The 10+ essential personal budget categories to consider

In this article, I want to present you here with a comprehensive list of personal budget categories. I will discuss what each category should include and what it shouldn’t, as well as highlight the why.

However, this is not a template you should blindly follow. Instead, you should select the categories that fit your financial situation and adapt them to your budget needs. Then be consistent with how you use it.

The truth about budget categories

Raise your hand if you love to create and maintain your personal budget? Ohh, you don’t? Let me assure you you are not alone. Almost everybody dreads the chore to collect the expense data and assign it to the right category. The worst is that we are often rewarded with proof that we overspent our budget and feel guilty about it.

The more there are the more work is created

Of course, if you have too many categories, then each expense needs to be assigned by hand. Sometimes you even have to divide a single receipt into multiple categories. This is a lot of labor that you’d rather avoid.

Too many categories are inflexible and drive your guilt feelings

When you have too many expense categories you are tracking, then it becomes difficult to make a good plan for the next month. The expenses in each category become not equal month over month. So you start to miss your plan more often than not and that makes you feel bad. Before you say to your self “I stop doing my budget, because I miss it half of the time anyway!” review your categories and see if you can plan in bigger categories.

“Found Pennies” by judy_and_ed is licensed under CC BY-NC 2.0

Start with your goals for budgeting

To determine the categories that are a useful picture of your finances, evaluate which categories support the same goal.
Common budget goals are:

  1. Financial stability
  2. Saving for retirement
  3. Reduce discretionary expenses (what you want to buy)

For financial stability, you want to keep your fixed, must-do, expenses in line. If you can keep with those to 50% of your after-tax income, then a loss of income will hit you not as hard, because you can cut back the other parts in the short-term.
Also be aware that any expenses that you are contracting for longer terms, such as internet subscriptions, entertainment subscriptions, club memberships, etc. They often come with hefty fines, if you cancel before the contract is up for renewal.

For retirement savings, you want to make sure your savings rate is what you need. The best is to “pay yourself first” to ensure that savings are not an afterthought when all the income is spent already.

If you determined that you need to reduce your expenses to meet your long-term financial goals, then you want to identify categories that you think you can live without. To find these, you might want to track quite detailed your finances, or even do it backward for the last 6 – 12 months. Still, if you have made the decision that you are not cutting back on better food or your sports activities, then you don’t need to break them down in detail.

Do you need 100 budget categories?

Most likely 100 budget categories are overkill for a personal budget. Be pragmatic about it, determine what you need to track separately to fulfill your goals.

A list of budget categories to consider

Here is a long list anyway, use it together with your past expenses for inspiration. I added food for thought comments on which categories belong to which section in a 50/30/20 budget.

Housing

This may be one or more budget categories. It is up to you how detailed you want to track these

Rent

You need to pay the rent for your residence unless you live with your parents. This is one of the non-discretionary budget categories and belongs to the basic needs section. Rent payments may be substituted by mortgage expenses if you own your home.

Morgtgage

If you own your residence you may have to pay your mortgage instead of rent to your landlord. You can also add here housing association dues for a condo, as well as property taxes. Also include property insurance you carry, such as flood insurance or liability. These are non-discretionary expenses and belong to the basic needs section.

Property Maintenance

Put in this budget category your expenses for cleaning, gardening, lawn care, or pool cleaning. You can also allocate here the costs for the alarm system. Further, think of annual check-ups for the chimney, heating system, or pool.

In the long run, you’ll also need money to paint, the interior and exterior. Also, there will be expenses for re-decorating and repairs, such as light fixtures, awnings, and roofs.

Most of these budget categories can be considered non-discretionary. Many expenses herein, can be delayed for a while. They can mostly be classified in the want section.

Transportation

Car(s)

Owning a car is a major expense. Besides the running costs of gas, car wash, parking, and inspections, and repair, you need to consider registration fees and excise taxes. Further, you should put aside money for replacing the vehicle when it gets too old to drive economically.

If you have more than one car you want to track those separately.

