Budgeting categories you need for the perfect budget

Creating your perfect budget can be a challenge. You need to figure out what budgeting categories you need to include and if you miss out a category it can blow the whole thing. Leaving you waiting until next month to start all over again.

Therefore, it is really helpful if you can get it right the first time. Or as close to right as possible. I’ve been budgeting for a while and have tweaked my budget over the years with lessons learned. I have included all the categories I think you might need here, plus I have also put them into a free automated budget spreadsheet that you can get your hands on at the bottom of this post.

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Budgeting categories for your income

This one should be relatively straightforward. It is the money that you have coming in to spend. Now this could come from a variety of sources, and I like to track this separately, so that I can look back and see how they change over time. Therefore I split them into the following sub-categories:

• Wages/Salary – this is from your “day job”, you main source of income. If you are self-employed this could be your business profits too.
• Benefits – if you get any benefits, then these go here. This includes child benefits, universal credit, disability benefits etc. List them separately if you can, so you can notice any changes. You may want to include child maintenance here if you feel it right.
• Side hustle income – this could be a second job, small business, online surveys, eBay sales and more.
• Other income – this covers everything from income from investments, pensions, rental income and I’m sure a whole host of others.

Categorising your income means that you can monitor any fluctuations. It also draws your attention to any areas where you feel that there might be room for imporvement. An example of this is if you have been typing in your salary every month for 3 years and it hasn’t changed. Is it time to ask for a pay rise?

Budgeting categories for your expenses

Housing

The first budgeting category that deals with your expenses and probably the one that takes up most of our money too. For most of us our mortgage or rent will take up most of this category, but there are other things that you might want to include.

• Mortgage/rent – this is the main one. Put it near the top so you can get it out of the way.
• Council tax – all households will have to pay it. You might choose to pay it annually and set up a sinking fund for it instead.
• Home or renters insurance – you might want to include this here, or, I personally, have a separate section for insurance which I will cover later.
• House maintenance – this is a great one to set up as a sinking fund. This may be more important for home owners, but those in rented accomodation might still want to budget a small amount for this a month too.

Utilities

Again this is another category that you can’t get out of paying. That said, there are some ways that you might be able to reduce the costs in this section.

• Electricity/gas – you might be on a dual fuel tariff or separates for this, so combine or split them up as needed. They are a great one to look at reducing as the quality of the product doesn’t change based on the cost (much).
• Oil – if you are in an area with no gas supply, you might have oil-fired central heating. In these areas, you may need to create a sinking fund or set up a scheme that enables you to pay monthly.
• Water – everyone needs water so again you can’t get out of this one. But you may want to look at a meter if you think you are a below average user and are currently on rates.
• Phone/internet – these two are usually combined and pretty much an essential these days. We don’t generally use our home phone line though, so keep that package to a minimum.
• Mobile phone – you could but this one in personal expenses if you wish, but for us it is essential so I think it is better placed in utilities.
• Cable/satellite TV – personally I choose to put this one in entertainment. It feels more like a luxury than a necessity.
• TV license – I’m on the fence about this one. We don’t have a TV license because we don’t use it, so to us it is a luxury.

Food and drink

This is one of the most challenging budgeting categories. Food and drink are variable costs, so they go up and down. Meal planning can really help you here.

• Groceries – this is the food that you buy in the supermarket or in the corner shop. It is the food that you prepare and cook yourself. Most people do this sort of shopping once per week.
• Takeaways – this could be for breakfast, lunch or dinner. For us, it is mostly for dinners as we pack our lunches.
• Eating out – going out to eat at any time of day. A great treat but not something I’m going a lot of in February 2021.

Transport

Everyone’s transportation situation is different. You will need to adjust your budgeting categories to suit your situation, but here are a few suggestions on what you might need to include.

• Fuel – this one is mainly for owners of motor vehicles. If you have more than one car per household, then you might want to have separate budgets for each car’s fuel costs. Up to you. Think about when you last filled up and how many times you might need to do so in the month ahead.
• Car insurance – this one could be here or in the insurance section. I pay my car insurance annually, so I set up a sinking fund for this instead.
• Car Tax – same for this. I pay annually and set up a sinking fund, but you can pay monthly.
• Roadside assistance – if you want to be rescued if you breakdown on the motor, then this is a must. Again it could be set up as a sinking fund.
• MOT and service – these generally annual events with no pay monthly option, so could be set up as a sinking fund.
• Car maintenance – this is usually a sinking fund that is set up for car repair costs, such as tyres, brakes, or those surprise repairs that creep up at MOT time.
• Tolls – if you use your car for frequent travel where there are tolls, then you may have a direct debit set up for this, or you want to set some money aside to cover this cost.
• Train/bus fares – if you don’t have a car (or even if you do), you might be paying for regular travel by bus or train instead. This all needs to be budgeted for. Plus, if you buy an annual pass you may want to set up a sinking fund for this too.

Childcare

This can be a hugely expensive categories in any families budget. I’ve also included anything in here that is related to children, so it goes beyond just childcare and more just child-specific costs.

