When you start making a budget, you may find yourself overwhelmed by all the expenses you need to account for. That’s where budgeting categories come in. By categorizing common expenditures into categories, you can make budgeting more manageable. And budgeting categories also give you a bit of flexibility so that you don’t have to precisely predict the cost of every single thing you’ll buy each month.
The exact budgeting categories that make sense for you depend on your circumstances and lifestyle. But there are some common budgeting categories that nearly everyone will likely need. You can start with those, and then refine them as needed to create your own budget.
Here’s what we’ll cover:
- Budgeting categories for necessary expenses
- Budgeting categories for discretionary expenses
- Budgeting categories for seasonal expenses
Budgeting categories for basic needs
When you plan how to spend your money, you’ll be faced with balancing needs vs. wants. Needs are the fundamental things you require to function in life, so creating budgeting categories that capture them is essential to making sure your budget covers them.
Budgeting category: housing
Housing is often one of the largest expenses in a budget, often accounting for 25% to 30% of your income. This budgeting category includes rent or mortgage payments, home or renter’s insurance, and the cost of maintenance and repairs. If you own your home, you’ll also want to include property taxes and any homeowner’s association dues you have to pay. Also keep in mind that home insurance and property taxes may be included as part of your mortgage payment.
When you’re making your budget, be aware that expenses in the housing budgeting category aren’t all fixed monthly expenses. For instance, the cost of repairs are usually unpredictable and variable, so you’ll want to save up a bit of money for them each month so you have the funds when something breaks. Similarly, you might want to set aside the average monthly cost of quarterly or annual expenses, such as property taxes and insurance, so you spread the cost throughout the year.
| Examples of housing expenses: |
|---|
| Rent or mortgage payments |
| Home or renter’s insurance |
| Maintenance and repairs |
| Property taxes |
| HOA dues |
Budgeting category: utilities
The utilities budgeting category includes things like electricity, water, gas, internet, phone, and trash and recycling. If you’re a renter, some of these expenses might be included with your rent, but others will fall on your shoulders. And if you own your home, you may have other utilities depending on where you live, such as wastewater collection, septic system service, or heating oil.
Most utility costs vary throughout the year, which can make this budgeting category a bit harder to plan for. However, you can refer to your previous years’ bills to estimate how much you’ll have to spend each month, and anticipate things like hot and cold weather that will increase your electricity and gas usage. If you need more predictability, you can ask your utility companies about fixed monthly pricing instead of being billed based on usage; some municipalities offer this option for certain utilities.
| Examples of utility expenses: |
|---|
| Electricity |
| Water |
| Gas |
| Internet |
| Phone |
| Trash/recycling |
Budgeting category: food
Everyone needs to eat, so a budgeting category for food is fundamental to planning your expenses. Food is a variable expense; very few people eat the exact same thing every day, and even if you did, the cost of groceries and meals changes based on seasons, inflation, and market forces. Planning for your food budgeting category calls for some forethought and educated guesses. For example, some people like to plan their meals for a week or two so they can more easily estimate their food budget. Another strategy is to set a weekly food budget you can afford, then shop sales and use coupons to get out of the grocery store without overspending. Your food costs might also be less variable if you use a CSA for produce delivery or a meal delivery service that ships you prepared meals to cook or reheat each week.
While many people think of groceries as a necessity and dining out as a nice-to-have, others find it easier to include both in their food budgeting category. That approach allows you to look at your entire food budget for the month and divvy it up among groceries, restaurants, takeout, and delivery according to your priorities and finances. And if cooking at home isn’t very accessible to you, it may be easier to budget for your food needs if you consider all options within one budgeting category.
| Examples of food expenses: |
|---|
| Groceries |
| Restaurants |
| Takeout |
| Meal delivery |
Budgeting category: transportation
Most people need to get around town for work, school, and other obligations. Even if you work remotely, you’ll likely need to travel for things like appointments and shopping. Your budget category for transportation should include all the expenses associated with getting out and about: car payments, fuel, insurance, maintenance, and repairs. This budgeting category also includes the cost of public transportation and ride sharing services. And if your regular commute involves tolls or ferry fees, be sure to take those into account.
