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TEXT LESSON: An Overview of Personal Budgeting and Common Categories

What Is a Budget?

An itemized budget, that covers all the basic budget categories, is one of the most important tools you can utilize to take control of your finances.

A personal budget is a spending plan. It shows you what you’ll have left after you take your income and subtract all your expenses each month.

To create a budget, you need to break down all of your spending into categories, so you can clearly see your spending habits and where you might be overspending. It will end up looking something like this…


So That’s ALL I Have to Do…and Eventually I’ll Be RICH!?!

Not quite.

A personal budget is like a road map to your financial future.

But what good is a road map (or GPS on your phone, for those of you who’ve never seen a map) if you don’t follow it or listen to the directions it’s chirping at you?!!

If this analogy has confused you, it’s because it’s a crappy analogy. But, what I’m attempting to say here is that a budget is only one of the two critical requirements to financial success.

The second super critical requirement with budgeting is to track your spending accurately (aka good bookkeeping), and then compare the results against your budget. I cover this in the next lesson.

What Are Personal Itemized Budget Categories?

You personal budget is made up of income and expenses. And while income is technically a category, expenses make up 98% of categories.

Now, not all categories apply to everyone, but the vast majority do. Like if you don’t have kids, not only will you save a lot of money (ha!), but you won’t need that category.

Some people will need to track their student loan costs, while other lucky bastards will have already paid off their student loans—or better yet, had their parents pay for their 4 year party adventure (nice work on that scam)!

What Kind of Budget Should I Use? Shouldn’t I Be Stuffing Cash Into Envelopes Every Month (or Something to That Effect)?

There are a lot of gimmicks out there when it comes to budgets. The “50/30/20 Budget,” the “Envelope Budget,” the “Pay Yourself First Budget,” blah blah blah. There are as many cute names for budgets as there are for diet trends.


Don’t get me wrong, I get that for the people that hate counting things and don’t like spreadsheets, gimmicks can make it seem more “fun” and “interesting”…and I really do support anything that helps you start a budget.

The problem is, often people don’t know where to start with a budget, because they really don’t know how much they spend. And so they get stuck.

You can throw estimated numbers into a budget all you want, but if you don’t know how much you actually spend on your life, you won’t know if it’s a practical estimation…or what would be a practical reduction to save money.

Wait—what? You haven’t tracked all of your spending for the year in some kind of computer software? So you can’t actually see how much money you spent and on what? So how do you know if you spent more than you made?! Hmmmm.

How Do You Determine the Main Itemized Budget Categories?

My first budget was originally made sometime in the 90’s…haha. So obviously, the categories have been tweaked and altered over the years. Likewise, you’ll find the need to adjust yours to your preference and current life situation.

For example, when my wife and I joined our finances, I added in a sub category under “Personal” for her clothing and grooming (i know..its a weird word…grooming) and for her work expenses. I wanted to keep them separate so we could analyze these categories in the most accurate way.

Additionally, I’m sure as our son gets older, we’ll add more sub categories for him, too. Consequently, we’ll be able to have a “very informative and enlightening” conversation with him if we feel he needs to cut back in certain categories. (Looking forward to that one.)

However, you most likely won’t need to alter the 8 main itemized budget categories I’ve created for expenses (unless they don’t apply to you currently). And again, this is all in the downloadable sheet.

The 8 Main Itemized Budget Categories

1. Car Expenses
2. Child Expenses
3. Personal
4. Discretionary
5. General Living
6. Health Care
7. Housing Expenses
8. Savings (this includes investing)

In my many years of bookkeeping and budget analyzing, I’ve found these 8 categories to be the most intuitive way to break down my spending.

However, you will find a few additional category options in the budget spreadsheet, if you need to add in categories such as Other Unsecured Debt Payments. This category, for instance, would include student loans, credit card payments, and personal loan payments. I don’t have any of these payments because we’ve paid off our student loans and I usually pay my credit card in full each month.

Are There Other Ways to Split Up the Main Itemized Budget Categories?

Absolutely. You could split it up further, into as many as 11 or 12, which might include separate categories for InsuranceUtilities and Food. But to me, eating out is entertainment, which I why I have it under “Discretionary,” instead of “Food.” Which leaves only groceries, and that makes sense to me under “General Living.”

Splitting up budget categories: they can be unique to you!

Furthermore, when it comes to putting insurance in categories, my thinking is this: I’ve separated my health insurance, car insurance, home insurance, and life insurance into their respective categories, instead of lumping them all together under one category called “Insurance.”

Ultimately, you’ll find what works best for you once you get started. It’s just a matter a personal preference. You do you.

How Did You Determine All the Sub Categories?

When you open the Budget Template, you will be able to view my current budget with detailed notes listed next to each sub category.

Hopefully, it will be able to answer many of the questions you might have about exactly what I’ve included as an expense in each sub category.

Again, you may need to adjust this slightly to your preference and your own personal situation.

How Did You Make This Budget?

Ok, so every year I update my existing budget. The process I follow is this: I bring up my personal finance tracking software (in my case, Quicken Home & Business), run a report for my spending of the previous year, and see how much money I spent and on what, then take a monthly average.

The report I just mentioned has all the same categories that my budget has, so it’s easy to compare. Usually, my spending falls roughly in line with the budget that already exists, but I’ll decide on what categories I think I can spend less on, and revise them on the spreadsheet.

So, after I make my new budget, on a monthly basis I run the same spending report in my software, and I can see if I stayed within budget for the month. See how these two things work so nicely together?

Of course, if this is your first budget (and you don't currently track your spending) you essentially have to estimate what you think you spend on each of the itemized budget categories in the Budget Template I have provided.

Are You Ready to Get YOUR Personal Itemized Budget Wrangled?

While it does take some discipline, it gets easier (and more enjoyable…maybe?!?) the more you do it. Using the Budget Template that I created for you, you can quickly be on your way to less anxiety and more big financial rewards (no envelope stuffing necessary).