To really understand where your money is going, you’ll want to have specific budget categories that keep everything highly organized. These will help you be more detailed, without having to track every little cent. But by categorizing your budget, you can quickly identify problems or see where you need to make adjustments.
Here you’ll learn the value of a budget, the categories you need to consider adding, and some budgeting tools to help you.
1. Income
Simply put, income is the money you earn each month. This can be 100% through your paycheck or can be made up of a job alongside several side hustles, passive income streams, and any other ways you produce cash.
However, some people get caught up by not remembering taxes; so ensure you calculate pre and post-tax income. Knowing exactly how much money you’re making each month is the first step in making better financial decisions.
2. Housing
Whether you pay rent or a mortgage, chances are that some of your outgoings are due to housing. But there are extended housing costs, associated with household repairs (that darn AC!), property taxes, and other housing-related fees.
Luckily, this cost should not change drastically through the months, and unexpected expenses when household items require repair should be incorporated into your budget.
3. Transportation
Chances are, if you’re going to and from places, have kids to take to school or are doing any sort of commuting; you’ve got transportation costs to consider.
If you own a car, that’ll include payments for car insurance, gas, ownership, or leasing, and maintenance; alongside the other associated fees. Otherwise, you might incur costs related to public transport, such as taxis, ridesharing (like Uber or Lyft), and busses.
4. Food
Again, food costs are likely to be similar each month, as they’ll include your regular grocery list. But, your budget should also account for restaurants and dining out, to avoid shock and debt at the end of the month.
5. Utilities
You know, those pesky bills that you just can’t live without. Frequent check-ins with your utilities providers (at least every year) should enable you to get the best deal possible, but overall, utility bills are going to be fairly consistent from month-to-month.
The most effective way to cut costs in this department is to compare and switch using comparison sites. I’ve called my internet provider a few times when they decided to hike the price and always got better deals.
6. Medical
Here is where unexpected expenses can really add up if emergencies are not in your budget. You may be enrolled in Medicare or private insurance, but this does not necessarily cover all medical situations.
So check your coverage, and ensure you’re budgeting for medical emergencies that could put you and the family out-of-pocket.
7. Insurance
Whatever your living situation; you’re likely to need some kind of housing-related insurance. It protects you in case of damage and reduces your exposure to risk.
Some types of insurance are mandatory (for example auto insurance), where others are optional (such as life insurance). It is important to consider whether you could afford the out-of-pocket costs associated with these insurance situations and if the premiums are realistic for your budget.
8. Personal Finance
Yes, saving, investing and debt payments should be budgeted for too. Especially as they are intentional payments that are consistently made, which means they are predictable from month to month.
If you are in the position to start building a nest egg, look at high-yield savings accounts and a diversified investment portfolio (as well as considering the level of risk you are happy with).
9. Personal
When putting together your budget, consider efficacy. This is the ability to produce the intended result, a.k.a, how well you are able to stick to the plan.
If you don’t leave a buffer for normal lifestyle expenses, such as personal grooming or babysitter services; you’ll end up going over budget each month.
10. Entertainment
Here is where some get excited and begin to live a lifestyle they cannot afford. Entertainment and relaxation are important, especially to our mental health.
However, problems can arise when we take out credit cards or loans to pay for keeping up with the Jones. If you need to cut costs your entertiamint budeget category could be the easiest thing to go.