Further, you want to think about which costs of your car are related to your work. Because, if you commute to work, you may incur substantial costs in parking and mileage. Also, you may use your car for work-related travel. Keeping it separate allows you to understand the changes in spending when you change jobs or lose work.

public transportation

If you live in an urban area, you might be better off using a commuter train or busses to get around town. This budget category should include parking fees at the train station if needed. Most likely these expenses are basic needs, you can’t go without, as you need to get to work somehow.

You should consider job-related expenses as must-have budget categories. They are the expenses that keep you in your well-paid job and bear the opportunity to get promoted and increase your income.

Wardrobe and Upkeep

Do you wear specific clothes for work? Is it a requirement to dress up? Then you need to budget for the cost of replacement and upkeep of your work wardrobe. This includes all items and accessories as well as dry cleaning, or shoe repair.

Child care if you need it to work

If you have children between the ages of 1 and 12 and work, you likely have daycare or after-school programs they attend. You want to add these expenses to the job-related budget categories

summer camps

Even your daycare facilities need a break now and then and after-school programs also stop during recess. As parents don’t get vacations commensurate with the school schedule, you need to find other options to keep your children safe and busy, while you are at work.

labor union dues

If you are a member of a labor union, you have to pay dues. In most cases, they will be paid directly from your income, by the employer, but in some cases, you have to pay them from your take-home pay. If this is the case, make sure you budget for them in your financial plan.

Food and Groceries

Food and groceries can include many detailed budget categories. Try to keep it simple, so you don’t have to split your supermarket receipts.

Basic groceries

Groceries are a major item of any household budget. You should distinguish between basic groceries and any upgrades you deem necessary. Basic groceries are anything that is required to feed you healthily. So bread, noodles, rice, flour, cheese, meat, milk, produce, fresh seasonal fruits, etc. – This should include all things you may have to consider for health reasons, such as gluten-free to prevent allergic reactions.

The basic groceries go into your mast-have portion of a 50/30/20 budget. There are no universal answers as to what is included and what is not. Elizabeth Warren and her daughter, who has popularized this view on a budget, recommended to not nickel and dime yourself. When it comes to budgets you want to look at the big-ticket items and not make frugal living an overbearing proposition. So you have to make trade-offs for what cost you must have to live healthy and sustainable with our environment

Groceries you want

If you really need to watch your budget tightly or you are curious how many luxuries are hiding in your groceries bill, then go and put all the creature comforts and food upgrades you make into a separate category. This could be buying meat or fish more than once a week, it could be buying organic fruit and produce or it could be buying produce out of season. It could as well be buying at the health store or farmers market, instead of the cheaper supermarket.

All the upgrades we make in our supermarket purchases that go beyond the basics should be categorized in the 30% want-to-have section of a 50/30/20 plan. However, don’t tread the itemization of such items. It is perfectly alright to split your groceries bill by percentage and be done with it. Let’s say you estimate on average your bills include 20% of luxury items and upgrades, then split it 80/20 into different categories.

You can also budget in this category things like delivery fees for beverages or groceries. While many businesses do advertise free delivery, it is often priced into the sticker price and you might consider it as a convenience you pay for.

Dining out and dining in

Dining out is certainly a luxury, that you enjoy. It is very social to meet friends at a restaurant and part of living with fun. Your bills there should not go into the must-have section of your budget.

The same is true for take-out food or the ever-popular food delivery services.

All these items include the tips you pay to show you gratitude for the service.

Self care

We all need to care about ourselves. Sometimes with have to spend money to stay healthy. You want to separate your spending in these budget categories between what is needed and what is wanted luxury.

prescriptions, co-payments, health insurance

If you need medications and prescriptions to maintain your health, they may not or may only partially be covered by health insurance. You need to budget for the remainder. You should also budget for co-payments for doctor’s visits or other items you may need regularly.

If you pay for a health plan out of your own after-tax income, you need to also add this as an expenditure to your budget plan.

