Honestly, there are probably an infinite number of ways to break down your personal budget. Rachael and I have been budgeting together for about 3 years now, and we literally track every penny that comes in or goes out. Below, I will lay out what categories have worked for us and what types of things we place in each category. We also have a name for a method we use for categories such as insurance or car expenses called the “Carry Over” method which I’ll explain as well. I hope this helps bring some clarity to your budgeting process.
Note: This post goes into a bit more detail than most of our other posts, only current or hopeful budgeting fanatics should proceed.
Our Personal Budget Categories
- Mortgage (or Rent)
- Homeowner’s Association Dues
- Food (Groceries)
- Eating Out (Restaurants)
- Dry Cleaning
- Insurance (CARRY OVER)
- Gifts (CARRY OVER)
- Car + House (CARRY OVER)
- Entertainment (CARRY OVER)
- Beauty (CARRY OVER)
- Dues and Subscriptions (CARRY OVER)
- Deep Savings
- Pay House Down
- Other Investments
What Goes into Each Category?
Mortgage (or Rent). Only our mortgage payment goes into the category and the amount doesn’t change from month to month. We always know this number will be the same.
Homeowner’s Association Dues. We have two sets of HOA dues for our community, and they both go here. Again, this number never changes from month to month.
Utilities. Our utility bill goes here. It includes water, sewer, gas, electric. In order to figure out what we should budget, we picked one of our highest months of the year and used that. Our goal is that every month, we’ll be under budget, which helps if we accidentally go over in another category.
Cable. Our cable bill SHOULD be the same every month, but Comcast has a way of increasing it randomly. In general, this category only includes our internet and TV from Comcast. We budget to match the bill and if we go over, I call Comcast and ask them why they keep raising our bill and negotiate a lower rate. Which happens more often than you would think…
Phone. This is for cell phones. We don’t have a home phone, but that would go here if we did. This number is the same every month.
Gym. This is for our gym membership. This number is the same every month.
Spotify. Since this number is the same every month, we just break it into it’s own category. If we wanted, we could put it under Dues/Subscriptions or Entertainment. However, breaking out set expenses into their own category helps take away the variation in other more “volatile” categories.
Food (Groceries). Groceries from Costco, WalMart, Trader Joe’s or any other grocery store go here. We also buy our toiletries, cleaning supplies, etc. from these stores, so we include those items here. We include the clean supplies etc. because it is so much easier to add the receipts as a whole than to try to break out individual items on receipts.
Eating Out (Restaurants). This is mainly restaurants, but also includes places like 7 Eleven for coffee or Starbucks.
Shopping. Shopping includes personal clothing items for Rachael and I, but it also includes things for our house. The items for our house do not include repairs or upgrades (see Car + House category below). This category is used for new furniture, kitchenware, decorations, storage, and other household items.
Gas. Pretty straightforward. We only put gas in this category =)
Dry Cleaning. Our dry cleaning bills go here.
Miscellaneous. We’ve found it extremely helpful to have a miscellaneous category for things like parking (usually only a few dollars) or postage for shipping packages or mailing letters. We can’t tell you all the things that have fallen into this category over the years because, well, its just miscellaneous, okay?
Insurance (CARRY OVER). We put all our insurance bills here. This includes car insurance, our personal articles policy for our town home, life insurance, and insurance for our rental property.
Gifts (CARRY OVER). Gifts are strictly for other people. We only use the gift money on ourselves when I buy something for Rachael for her birthday and vice versa. This is for wedding presents, birthdays, baby showers, holidays or “just because” gifts.
Car + House (CARRY OVER). This is a new category for us. Well, part of it. We had the car category and used this for repairs, new tires, etc. We also put car registrations here. After owning a home for a few years (it was new when we bought it), we realized we also needed a budget for repairs, carpet cleaning, and things like that. We use the category for home maintenance or upgrades, not shopping items.
Entertainment (CARRY OVER). Entertainment has a wide range, but generally this includes things like movies, volleyball tournaments, running races, and concerts. In general, this category is for fun activities.
Beauty (CARRY OVER). This category is primarily for haircuts, manicures and pedicures. This could also be named the “Rachael” category =)
Dues and Subscriptions (CARRY OVER). This is also a new category for us. We use this for our Costco membership and credit card annual fee as well as Amazon and Netflix subscriptions. We used to put our Amazon and Netflix subscriptions in Miscellaneous or Entertainment, but we realized we have a few different subscriptions and we didn’t want to go way over our in our Miscellaneous category one month out of the year when the annual Amazon charge hits. This would be the category one could put newspapers, magazines, and other yearly dues.
How Does the Carry Over Category Work?
The Carry Over is super helpful for expenses that are irregular. They might be annual expenses, quarterly expenses or just random. Let’s use something like car registration as an example. Rather than have a different budget for each month of the year, which is what you’d need to do to account for something like this, we utilize the carry over. This means, we look at how much we spent in the Car + House category last year as a whole. If that was enough, we divide that number by 12 to get our “monthly” budget. As an example, our Car + House monthly number is $157.
Let’s say Rachael gets an oil change in January which costs $35. We’ll deduct that from the $157 which gives us $122. If we don’t have any other Car or House expenses in January, we carry that over to the next month, which means we now have $157 for Feb. + $122 left from January. Then, when our car registrations hit at the end of the year, we have enough left over. What if the expenses are front-loaded you ask? Well, it requires you have some cash reserves in your checking account, which we definitely recommend. Let’s say you have a plumbing repair, both car registrations and 2 oil changes in January, totally $312. You’ve now used all of January’s budget of $157, as well as $155 of February’s budget.
This is okay because by December, everything should balance out. You won’t have car registrations again and you factored that into your annual budget. The carry over demonstrates the difference between your budget number and actual cash. You have to spend the $312 in cash now, but you won’t go over your budget for the year.
The Carry Over is especially helpful for categories like gifts where we know we spend a lot more at the end of the year around Christmas and we happen to have a lot of family birthdays in October. So, all year, we’re transferring over any leftover gift budget from the month into savings to be used later. We just keep track of what has been used and what’s left on our budget charts.
How do we handle “found” money?
Found money is birthday money, bonuses at work, literally money you find on the street, or any other unexpected income. In general, we try to save some of this money and spend the rest on something fun. If you’re working to eliminate debt, I’d recommend using all found money to put towards that (or at least 50%).
Found money can also help cover you if you go over budget in a category one month. Maybe you weren’t keeping track of your eating out budget and realized you went $30 over. But maybe you had a birthday and got $50 from your grandparents. Take the $30 and put it towards your eating out budget to zero that out and save the other $20 or use it on something fun for yourself. Again, if you’re trying to eliminate debt, put the $20 towards that instead.
Use budget categories that make sense for your lifestyle. You can use ours as a starting place if you want, but don’t hesitate to delete categories or add some. Utilize the Carry Over strategy to work through irregular purchases or expenditures. Track every single penny, including found money. It’s a bit of work to set up the system at first, but it’s well worth it, and you’ll feel more in control of your finances.
Rachael and I would love to hear your thoughts on categories or the Carry Over method – leave us a comment below!