10 Budget Categories That Belong in Your Plan
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At its most basic, a budget is really just a plan for your money. A well-thought-out budget can help you take control of your finances and use your money with purpose, so you have enough to pay your bills, grow your savings, and still enjoy life today.
The first step involves breaking down your regular expenses into budget categories to get a clear picture of your spending patterns (including areas where you tend to overspend). Once you’ve identified your basic budget categories, you can start allocating your spending based on your unique financial situation.
This guide reviews a list of budget categories found in a basic household budget. It also offers suggestions for how much of your income you should devote to each category.
Assembling Your Home Budget Categories
The Essential Budget Categories
All monthly budgets start with your disposable income—the money you take home from your paycheck after taxes, retirement savings, and other deductions.
Your disposable income is what you have available to spend on your home budget categories: housing, transportation, food, utilities, insurance premiums, and other essential costs.
1. Housing (25-35 percent)
Anything you pay toward keeping a roof over your head is considered a housing expense. That includes rent or mortgage payments, property taxes, HOA dues, and home maintenance costs. For most budgeters, this category is by far the biggest.
2. Transportation (10-15 percent)
Regardless of your location or lifestyle, everyone needs to get from point A to point B. Typically, this budget category includes car payments, registration and DMV fees, gas, maintenance, parking, tolls, and public transit.
3. Food (10-15 percent)
Groceries, of course, are an essential expense for every family. Many budgeters include dining out in this category (e.g., restaurant meals, work lunches, food delivery, etc.)
However, if you’re someone who tends to spend a significant amount of money on things like gourmet food and wine, you might want to put your non-grocery food expenses into one of the non-essential categories.
The basic idea behind your budget categories is to split them up so you can see what you really need to spend separately from what you’re choosing to spend.
4. Utilities (5-10 percent)
Water, electricity, and HVAC (heating, ventilation, and air conditioning) are vital to practically every well-functioning household. Your utilities category should cover all the expenses that keep these services up and running.
That includes your gas, electricity, water, and sewage bills. For most families, it will also include your cell phone, cable, and internet expenses.
5. Insurance (10-25 percent)
This is one home budget category that depends very much on your own preferences.
Many budgeters like to categorize insurance with the things they’re insuring. Health insurance, for example, would fall under “Healthcare.” Auto insurance would fall under “Transportation.” This is a completely valid option.
Other budgeters include insurance separately as one of their basic budget categories. In that case, it should include all your insurance payments, such as:
- health insurance
- homeowner’s or renter’s insurance
- home warranties or protection plans
- auto insurance
- life insurance
- disability insurance
6. Medical & Healthcare (5-10 percent)
Maintaining your health and well-being is essential, so it’s critical to include enough in your budget to cover these costs. If you plan for routine medical care, you’ll live a much healthier life over the long run.
This budget category includes anything you might spend on healthcare, such as:
- out-of-pocket costs for primary care
- specialty care (dermatologists, psychologists, etc.)
- dental care
- urgent care
- medical devices and supplies
If you decide to split up your insurance into each separate home budget category, remember to include your health insurance premiums here too.
7. Saving, Investing, & Debt Payments (10-20 percent)
This often-overlooked (or underfunded) home budget category is arguably the most important. Although saving money doesn’t have much impact on your day-to-day life, it has everything to do with your financial health down the road.
Without an emergency fund, you may find yourself in dire straits if you get blindsided by an unexpected medical expense, car accident, or sudden job loss. This is separate from your retirement account, which is a long-term plan to support you during your golden years.
You can also use this budget category to pay down any high-interest debt you’re carrying, such as credit card bills, personal loans, or student loans.
If you’re saving a full 20 percent of your income and you still aren’t making a significant dent in your debt, you’ll need to start cutting back in other areas, starting with your non-essential spending categories.
The Non-Essential Budget Categories
Once you’ve budgeted for your family’s essential needs, the money you have left for non-essentials is called your discretionary income. This is what you’ll use for things like personal expenses, recreation, and gifts.
Non-essential expenses tend to vary from month to month depending on your spending decisions. They’re also the easiest expenses to cut back on if you want to pay down debt or build your savings more quickly.
8. Personal Spending (5-10 percent)
This category is a catchall for anything that could be considered a personal care or “lifestyle” expense. Personal spending includes things like:
- gym memberships
- clothes and shoes
- home decor and furnishings
Because some personal care products are essential, such as soap and laundry detergent, you might want to include those in your food budget category. After all, you probably buy those with your other groceries.
9. Recreation & Entertainment (5-10 percent)
This home budget category consists of your “fun money.” That’s important!
For most of us, carving out leisure time (and money) is essential to maintaining a healthy work-life balance. This budget category can include things like:
- concert tickets
- sporting events
- family activities & vacations
- streaming services and other subscriptions (e.g., Hulu and Netflix)
- restaurants (if you didn’t include this under “Food”)
- video games
In other words, this home budget category includes all your fun and entertainment. Enjoy it however you want to—you’ve earned it!
10. Miscellaneous (5-10 percent)
Finally, this home budget category is reserved for anything that isn’t already covered in your basic budget categories. It can also be an “overflow” category when you need a little extra somewhere else.
For example, if you have a larger family, you might spend a fair amount on clothes and haircuts for your kids. If you’ve maxed out your “Personal Monthly Expenses” category, you could account for those items here.
Or maybe you’ve recently returned to school to get a degree. In that case, your tuition and textbook expenses could fall into this category.
Your Budget Categories & Percentages: Putting it All Together
Now that you know how to allocate your income based on simple budget categories, you’re ready to start building out your own budgeting plan.
Remember, this budget categories list is just a place to start. The key to success is to customize your budget in a way that makes sense for you.
If you try your new home budget for a few months and it’s not quite working, make small adjustments however you need to until you’ve designed a budget that works well for your own needs. It might take some initial work, but the results—and the money you save over time—will be well worth the effort.