These expenses are must-have items and you should put them into the appropriate section. This area is again something that needs judgment. Do you go regularly for massages? This may be medically required or it could be a luxury self-care item, it’s your call.

glasses or contact lenses

Prescription glasses are typical items, that one needs infrequently but they can be expensive. Contact lenses are more of a monthly expense. Both I’d say are must-have expenses, because without you endanger your safety and you stress your body needlessly.

beauty supplies

Also budget beauty supplies and services. Your night cream may seem a must-have emotionally, but most of the time it is discretionary spending. Also budget here for nail care, foot care, and spa treatments. That said, some of these expenses can be medically required to prevent injuries long-term.

active sports

Sports is a great way to keep your body functional and your soul nourished. There is more than only muscle or cardiovascular fitness. Camaraderie and fun are very rewarding and keep you psychologically healthy as well.

Still, typically gear and memberships to fitness clubs, etc. are want-type expenses. There may be exceptions if you have chronic illnesses, that you control by doing particular sports. So it is a judgment call if you started running after a heart attack and so expense your race fee as a must-have item.

Pets

Pets can enrich our lives greatly. They are companions or just a fascination or we simply could not refuse the cry for help of that abandoned Kitten at the shelter. You have to budget for your pet food and supplies. Also, budget for regular vet visits, grooming, or day-care as needed. You also might need extra day-care while you travel or go on vacation.

Unless you are a farmer, I’d put pet costs into the want-have section of the budget.

Insurance

Insurance is a downpayment on emergency expenses that may or may not hit you. Health insurance has already been covered, as has car insurance. However, you may carry special liability insurance or other types of insurance.

Many people carry life insurance. You should distinguish between term life insurance and comprehensive life insurance. Term life insurance is pure insurance and is usually carried for the purpose to cover large loans, such as a home mortgage, against the death of the sole breadwinner. Comprehensive insurance is life insurance combined with a savings plan for retirement.

I’d put term life insurance in the same category as the loan it covers. If the loan is for the home mortgage, then I’d put it into housing expenses. For comprehensive life insurance (independent of a loan) you can try to expend a comparable term life insurance as a want-have expense and you can classify the rest of the premium as a savings line item.

Entertainment

As mentioned above, dining out is a want-have expense. This would also include having drinks with friends or co-workers.

Many enjoy live shows or sports events as entertainment. They can happen infrequently and get pricey pretty quickly. So you better prepare for expenses by saving up in those budget categories.

Another popular form of entertainment is subscriptions to magazines or Internet-based services. Consider here the NetFlix or Hulu bill, as well as the games subscription and the streaming music service, even Amazon Prime. While not so popular these days, TV service falls into this category as well.

Sometimes you not only entertain yourself but also guests you invite to your house. This may be for a dinner evening or a party. You should also consider when friends and family come to visit, what expenses you’ll be paying for. This could be extra gas, tickets to attractions dining out, or any other activity you may share.

Sometimes your friends or family reciprocate the invitation. In that case, you might consider expenses for gifts or other contributions.

I’m sure you also buy gifts just for the occasions, such as birthdays or holidays. If you participate in these traditions, then you need to have a budget line for it.

All these go into the want-have section of your 50/30/20 plan. Even, if that flower bouquet for your mother’s birthday and the bottle of scotch for your godfather does not seem to be discretionary and is highly expected. Entertainment is certainly something you can live without (for a while) when your income drops significantly.

Communications

Our world relies on communication and we are expected to be reachable. You want to budget for these utilities as well. These budget categories account for home phone service, cell phone service, and Internet access.

The basic service is just to be reachable and that is usually very cheap. However, many families carry much more expansive want-to-have levels for cell phone service and internet service. It is a judgment call whether you put these fully into the want-to or a portion into the must-have section of your budget.

Hobbies

If you are well off, you may have the time and money to have expensive hobbies. As such, I’d count boats, or motorcycles (unless they are your daily driver). Also, count their additional insurance and maintenance costs.

Don’t think only of your own activities as hobbies, but also what your kids do. Many of their sports programs are optional and quite expensive with gear and club dues or starting fees. Many parents want their kids to also do extracurricular activities, such as playing an instrument or art classes. These also count as hobby expenses.

One of the hobbies that can get expensive quickly is any sort of collecting things. Whether it is watches or paintings or porcelain or sports memorabilia. With passion often comes expense. Also, consider additional insurance and maintenance costs here.

All hobbies should be counted in the want section of your budget plan.