Many of the expenses in the transportation budgeting category are fairly constant and predictable, such as car payments, insurance, and monthly transit passes. Others can vary quite a bit, like the price of fuel and the need for car repairs. Since it’s likely your car will need to be fixed at some point, many people include a savings fund for car repairs within their transportation budget category, setting aside a some money each month so it’s there when needed.
| Examples of transportation expenses: |
|---|
| Car payments (loan or lease) |
| Fuel costs |
| Maintenance and repairs |
| Auto insurance |
| Public transportation passes/fares |
| Ride sharing services |
Budgeting category: healthcare
Creating a budgeting category for healthcare is important to ensure you have the money you need for wellness necessities. This budgeting category includes insurance premiums, copays for doctor visits, dental visits, and the cost of prescriptions. You may also want to include things like over-the-counter medication, vitamins, and glasses/contacts. People living with a disability or chronic illness may have additional healthcare expenses to include in this budgeting category.
Another expense worth considering in your healthcare budget category is the cost of medical emergencies. Nearly a third of Americans are in debt due to medical bills, and an unexpected accident or serious illness could put you in that situation. If you have a healthy emergency fund, you might rely on it for unplanned medical expenses. But some people prefer to include in their healthcare budgeting category a savings fund dedicated to medical emergencies for added peace of mind.
| Examples of healthcare expenses: |
|---|
| Insurance premiums |
| Doctor and dentist visits |
| Prescriptions |
| Glasses/contacts |
| Medical emergencies |
Budgeting category: debt repayment
If you have debt, you’re not alone; 66% of Americans hold some sort of debt, and most of it is in the form of credit cards and auto loans. Making your minimum monthly payments is necessary to avoid incurring late fees, damaging your credit score, and being hounded by creditors. Your debt repayment budgeting category should include all your monthly debt payments, such as credit cards, personal loans, car loans, and student loans.
But you don’t have to limit your debt budgeting category to the minimum required payments. If you want to get out of debt sooner, you’ll need to pay more than the monthly minimums. Consider adopting a debt-payoff strategy like the avalanche method or the snowball method. Both approaches call for paying extra toward your debts each month, so you’ll want to include those payments in your debt repayment budgeting category.
| Examples of common debt expenses: |
|---|
| Credit card payments |
| Personal loan payments |
| Auto loan payments |
| Student loan payments |
| Extra debt payments |
Discretionary budgeting categories
Once your basic needs are met within your budget, it’s smart to include discretionary spending in your budget. Otherwise, you’re more likely to lose track of where your money’s going, spend more than you can afford, or fall into the habit of impulse buying. There are a wide variety of possible discretionary budgeting categories; the right ones for you depend on your lifestyle, hobbies, and preferences. Consider the common budget categories that most people have for non-essential expenses, and refine them to reflect your circumstances.
Budgeting category: entertainment
Entertainment means many things to many people, so the specific expenses you include in this budgeting category are up to you. Consider entertainment outside the house, like going to movies, concerts, sports games, and other events. Also take into account entertainment that comes into your home, like subscriptions to streaming services, gaming, and magazines. Think about what else you do for fun, like hobbies, shopping, and socializing. All those expenses belong in your entertainment budgeting category.
When it comes to budgeting for discretionary expenses like entertainment, you’ll want to think about your priorities. For example, if you’re looking for ways to save money, you may want to reduce costs by canceling some subscriptions or swapping free activities for ticketed events. It can also be helpful to set a monthly spending limit so you can remain flexible with your fun plans without going over budget.
| Examples of entertainment expenses: |
|---|
| Movie and event tickets |
| Streaming services |
| Hobbies and recreation |
| Shopping |
| Socializing |
Budgeting category: personal care
Personal care can be a tricky budgeting category, because some expenses may be needs, while others may be wants. For example: everyone needs basic hygiene products; getting a haircut might be essential to maintaining a professional appearance at work; and a gym membership could be vital for your physical and mental health. Other things may be nice-to-have little splurges, like spa services, cosmetics, or a new pair of shoes. As you put together your personal care budgeting category, list out all the products and services you spend money on for maintaining your hygiene, grooming, and appearance.
