I find that keeping categories as simple as possible is the real key to making them work. Having 15+ budget categories is just too much to be useful or to easily keep track of. That is just my opinion though, maybe someone wants 15+ categories to make a real close analysis of their spending.

  13. Debbie M Says:

    I wanted to add that even if your categories are perfect for you, you’ll still need to update them over time as your life changes. I’ve recently added a renovation fund because I realize that I really want that and none of my other funds are big enough, and a health expense fund, because I realize that big medical expenses are one of the leading causes of bankruptcy.

    To answer your questions, I’ll list my broad categories below (slightly different than yours) along with the subcategories I use.

    gas + electricity/water/trash + phone
    cell phone + cable
    eating out
    Personal (clothing, make up, gifts, entertainment, books, education, anything else I don’t have to save up for)
    housing and yard repairs and maintenance
    renovation fund
    transportation (gas, other maintenance, repairs, insurance)
    next car fund
    health expenses
    long-term fun (vacations, furniture, computers, and anything else I do have to save up for)

    Some of these savings categories could be moved up to the other broad categories–they’re more like possible future spending categories whereas the others are like probable current spending. I admit that I sometimes borrow from one savings fund to pay for something else. I recently had to increase my auto expense fund when I realized that fund had been negative for a year!

    Other things I don’t have that more normal people might: non-mortgage debt, child-raising expenses, health and life insurance (paid by my employer), emergency fund in case of layoff (I work for the state where layoffs are unlikely), and I’m sure there are more.

    I like to separate out anything I’m wondering about or that I have a problem with. I have a problem with eating out. I’ve also seen people separate out other luxuries/hobbies such as alcohol, tobacco, video games, videos, music, sewing supplies, and comic books.

  14. Debbie M Says:

    My indents didn’t show up! The capitalized categories above are my main categories and the others are the subcategories.

  15. PHP Developer Says:

    Excellent article.

    One needs to track what they spend their money on so they will have an idea what they really need and where they are waisting their money.

    I have found that debt is the worst thing for a budget. Once you get your debt under control you will be in much better shape.

    Keeping to a budget always has it challenges!

  16. Jenna M Says:

    This was very helpful! I am just starting to create a budget so that my husband & I can (hopefully) start saving money instead of living paycheck to paycheck. These starter categories will definitely help me in figuring out where we are spending too much! Thanks everyone!