• Pre-school – this will probably be the most expensive item in this section if it applies to you. This will cover all pre-school childcare expenses.
• Babysitting – for those one-off times that you need a babysitter. (Not so relevant during lockdown.)
• Breakfast and after-school clubs – again if needed this category will cover all peripheral school childcare services.
• School dinners –
• School extras – this can cover school trips, school uniforms and those extras that school makes you pay for.

Loan repayments

Hopefully this one is self explanatory. You may need to have several sections within this category for each of your debt repayments.

• Credit cards – list any credit cards here that you have an outstanding balance on and use this space to record any payments you intend on making towards them this month.
• Loans – if you have any other loans that you make payments towards each month, such as car loans or unsecured loans, then they can go here.

Savings and Investments

This is an important section where you are paying yourself. I recommend focusing on the this section early in the budgeting process.

• Personal Savings – this could be savings for things that are imprtant to you such as holidays or big ticket items such as games consoles or phones.
• Emergency Fund – if you already have your emergency fund, then you won’t need to top this up. However, if you are still working towards a fully stocked emergency fund, then you’ll want to keep building this one.
• Sinking funds – you might cover these in other categories or you could include them all here. The choice is yours.
• Investments – this is another example of where you might want more than category depending how you organise your investments.
• Pensions – again you might need more than one if you are paying into multiple pensions. Or at least one per person. You might also want to remove this one entirely if you have a work pension that is paid before tax.
• Child savings – if you have children and are saving for their futures, then you may want to include this here.

Entertainment

In this section, you are going to want to add budgeting categories for anything that you consider entertainment costs. I’ve listed a few, but feel free to add more and split these up as you see fit.

• TV – this is where I would include things such as cable costs, Netflix, NowTV and any other TV based subscriptions that you have.
• Holiday – if you are saving for a holiday, then this could be a great place for you to record your sinking fund amounts.
• Days out – in “normal times” this could be a regular occurence. For now, you may wish to use this section for fun, indoor entertainment for your family.
• Sports – this could refer to tickets for sporting events, or the cost of things such as gym memberships, or competitive sports training and more.

Insurance

You may want to include some of these insurances in other categories, or put them all together here. There are also some insurances in this list that may not fit elsewhere.

• Life – sometimes a requirement if you have a mortgage, otherwise a sensible idea if you have dependents.
• Home/Renters – to cover the cost of any damage that pay incur to your home or your other items. You may insurance individual items in addition to this.
• Critical illness – this will payout if you are seriously ill. It could be very helpful if you are unable to work and pay your bills in this time.
• Car – could be a double up in the car section, but a legal requirement for car owners.
• Income protection – this insurance will cover you if you have a loss of income due to unemployment or sickness.
• Union fees – not technically insurance, but highly recommended in some industries.
• Mobile phone insurance – definitely an optional extra, but something that a lot of people like to have.

Personal

You may need to have personal allowances for each member of your family. This means that they can budget their own money out of this.

• Allowance – this is just fun money. It allows people to spend freely and not feel restricted. An important part of a budget.
• Toiletries – most adults in the house will have some regular toiletry needs, so use this space to budget for them.
• Clothing – not something that you might need to spend on every month, but definitely worth planning for particularly if you have kids.
• Gym memberships – this could go in this section or under entertainment depending on how you view it.
• Other subscriptions – this could cover things like Amazon Prime or beauty boxes or flower subscriptions.

Giving

This is a regularly overlooked section of a budget, but one that all good budget should include regardless of income.

• Birthdays – every family will have some sort of expense on birthdays. You can include gifts, parties, meals out and more in this section if you wish.
• Christmas – I use this category as a sinking fund to spread the cost of Christmas. I take what Christmas costs me, divide it by 12 and add that amount to the pot each month.
• Charities – any regular charitable donations can be recorded here.
• Other non-charity giving – I am a big fan of giving away money to individuals that have helped or inspired me. This is where I record that.

Other categories to include in your budget

While these are not income and expense categories, I believe they are worthy of being featured on your budget. They make tracking your overall position a lot easier and show you where tweaks need to be made.

Balance

Arguably the most important part of any budget. Knowing what you have coming in and going out is one thing, but knowing what the difference between the two is is where the magic happens.

You need to work out your TOTAL INCOME and your TOTAL EXPENSES and from that subtract the two to get what is left. I work on a zero-based budget, which means that I aim to allocate all of my income each month. Whether it goes to savings, investments, or general spending doesn’t matter, but just give every penny a job.

Net Worth

I include this in my budget spreadsheet, because I think it is a good, long term metric for financial health. It is simple to calculate too. It’s TOTAL ASSETS – TOTAL DEBTS = NET WORTH. Here is what might count towards each category:

• Assets – this is stuff that you own. Typically, this would include savings, investments, pensions, value of property, potential a car (some debate around including this one), and any other high value items that you possess.
• Debts – this one might be easier to understand, nut it would include things such as credit card balances, loans, mortgages, students loans and more. Anything that you owe to someone else.

What other budgeting categories would you add?

Like all things with personal finance, you budget will be personal. No one budget is going to be the same as anyone elses. Therefore if you need just a handful of budgeting categories, then that is your choice. Likewise, if you need hundreds, then knock yourself out.

If you think there are any obvious ones that I’ve missed then drop me a comment below, and I’ll add it. For now though, you can use the box below to grab your free budgeting spreadsheet.