The next step in setting up your budget is determining the budget categories that you will use. If you missed my first post on setting up a budget, you can find it here. There are percentage guidelines that you should try to stay within. You do not want to be house poor or car poor. Why is that? You don’t want too much of your income going out for house or car payments, that possibly won’t leave enough for all of your other expenses.

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Budget Categories

There are a lot of subcategories (I could think of hundreds) and you may find that you have to add some as you go, especially when you are a homeowner or have children. Some examples are:

Housing – 25-35%:

• Rent
• Mortgage
• House Insurance
• Home Equity Loan
• House Repairs/Improvement
• Fees

Transportation – 10-15%:

• Vehicle Payment
• Vehicle Insurance
• Gas
• Vehicle Maintenance/Repairs
• Public Transporation

Food – 10-20%:

• Groceries
• Restaurants
• Fast Food

Utilities – 5-10%:

• Gas
• Electric
• Water
• Sewer
• Garbage
• Cable TV
• Phone
• Internet

Personal – 5-10%:

• Pets
• Hair
• Allowance
• Children’s Miscellaneous
• School
• Sports

Medical – 5-10%

• Health Insurance
• Doctor
• Prescriptions
• Orthodontist

Entertainment – 5-10%

• Fun!
• Vacations

Clothing – 2-5%

• Clothes
• Shoes

Savings – 5-10%

• Savings
• IRA

Debt Repayment – 5-10%

• Credit Cards
• Student Loans

 

Your percentages may vary since the cost of living varies across the country. Housing and groceries are the top two categories that can vary.

I have a lot of budget subcategories because I have 3 children who are involved in a lot. Some people choose to lump a lot into a miscellaneous category, but I personally like to see where every penny goes. It helps me tweak my budget during the year and also gives me an idea of whether I should set up a sinking fund for something (more on that in another post).

The budgeting software that I use and HIGHLY recommend is YNAB – You Need a Budget. The DR steps and YNAB go hand in hand. <===== Click on the link for your free 34-day trial! 

A few times a year, go through your budget items. If your Miscellaneous category is more than $100 consistently month after month, you may want to take a peek in there and maybe add another category or two.

Don’t forget some fun money! We all need a little fun money, even if it is just for one latte a week.

Budgets are very personal and there is no right or wrong, only yours. Only you can determine what your budget categories are and where your money goes. Having a plan and giving every dollar a job to do will provide some relief during the month and eventually you will be able to stash some serious cash away!

In the next post in the budgeting series, I will discuss why you should use 2 checking accounts, setting up your emergency fund and what sinking funds (including a free spreadsheet) are and why you should have many of them.