If you want to succeed financially, you need to budget your money, and meaning success in budgeting means understanding budget categories. Knowing about the different types of things you may spend on will help you understand what applies to you and your financial situation. So let’s talk about the various categories you need, including our budget category list!
Sometimes the easiest way to determine your budget category is to view a large list and select the list that applies to you. You may not need all categories, but that’s fine. That’s all about the items you need to include in your personal budget.
Four main budget categories and subcategories list
Below is a list of the four main budget cost categories, as well as a list of each subcategories. It also provides detailed information on the importance of each category and how to clearly lay out subcategories.
1. Finance for your future self
Your financial future is influenced by what you are doing now. Therefore, it is important to make the category correspond to your budget with your future self. Groups in this category include:
Why is it important to plan for your future self?
Have you ever heard the phrase “pay yourself first”? It should be a consistent part of the plan you do. Therefore, the “Finance for your future self” category is to think ahead.
But what does it mean to pay yourself? Before paying your bill or shopping, you should repurpose a portion of your proceeds into a retirement account, if possible, for your future self and emergency savings accounts.
Time will be very fast and planning a future version will allow you to enjoy retirement and you don’t have to resort to government or children to take care of you. According to the National Institute for Retirement Security, 40% of older Americans rely on social security during their retirement, so saving the future is important.
Having an emergency fund, or a rainy day fund, will also provide a buffer in the event of unexpected costs, so that you can rely on emergency savings in lieu of your credit card or other debt.
Nearly 50% of Americans want to focus on saving for emergencies, according to Nerd Wallet. So it’s very important to add this to your budget in case something unexpected happens that requires payment.
This group category also includes money to repay any debts you have (credit card debt, car loans, personal loans, student loans, etc.). Because it is essential to pay off your debts as quickly as possible. This may not seem like this, but debt payouts actually focus on the future, as they provide more security and money later.
2. Essentials
Your essentials are items that cannot be removed from your budget or delayed later. These should be one of the first in the budget category list, as they are things you need to pay to improve your quality of life. The Essentials category includes:
- Mortgage payment or rent
- Utilities (water, electricity, internet, etc.)
- Grocery and food budget
- Transportation costs and/or car payments
- Renter’s Insurance
- Homeowner Insurance
- Fixed Asset Tax
- Health insurance
- Auto insurance
- Life insurance (e.g. period or life insurance)
- Disability insurance
- Dental treatment
- Childcare costs
- Pet Food
- Necessary personal care items
Be really clear about what your essentials are
As mentioned before, your essence is what you need to live your life. However, this category does not include money to shop or complete your nails. These are not required.
Instead, Essentials focuses on the categories you need. It means basics such as rent and housing costs categories, transportation, insurance, food.
Your essentials are your non-negotiable costs and they must be one of the first things you will take care of when you receive your salary.
3. Life goals
Your life goals include other things you may want to pay to improve your life, such as saving for a future outside of retirement.
Though not as important as car payments and groceries, “life goals” are truly important expenses categories that are within your budget.
Define your life goals
Your life goals may include midterm savings and investments over the next 10-15 years, saving business, saving home buys, saving money for college and more.
It is recommended that you create individual accounts to store different life goals. I personally set up automated deposits for different goals, but that helped me stay at the pinnacle of my savings!
4. Everything else
Anything that is not required and does not save a particular goal is considered unnecessary. But this category is usually the most enjoyable and makes life even more enjoyable!
- Entertainment, concert tickets, movies, etc.
- Gym membership
- Eating out at fast food, coffee shops, restaurants, etc.
- vacation
- Gift for a large family or friend, wedding, anniversary or birthday
- Cable subscription or cable replacement
- Streaming services, including Netflix, Hulu, Amazon Prime, etc.
- Hobbies, gardening, crafts, etc.
- We go to the spa for self-care, perfecting nails, massages, etc.
Everything else should include fun money
The “All Other” category is your splurge money. It’s whatever money you spend shopping and saving for wish list items, travel, entertaining yourself, and whatever else you do as part of enjoying the life you normally have.
Having these categories means that you want to be able to enjoy your money from time to time, even as you pay your bills and work towards your goals. This allows you to boost your morale and reward yourself by working hard.
You can include going to movies in this category, dinner, birthday presents for friends, other items, and more.
use percentage Budget Categories
Once you’ve made a clear list of budget categories and subcategories. Assigning percentages to each category is a good idea. You probably won’t spend the same amount on each category. Some categories require more income than others.
However, knowing whether to assign an almost proportion of your income to each category is a big part of your organised finances and can help you improve your spending habits.
For each of the four main categories above, Below are general guidelines for how you can allocate your money. However, percentages may look a little different based on individual costs and goals.
- Finance for your future self: At least 20%
- Essentials: 50%
- Life goals: 15%
- All Others: 15%
Please note that you can adjust the percentages for these budget categories according to your goals and timeline. Your budget is a blueprint for how to manage your money and make sure you can build wealth. And it should personally work for you. Check out our example budget.
Expert Tip: It’s okay if your budget category changes
You can’t select a budget category for one time process. Budgets are evolving and may need to be changed to meet your current needs.
You probably need to always include four main budgeting categories, but you may need to adjust or change the subcategories.
Therefore, make it a habit to continue checking in with your list of expenses, goals, and budget categories to ensure that your spending reflects them.
How do you plan your budget category if you are focused on paying off your debt?
If you are focusing on paying off your debt, you should plan to pay as much as possible to your debt each month, rather than to the minimum payment. And paying off your debt may mean reducing the amount you contribute to your various budget categories.
For example, you may need to reassign the difference to spend less on entertainment, vacations, etc. and instead pay off your debts as quickly as possible.
Just like everything related to money, sticking to your plan requires discipline. If you’re struggling with planning first, having an accountability partner is a great idea!
Please contact a friend for support. We all need cheerleaders from time to time.
How many categories do I need to get for my budget?
The number of categories you choose for your budget depends on your expenses, goals, and splurge. However, I recommend that you have the following categories:
- Long-term savings goals for your future self and debt repayments
- Your Essentials and Needs
- Other life goals,
- It’s not essential to travel, splurge, or fun money.
You can then divide these main categories into smaller subcategories. There are no complete numbers of categories, but I recommend starting with at least these four main categories.
What are the four main categories of budgets?
The four main categories groups within your budget are your future self, essentials, life goals, and all other finances. You can choose to call each with a different name, such as “retirement and savings” or “discretionary spending”, but the main ideas for each category are the same.
You may need all four of these categories to create a balanced budget, but the subcategories under each category you choose will also vary depending on your cost, goals and lifestyle. For example, under the main category “Finear For Future Self”, there may be a 401K/IRA subcategory, emergency savings, and student loan payoffs.
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Take advantage of these cost categories within your budget today!
Like any art, budgeting takes time to master. Furthermore, part of budgeting is defining budget categories. Knowing the category that something belongs will help you decide whether to save on it or buy it.
Budgeting can be difficult, but categories can be useful! If you need practical budget counseling, that’s fine too. Most importantly, knowing that planning will help you finances, keep on starting even when it gets harder.