Vacations

Work is hard and we need some time to get away from it all to recharge our batteries. Vacations, rarely mean we are just staying at home and tend our gardens or binge-watch old TV shows. Very often we travel to far and exotic places or go on adventure trips. You need to budget for these expenses, especially as you want to save up for that $10,000 cruise. Sometimes you even have a mid-term savings goal for that once-in-a-lifetime vacation overseas.

While we must have some time off work, the typical vacation expenses belong to the want-to-have section of the budget.

Debt Payments

Debt is a form of borrowing from your own future, financially speaking. If you incurred debt, you are obliged to pay it back and pay interest on top of it.

Caredit Card

If you don’t pay your credit card in full every month, then you have a revolving credit. Technically minimum payments, you classify it as a must-have expense. You really need to budget this way, because if you don’t do minimum payments you default on your credit and it will bring you into deeper troubles.

That said, you should make additional payments on the balance. This is important because credit card debt carries high interest. You should book this as want-to expenses so you reduce other want-to expenses for it to stay within the allocation as planned.

Student Loan Payments

Student loans are a huge debt burden for many young people and families. Paying them back can take a long time. This can become problematic if your job prospects turn out to be not as rosy as originally planned. Many college students struggle to service their student loans when the entry-level salary is rather low.

I don’t have a hard and fast rule if student loan payments are savings or want-to have expenses. Me personally I’d move heaven and earth to get rid of them ASAP. I’d consider them must-have spending and even reduce other must-have like housing to a bare minimum to be debt-free.

Car Payments

Car payments are another loan that to me should be unnecessary. Sure if I need that car to get to work it is a must-have for the moment. However, I’d reduce spending in other budget categories to have the money to replace the car in cash when the loan is due.

Furniture Loans

Furniture loans are as well a want section item. You should be able to wait for that furniture until you have saved up for it.

Mortgage

The price to buy your family home is so large, that hardly anyone can save first until they have the cash to buy that real estate. So you have to borrow money to make that purchase at a time in your life when you need it.

On the other side a mortgage off-sets you to have to pay rent. So the expense should go into the must-have section of your budget. Also from the contractual perspective, you need to make that payment every month. However, there is a caveat. You need to buy only as big a house as you can afford. If you need-have section of your budget gets out of proportion, because of a super-sized mortgage, then you did buy too much house.

Charity

Not everyone is blessed with a good income or even the ability to work. There are also many other worthy causes to give to. I encourage you to make room in your budget categories to share what you earned with those that are not able to earn money for themselves.

However, you should consider your charitable giving as want-to-have spending on your budget.

Bank account fees

If you work with money, you most likely store it at a bank. Most banks charge you a fee for the convenience to get cash on an ATM or to pay your bills online, or with checks. The times are gone, where banks were able to offer seemingly free services because they could make money with the money you deposited and even pay you a small interest. So these fees are charged to you and they can become significant if you are not careful.

These fees are a need to pay.

Judgement calls and consitency

As mentioned above, it is up to you how detailed you make your budget categories and where you assign those in a budget plan like the 50/30/20 allocation between must-, want-expenses, and savings.

You do not need to become the most accurate accountant, but to actually minimize the effort of keeping an eye on your spending habits. The biggest goal here is saving the right amount to reach your long-term goals. You don’t want them to become never goals, because you always overspend your budget.

The second most important goal is to keep your must-do spending in check. It might make no difference now if your must-do spending is 60% of your budget and the want-to section is 20% instead. However, if you lose your income, then replacements such as emergency savings and unemployment may not cover this larger amount of spending. You can make sure that either your emergency savings match that elevated spending or you don’t sign so many contracts (mostly loans) to bind you for a longer-term.

You want to make your judgment calls once and then stick to it in the future. It does not make sense to change these allocations from month to month. Because otherwise your over-/underspending hides behind this moving of the deck chairs on the titanic. That does not mean, you can change these judgment calls when life changes. For example, when you get married you want to negotiate your budget together. Or when you change careers, you may reset your assumptions. You just need to be aware, that when you majorly change the assignments, then you need to look back up to 12 months and re-assign to estimate your budget like a new budget.

Further Reading why you need budget categories

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