How to Set Up Different Budget Categories

How to Set Up Different Budget Categories

How to Set Up Different Budget Categories

Managing your finances without a plan can feel like trying to feel your way through a dark room full of furniture. If you are tired of burning through your finances, have no idea how to set up a budget, or just want to keep your money habits in check, you’re reading the right article.

Take out your thinking hat, and follow this step-by-step guide to set up your budgeting categories.

1. Take Stock of Your Finances

Before setting up your budget categories, look at your financial capability. With a pen and paper, list the following:

Your financial goals
Your debts
Your income
Your expenses

Taking stock of your financial situation will help you see how far you are from your goals and what is holding you back from achieving them.

2. Highlight Your Priorities

Now that you know your financial situation, it’s time to weed out the unnecessary expenses. With your financial goals in mind, separate the short-term goals from the long-term goals. For example, your short-term goal could be paying a high-interest debt, while your long-term goal could be building a rental unit for passive income.

3. Automate Your Savings

Saving up is a culture. Therefore, diving into it without a long-term savings plan may not help you in the long run. But how can you create a saving culture? By automating your saving plan.

Request your bank to automatically transfer a specific amount of money to your savings account every month. Relieve yourself from the headache of remembering to manually transfer money to your account.

4. Calculate the After-Tax Income

If you get automatic deductions from your paycheck, such as for life and health insurance and 401(k), take your calculator and crunch those numbers. How much do you have left after all the deductions? Likewise, if you earn extra money from a side hustle, list the expenses that reduce the money. What’s left over after all deductions is the money you should divide between your budget categories.

5. Plan for Debt Repayment

You started this process by listing your debts — now it’s time to create a plan that helps you live debt-free. Pick out the debts with high-interest rates and put them on the priority list so interest charges don’t accrue and overwhelm you.

As you clear your debt, you will have more money to allocate to different budget categories.

6. Set Up the Budget Categories

Now that you have set up a foundation for your budget categories, you can enter the fun part of budgeting. Here are eight categories that will spruce up your budget.

Bills and Utilities

For your home to function effortlessly, you must keep the utility expenses running. The expenses will differ for everyone because of their location, so consider the electricity, Wi-Fi, water, air conditioning, gas, sewage bills, streaming services, and phone bills.

For example, a Miami, Florida, home won’t have the same utility needs as one in Grand Forks, North Dakota.

Food

Food is a necessity for all humans. Whether you eat at a restaurant weekly or prefer home cooking, you need to set some money aside to cater for that. You can limit your outside dining and increase your grocery shopping budget.

Other than the ingredients, you could squeeze in some non-grocery expenses like wine to spice up your dining experience.

Transport and Auto-Related Bills

How much do you spend when moving around? In this category, include your costs related to public transport, cabs, parking tolls, gas, car maintenance, license registration/renewal, and car loan payments.

Healthcare and Wellness

Maintaining your well-being and health should be reflected in your budget. When budgeting for your health and wellness, include the cost of:

Emergency care
Dental care
Specialty care like psychologists or dermatologist fees
Supplements
Prescriptions and over-the-counter medication
Hospital registration costs

Loan Repayment

Putting money aside to clear your outstanding debts will help you have more disposable income. Reducing your high-interest loans first is a good step towards clearing your debts. The goal is to increase disposable income so you can allocate more funds to your other budget categories.

Entertainment

We all need to let loose occasionally, so why not include it as a discretionary expense in your budget? Prioritize fun by budgeting money for travel, clubbing, hobbies, concerts, and dates.

Speaking of discretionary spending, entertainment comes in many forms. For some, it might be going to the movies or a concert; for others, it’s games and online entertainment.

If you like a bit of excitement in the form of online gaming platforms, some sites offer enticing bonuses and incentives, such as a $200 without making a deposit bonus or a 100% match on a deposit. These allow you to enjoy the thrill of online gaming without making an initial deposit. However, it’s important to gamble responsibly and set strict limits to avoid overspending.

Housing

Every cent you pay to have a roof on your head should be included in this category. Consider your rent, property tax, home maintenance, mortgage payment, and home renovation costs.

Personal Spending

What’s the point of working if you have nothing left to splurge on yourself? Anything that could cater to your care and lifestyle fits into this category — this includes facials, gym memberships, spa treatments, and gifts.

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