How to Create Home Budget Categories
This means the receipts, every receipt.
I wrote about this step in detail in another article.
The second is recording these expenses in a medium that makes sense and can guide you through.
The first choice for many people is a simple spreadsheet in Microsoft Excel or an easier version (if you don't have MS Office, a very nice alternative available for free download is NeoOffice).
For other folks which may be spreadsheet-challenged, a notebook or a ledger might be the way to go.
Categories of expenses could be separated into two broad categories, essential and non-essential.
At the most basic level, money that you spend to sustain yourself and your family, like food, shelter and heat.
Watch a couple of those wilderness shows on Discovery Channel, and these the first items on the agenda.
Groceries, mortgage or rent, and utilities (water, electricity, gas).
These are the primary buckets.
Essential medical expenses, like prescription medications, would also be included.
Second group of categories would include discretionary variants of the above, such as dining out, transportation and insurance.
These are items over which a person has a greater amount of control to modify and/or reduce.
Dining out regularly? You may wish to cut back after seeing a total cost in the $400 to $500 range, month after month.
Commuting alone to work in a gas-guzzler? Car-pooling may start to look attractive.
The third and final group is the highly discretionary and personal expenses which we can modify or eliminate through planning and willpower.
Personal expenses like fluff magazine subscriptions, day spa treatments, premium cigars and movie nights every weekend may also get the cost-cutting ax once the true monthly cost is tallied up and recognized.
Here is a sample list of categories.
- Groceries: food and toiletries - Dining Out: restaurants and takeout - Medical: prescriptions, and insurance co-pay - Household: maintenance, decor, home improvement, and garden - Transportation: Gas, car payment, insurance, maintenance, and public transport - Housing: Utilities (water, garbage, sewer), gas, propane, and electricity - Personal: hair salon, clothes, small vices (smoking, drinking, lottery tickets) - Various debt repayments: boat, student loan, consumer loan, credit card, furniture, department store loan - Miscellaneous: Gifts, books, dog grooming, school tuition, cable or satellite TV Whatever the category choices, for someone just starting out making a recording a budget, the first approach is definitely to keep it simple.
Just a few broad categories, and once the habit is well established, then some of the recurring expenses could be separated into their own category.