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How To Start A Budget Part 2: Establishing Budget Categories

establishing budget categories

Establishing budget categories can seem like a nightmare.

How many do I need?

What should I include in each category?

Do I need one for each child?

What about dog food?

Where will I categorize Q-tips?

I wish I could show you the original spreadsheet I created 4 years ago when I started trying to budget. It was massive….I bet I had 75 different categories that I just HAD to have.

But establishing budget categories does not have to be that intense.

There are four types of categories you’ll want to think about.  There are absolute categories that every family needs, some optional categories you might need, unique to you categories and finally some categories that will come and go.

Let’s dig into these briefly.

Absolute Categories

These categories include tithing, savings, clothing, utilities, groceries, gifts, debts and medical. If you own an vehicle then you need to include fuel and maintenance.  Renters need to include rent and renter’s insurance.  Home owners need to include mortgage, home maintenance, taxes and insurance if the latter are not escrowed.  

Most of these are self explanatory but let me expound on a few.

  • Establishing a savings is a crucial step to budgeting so that you can get out of debt and hopefully stay there.  When you have an emergency savings established and the washing machine dies you do not need to charge the purchase.  That’s what your emergency savings is for.  It sounds cliche but even $10 a week is $520 saved in one year.
  • Gifts may not seem necessary but if you celebrate Christmas and birthdays, go to weddings and showers you’ll want this category.  This doesn’t mean you may have to say for a season that you are not attending showers or buying gifts for people but if you don’t want that to be a permanent thing than you need to establish some funds for those purposes.
  • Even if you have health insurance chances are you have a medical deductible and/or co-pays.  These needs to be accounted for.
  • Clothing wears out.  Every once and awhile you need socks…and undies.
  • If you just bought a 2014 vehicle with a loaded warranty package it will need oil changes and eventually new tires.  Maintenance, enough said.

Optional Categories

Optional budget categories might include things like:

  • Eating Out & Entertainment
  • Personal Spending
  • Vacation

Unique to You Categories

Unique to you categories are those things that you need money for but not every one else does.  Consider what your family is involved in, what you need to save money for and the things from your 30-day tracking that don’t fit in the above.

In our budget or unique categories include homeschool, gardening, animals, business expense, pest control, dog/baby sitting, hunting and camper maintenance.  

Categories that Come and Go

These are temporary categories that you have for a season and then no longer need.  When Wyatt was a baby we had a diaper & goat milk category.  We just recently used a riding mower fund category and about a year ago we had a laptop category.  If you know you are going to need a new vehicle in the next 5 years you may consider adding a category for saving for a new vehicle.

Action Step:

If you’ve done the 30-day spending tracking or if you’re part way through then you can start to get a list together of categories you think you need for your budget.


If you’d like one-on-one budgeting help and a great program to house your categories and track your spending I would love to help you.  As an Mvelopes Coach I can give you individualized advice for your budget needs.  I’d love to talk to you.  When you sign up as a coaching client, be sure to ask for me by name, Danielle. Tate.

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  1. […] You can’t start the process of eliminating debt if you don’t have a working budget.  Often times we use credit cards because we don’t have cash to pay for unexpected expenses.  We also reach for them because we failed to plan ahead for expenses that we should have planned for.  New tires for the van is not an unexpected expense.  Every person with a car will eventually need tires and that can be accounted for in  budget.  The 2-year old refrigerator that dies days after the extended warranty – that is an unexpected expense but it can still be accounted for in a budget.  For more in depth information on setting up a budget you can read Part 1: In the Beginning and Part 2: Establishing Budget Categories. […]

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