Budgeting 101: How to break down budget categories

We’re all on a personal financial journey. Creating a monthly budget is one of the best ways to make sure you know where that journey is taking you and your family. 

Building a budget helps you save, pay off debt, control your spending habits, and ultimately reach your financial goals. To build a budget, you’ll need to categorize your expenses. 

In this guide to budget categories, we’re going to break down common expenses and how to categorize them. 

What are budget categories?

Budget categories are grouped expenses by some sort of theme that makes sense to you. Depending on your budget method, your priorities, and what your family spends money on, your budget categories may be different from someone else's. Most of us have some standard overlap though, like housing costs and food. 

When breaking up your expenses into budget categories, the level of detail is up to you. For instance, some people might use the 50/30/20 rule, which categorizes all expenses into three categories: needs, wants, and savings. Others might get very granular and have a budget category just for work lunches and another for streaming services.

Whether you go one of these routes or find a middle ground, your budget categories help you visualize where your money is going, plan how to allocate your income, or avoid overspending. 

11 categories for your family budget

Let’s take a look at 11 different budget categories that are useful for most families. Remember, these might not be perfect for your family so you can adjust it as you see fit.

1. Housing

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For most of us, keeping a roof over our family’s head is our biggest, most important expense. That makes it the perfect place to start when considering budget categories. 

The housing budget category can include your mortgage payment or rent, HOA fees, property taxes, homeowners or renters insurance, maintenance, and other housing costs.

2. Transportation

Whether you rely on public transportation and Uber or your family has multiple cars, we all have to get places, and that costs money. 

If you own or lease a vehicle, you know there are a lot of expenses that come along with it. Some of those are car payments, auto insurance, gas or charging, oil changes, license plate renewals, parking fees, maintenance, repairs, tolls, and more. 

While some of that is predictable, and therefore easy to budget for, sometimes unexpected accidents and repairs can pop up. How do you budget for those? One way is to average what past repairs have cost you monthly. Otherwise, it may have to come out of your emergency fund or another part of the budget. 

3. Utilities 

Utilities is the budget category where you put the bills you have to pay for home services. These are expenses like electricity, gas, water, internet, and cell phone plans.

While these aren’t bills most of us can choose to eliminate, monitoring your household usage of resources and regularly comparing service providers can sometimes lower your utility bills.

4. Groceries and food

We all need to eat food. How much we pay for that food depends on how many people we are feeding, what kinds of foods and drinks we like, and whether we cook at home or enjoy the convenience of a restaurant. 

While this category seems pretty straightforward, it can get blurry when you also have an entertainment budget. For instance, if you have a weekly date night or you buy a hot dog at a baseball game, it can be hard to figure out what part of your budget that should come from. 

There really is no answer to this. It’s whatever you want it to be. The important thing is that you make a rule that makes sense to you and you do your best to stick with it.  

The other complication to this category is that you may buy your household goods and personal care items from the grocery store. Should you include the laundry detergent in with your food budget? Again, it’s up to you and what you want to include in each budget category. You may decide you’d prefer to track food and household supplies in separate categories — or you can include the overall cost in your grocery category.

5. Healthcare

Your family’s health is precious. Maintaining that health is not always as inexpensive as we’d like it to be. Depending on your personal situation, healthcare could be a small or big part of your budget. 

Usually, healthcare will include health insurance premiums, deductibles, out-of-pocket medical costs, and any necessary prescriptions. Some people also like to include first-aid items, over-the-counter medication, and vitamins. Others may even include things they do for their health and wellbeing like gym memberships.

6. Debt repayment

When carrying debt from credit cards, student loans, personal loans, etc., it's often recommended that you keep your required payments to under 15% of your gross pay (not including your mortgage). This is also known as your debt-to-income ratio. 

However, If you carry any of those types of debt, you may be stretching your budget to pay high interest and fees. The quicker you can get your debt paid off, the sooner you can reclaim that money for saving or improving your family’s quality of life.

7. Savings and investments

One of the biggest benefits of budgets is getting your monthly expenses under control so you’re able to put extra money aside. Saving money and investing part of your monthly income allows you to be more stable and prepared.  

This category includes making contributions to retirement funds, putting money into savings accounts, investing in the stock market, or even paying life insurance premiums. 

Once you get your budget figured out, you can decide if you want to split your savings and investments into subcategories, like general savings, emergency fund, vacation fund, or retirement. It’s up to you! 

8. Personal and discretionary 

A good budget leaves room for personal care and discretionary, like dining out, buying something you want, or haircuts.

Personal and discretionary is where you put your entertainment, subscriptions, and quality-of-life expenses. Clothing can also go in this category. Although some clothing purchases are a necessity, for the most part, it’s considered a discretionary expense.

These are the areas you could cut back on if money ever becomes tight. 

9. Charitable giving

You can also budget your generosity. If there are charities, churches, or nonprofits you want to support, you can add a charitable giving category. Making the decision of who to give to and how much to give is a valuable family activity too. 

10. Child care and education

Raising kids certainly changes the budget — but, how it changes can be different for all of us. If you have one or more kids enrolled in daycare or private school, this category might be a more substantial part of your budget.

You can also include saving for college, school supplies, and paying for babysitters in this category. 

11. Miscellaneous 

Miscellaneous is the unexpected expense category. It can also be where expenses for events like birthdays and holidays can live. 

But the real power of the miscellaneous category is that it gives you a little room to play. For instance, if your food budget goes a little over one month, you can take some from your miscellaneous budget. Just make a note that you need to be a bit more strict with your miscellaneous spending that month.

How to personalize your budget

You might have noticed that there is a lot of room for adjustments. You should feel free to add and remove budget categories or change how you categorize your expenses. Customization is key to helping you build a budget that works for you. 

To figure out how much you should spend in each category, start by calculating how much money you take home each month after taxes. Everything in your budget should fit into that figure.

Next, gather past bills, bank statements, and credit card statements, and think about any other spending habits you have that aren’t reflected in those bills and statements. 

Start to piece together what you're spending, and put it in a category that makes sense to you. While you’re doing this, take note of any spending you might like to cut out. This could come in handy if you’re trying to fit more into the budget or realize you’re overspending. 

Once you have something concrete, monitor your progress each month and adjust as needed. It might take a few months to really dial it in. That’s OK! The important thing is you took a big step on your personal finance journey.

Budgeting is for kids too

A personal budget gives you a clear picture of where your money is going so you can reach your financial goals with ease. While many people don’t learn how to use budget categories until well into adulthood, your kids don’t have to wait. 

Greenlight gives you the tools to teach your kids important money skills like budgeting, saving, and even investing. With our app and debit card (and your help), they’ll get real-world experience with these concepts.

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