Creating a realistic budget is an effective way to keep your finances in check and meet both short-term and long-term monetary goals.
You’ll have more control over your money when you have a roadmap detailing how you’re going to spend.
Having a blueprint on how you’re going to spend your hard-earned income will help you avoid impulse buying and reckless spending.
But quite often, novice and seasoned individuals who seek to build good financial habits by learning to create a budget are confronted with the challenge of deciding what to include as expenses in their budget or what expenses make up a particular budget category.
Budget categories outline and put expenses into particular classes and what types of expenses make up that class. With your budget sorted into categories, you’ll be more organized and have clarity on your budget list.
This article aims at educating both novices and financial experts on budget categories and the expenses that make up each category.
Here is a list of 12 common budget categories to consider and the expenses that make up each category.
1. Housing
Housing is a common budget category; whether you own a full-fledged flat or rent space, you can’t help but include it in your budget.
According to an economic release by the U.S. Bureau of Labor Statistics in September 2023, housing expenditure alone witnessed a spike in the average annual expenditure, accounting for 33% of the total.
And more importantly, it was the highest, showing how significant and necessary housing is in budgeting.
If you’re a landlord, it includes all the costs you incur on your house to keep it in shape; an example is mortgage expenses.
If you rent a house, this is made up of all the expenses you must bear for renting the space, such as monthly rent, utility bills, etc.
Taxes levied on real estate properties such as houses, bare land, and commercial buildings by the local government make up your household expenditure.
All household repairs, such as painting and fixing broken or clogged pipes and windows, should be considered in the housing category. Others include HOA fees; there are more.
2. Transportation
Transportation costs make up the total expenditure of the average American. Whereas most people own a car, the majority of the population owns more than one.
According to the U.S. Department of Transportation, the average American spends 16% of their income on transportation. You should therefore consider it in your budget.
Transportation costs include car payments, gas and tires, parking fees, maintenance, and general repair expenses.
3. Food
As MFK Fisher said, “First we eat, and then we do everything else.”
As a necessity of life, food occupies the spectrum of monthly expenditure and should be included in your budget. Whether you cook by yourself as opposed to dining out, you have to eat and must pay for what you want inside your paunch.
Food expenditure covers groceries, purchases at restaurants, and food bought and provided for that cat or dog sitting in your house.
4. Utilities
If you own or rent a house, you know that utilities like water, electricity, and garbage disposal services are indispensable for your well-being.
You need water for washing, electricity to run your electrical appliances, and the phone to call loved ones. All these must not be foregone when crafting your budget.
Utility costs include electricity, water, garbage, charges for phone usage, internet, and cables.
5. Clothing
“Clothes,” Mark Twain said, “make us who we are.” Naked people have little or no influence on society.“ You wear clothes to grace several occasions or events; all these come with a cost, and you need to determine how much you’d spend on them.
Apparel costs include adult clothing, adult shoes, and children’s shoes and clothing.
6. Medical or Health Care
They say, “Health is wealth.” Your health is a valuable commodity that should be taken care of. By taking prescribed medications and running regular checkups to see the condition of your health, you’re taking a step toward living a longer life.
But don’t forget, they come with a cost too and should be considered when creating your budget.
Health care expenditure involves primary care, medication or medical services, specialty care, and dental care.
All other health concerns and costs should be in this category.
7. Household items
Household items or supplies like toiletries, laundry detergent, dishwasher detergent, and cleaning supplies or tools make up your daily expenses; hence, you should include them in your budget.
8. Personal
Whether you hit the gym or have a decent haircut every month, or perhaps you spend your leisure time at the cinema with friends or loved ones, your personal care is important. And you must prioritize and determine how much you’ll spend on personal care.
Personal expenditures include gym memberships, haircuts, salon services, cosmetics, and Netflix subscriptions.
9. Debt
Debt is described as something—more specifically, money—you owe someone that must be paid with or without interest. Depending on the amount and time agreed upon by the creditor and borrower, the interest on debt is usually a small percentage of the loaned amount.
Your interest can accumulate and become a sea of debt when not paid on time. This is why you must budget for every debt you owe and clear it.
You must budget for and pay all the money you owe your creditors, whether you borrowed to make a car purchase or to finance your college education.
Debt includes student loans, personal loans, and credit cards.
10. Education
Education provides us with the opportunity to develop our potential and create job opportunities. As Nelson Mandela said, “Education is the most powerful weapon you can use to change the world.”
Children’s college, your college, school supplies, books, and the employment of private tutors come with a cost and make up your education expenditure.
11. Savings
Savings and investing are good financial habits you will profit from. By budgeting for all your savings and investments, you’re creating a path for financial independence and freedom.
Some of the savings ’goals that could be budgeted for include an emergency fund, big purchases like a brand-new laptop or camera, and other savings goals.
12. Gifts or Donations
No man is an island; we are surrounded by people who shape our lives. Friends, family, or relatives want us to show how much we love them by actions preferred to word of mouth on such occasions as wedding, birthdays, etc.
A gift or two can go a long way toward communicating how much we cherish people in our lives.
Hence, you should budget for birthdays, anniversaries, weddings, Christmas, special occasions, and gifts or donations to charities.
13. Entertainment
If you remember that old school lyric, “All work and no play makes Jack a dull boy,” you would recognize the value of occasional and humble recreation or entertainment, which, like all other budget categories, comes with a cost.
Entertainment expenses include games, movies, concerts, vacations, and subscriptions (Amazon FBA, Netflix, etc.).
Overall
Creating a financial budget and sticking to it is a great way to keep your finances or expenses in check and is one of the paths towards financial independence.
Organizing your budget into categories and subcategories such as household, education, food, entertainment, etc. provides you with more clarity.
Budget categories are many. By sorting out those categories above and employing those in line with your specific needs, you’ll be more organized in drawing and using an effective budget.
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