Budget Categories – Less is more
Every so often we spend a weekend and just clean house. I don’t mean just sweeping, dusting, vacuuming etc. We literally, clean house. We look for stuff we are no longer using, things on shelves collecting dust, etc and sell them. I’m always amazed at how much more relaxed I feel about our home when we have less stuff. Not to mention the extra cash we receive for debt snowflaking.
Our budget had been stressing me lately and not because we were money on tight, but because our budget just seemed too complex due to the amount of budget categories we had. Our budget was becoming more and more time consuming to update, which has the unfortunate impact of making me want to update it less often. This of course leads to more to more stress since the budget wasn’t current. Yes, so I’ll admit, I’m a little OCD about our finances…just bear with me.
Cleaning out the budget categories
Practicing the same concept we apply to our house once or twice a year, I decided to clean house on our budget categories. Before the clean-up, we had a little more than 50 different budget categories. I walked through each of them and asked the question: “Do I really need this level of detail?“ If I answered “Yes“, I asked two follow-on questions: “Why?” and “How does it benefit me?“ If I didn’t get a good answer to both, the category was removed. Yes, I did ask these out loud a few times, which resulted in a few strange looks from my wife and kids…but I’m used to that.
I use You Need a Budget Pro (YNAB) to manage our finances and budget. YNAB has master categories and categories. Master categories provide a roll-up of all the categories. For example the Housing master category, could contain categories for: Mortgage, HOA Fees, Insurance, and Maintenance. In addition to having too many categories, I also had far too many master categories. So I consolidated them as well, using the same set of criteria I used for regular categories.
One of example of where I consolidated: Prior to doing the cleaning, I had a master category named Food, with sub-categories under it for Groceries, Eating-out, Lunch, Kids Lunch, Starbucks and Misc. Since I now work at home, I don’t eat lunch out anymore, I also don’t buy Starbucks out much at all, and never use Misc. So Lunch, Starbucks, and Misc all got nuked. I left Groceries and Kid’s Lunch as I wanted to be able to track and manage our children’s hot lunch spending.
The benefits of budget category cleaning
All in all, I trimmed a 50+ category budget down to around 20 categories. That’s more than half and a pretty extensive cleaning all together. Since then, I’ve added a few categories back into the budget and deleted a few others, but still have around 20. The best part about reducing the number of categories is that it takes me far less time to update our budget and it makes it easy to review with my wife. I’ve also found I’m far less stressed about our budget overall because it’s easier to update, takes less time and I can get a better high level perspective on our spending.
I’m a firm believer in less is more and so it seems it concept applies to our personal finance budgets as well.
How about you? How many categories do you have in your budget? How often do you clean out your budget? Do you prefer lots of categories, or just a few? Why? Add a comment!
Photo by: theilr