For some people, it makes sense to split their personal care into two budgeting categories: one for needs and another for wants. That way, you can budget for the necessities first so you don’t find yourself unable to buy soap or deodorant. Then you can allocate money to niceties based on what you can afford in your discretionary personal care budgeting category.
| Examples of personal care expenses: |
|---|
| Hygiene products |
| Haircuts and grooming |
| Gym memberships |
| Salon and spa services |
| Clothing and accessories |
Budgeting category: travel
If you like to get away from it all, you may want to set up a travel budgeting category so you can plan and save for your adventures. Depending on the kind of trip you take, there are a variety of expenses that fall into this budgeting category: bus/train/plane tickets, gas for road trips, lodging, travel insurance, and money for meals and sightseeing.
If you’re aiming to take a vacation, you might want to set a short-term savings goal and use your travel budgeting category to save up money for all the aspects of your trip. Consider tips and tricks to travel cheap if you want to reach your goal sooner.
Of course, people don’t travel just for pleasure. You might need a different approach to your travel budgeting category if you frequently need to take short trips, such as visiting relatives, going out of town for work, or getting medical treatment far away. Plan the frequency and timing of your trips to the extent possible and include all the expenses in your travel budgeting category.
| Examples of travel expenses: |
|---|
| Flights |
| Train or bus tickets |
| Gasoline |
| Lodging |
| Travel insurance |
| Vacation activities |
Seasonal budgeting categories
Certain times of year come with extra expenses, and it’s smart to anticipate them so you’re not caught off-guard. Planning ahead for seasonal budgeting categories also allows you to save up a little bit at a time in order to spread the impact across the year instead of being hit with an extra-tight budget one month.
Budgeting category: gifts
There are many opportunities to shower those you love with gifts, from birthdays to holidays to milestone celebrations. Luckily for your budget, these occasions can usually be predicted well in advance, so you can plan your spending. To get a sense of how much you need for your gift budgeting category, look ahead to all the occasions you’ll be celebrating in the coming year. Then examine your budget to see how much you could afford to spend on presents and set a spending limit for each gift you’re going to give.
If you find that you have a lot of gift-giving occasions around the same time, you might want to set aside gift money each month so you can celebrate all your loved ones without squeezing your budget.
Budgeting category: winter holidays
Winter comes with a host of holidays within a short timeframe: Thanksgiving, Hanukkah, Christmas, Kwanzaa, New Year’s Eve, and more. Whatever occasions you happen to observe (and even if you don’t observe any particular holidays), the months of November and December often come with celebration as well as the associated costs. Your holiday budgeting category could include expenses for things like decorations, meals, clothing, gifts, and cards. You might also want to incorporate things like tickets for special events, charitable donations, and holiday travel in this budgeting category.
If you expect a lot of expenses this winter, consider making a holiday budget so you can enjoy the festivities with less financial stress.
Budgeting category: school breaks
If you have school-age children, spring break and summer vacation can cause upheaval for your regular routines and for your budget. A school break budgeting category can be used to account for the costs of things like additional daycare needs, babysitters, summer camp fees, and activities like swim lessons or sports leagues.
Budgeting category: taxes
A budgeting category for taxes helps ensure you’ll have the money you need when tax time rolls around each April. Tax preparation fees are the most common item in this budgeting category. If you’re planning to use a tax professional, shop around to get a sense of how much it will cost based on your needs. If you prefer the DIY route, you don’t necessarily have to spend any money, but many people prefer to pay for software or an online service to make the process easier.
There are a couple other things you may want to include in your tax budgeting category. If you expect you’ll owe taxes, it may be wise to put money each month into a savings account; this is especially important if you do freelance work or have a side hustle. Tax time is also an opportunity to add to your retirement fund with a traditional or Roth IRA if you haven’t already done so. Even if you’ve already contributed to an IRA earlier in the year, you might want to max out your Roth IRA once you’ve done your taxes and know your contribution limit.
Create your budgeting categories to manage your money
Organizing your expenses into categories makes it easier to understand how you spend your money and to make intentional choices. It also helps you identify things you want to save up for over time and put the money aside on an ongoing basis. When you’re defining your budgeting categories, be sure to capture every expense, and adjust categories to reflect how you actually live.
Once you’ve set up your budget, track your progress and modify your budgeting categories as needed. You might find that you need to break some things out into more specific categories. And you very well may wind up adding or removing categories as your circumstances change. That’s all part of the budgeting process: planning, tracking, and adjusting as you go along. With a solid set of budgeting categories to start with, you’ll be well on your way to managing your money with more confidence.
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