Everyone has a personal budget, and you may feel like there are a thousand different ways to manage yours. With the cost of living increasing and everyone watching the pennies right now, getting on top of your finances is essential. The first step to meaningful money management is organisation.
If you want to be more in control of your cash, organising your money into budget categories is a great place to start. Depending on your circumstances, spending habits and financial goals, putting your spending into personal budget categories can help you understand your spending and help you get the most from your money.
Organising your money into categories works because you’ll have a clear picture moving forward. Start organising your money as soon as possible, so it becomes a habit before you know it.
This article will cover the most common personal budget categories, how to get started with budget planning, and how to organise your money like a boss.
The most common personal budget categories
In the simplest terms, you can organise your personal budget into ‘essential’ and ‘non-essential’. Essential spending will consist of money that you need to spend each month, including your rent or mortgage, food, utilities, travel expenses and loan payments. Non-essential spending will include everything else.
Senator Elizabeth Warren popularised the “50/20/30 budget rule”, which is allocating 50% to needs, 30% to wants and 20% to savings. It’s an excellent place to start, but to truly take control of your budget and understand precisely where your money is going, you can divide each payment into categories and create your personal budget.
Here are the most common personal budget categories:
· Housing - rent, mortgage, board, student accommodation
· Childcare - nursery, babysitting, daycare, school trips/meals/uniform
· Transportation - petrol, train tickets, bus fare, car maintenance, car loan payment, parking, Taxi/Uber
· Utilities - Water, gas, electricity, mobile phone, internet, TV licence, council tax
· Food/Supplies - groceries, cleaning supplies, household items, takeaways
· Pets - food, vet bills, treats, toys, flea/tick treatment
· Savings - regular payment to a savings account
· Entertainment - subscriptions such as Netflix and Disney+, cinema, restaurants, concerts, social events
· Healthcare - prescriptions, glasses, eye tests, dental costs, gym membership
· Insurance - car, home, pet, device, travel, boiler, breakdown cover
· Personal care - haircut, waxing, nails, beauty products, complementary therapies
· Debt - student Loan, credit card, loan
· Gifts - birthdays, anniversaries, holidays, special events
· Donations - charity donations, fundraising, crowdfunding
Feel free to add your ideas to the list of budgeting categories! A personal budget should work for you.
Seeing your money split into these main budget categories gives you an insight into how much you are spending in each area of your life. It can help you visualise where you could save too.
The HyperJar app lets you divide your money into different ‘Jars’, which you can label ‘Entertainment’, ‘Dining out’, or anything you like. When you see exactly how much you are spending, you can also see where you could save money and search for better deals.
You work hard for that money, and it’s only fair that you use a portion of it to do the ‘non-essential’ things you love. Creating a personal budget will help you see how much you have left to spend on this each month. Enjoy yourself.
How to organise your money using personal budget categories?
After reading that list, you may feel a bit overwhelmed. But once it’s done, it’s done! You’ve done the hard work, and after that, it’s just a bit of tweaking and reviewing as you go.
Firstly, you need to take a detailed look at each bank transaction and consider which category it fits into. Here are some basic tips on how to organise your money using personal budget categories:
· Use your take-home income as a guide. That’s what you earn after tax and other deductions.
· Make a list of all your large and small regular payments, direct debits, and loan payments as these are the most important. This can be done via online banking or by printing a statement.
· Then add all your other payments onto that list.
· If you are self-employed and your income varies, take this into consideration
· If your money is managed with your family/partner/roommate, it helps to involve everyone in the budget planning process. If this is the case for you, think of it as household budgeting. The process and tools are exactly the same.
· When you have a clear picture of your income and expenditure, start adding each transaction into categories.
· Go through the above list and copy any that apply to you onto our budgeting spreadsheet.
· Add any extra categories that are personal to you.
· Allocate a specific amount of money to each category that will cover the amount you are willing to spend.
· Be disciplined and stick to the amount you’ve allocated. That is the point of the budget, after all.
· Keep it updated each month and review your budget regularly.
· While budgeting for your essentials costs is the most important thing, it is also important to save some money for enjoyment too!
To help you get started, you might find a budgeting spreadsheet. It’s a useful tool that is super easy to use. Hyperjar is for everyone, and so is a good budgeting template.
How much money should I allocate to different budget categories?
How long is a piece of string? (10 points if you said double half its length).
Your budget and the categories you chose need to work for you. Budgeting is a very personal process. How much you allocate to each category will depend on your circumstances. Everyone earns different amounts and has different financial goals and priorities. But the benefits of budgeting are the same for everyone.
For some categories, it will be easier, as you will know the cost in advance, such as your rent or car payment, but other costs will vary. Here are some ways to make it easier to know how much to budget for each category:
· Look at your bank transactions for the past three months and work out the average you are spending in each category so you can plan for future months
· Be specific. Add every penny into the budget so you can be as accurate as possible
· Life likes to throw curveballs sometimes. Add an ‘emergency fund’ category for those unexpected costs such as new tyres, a surprise visit from friends, or replacing something that breaks.
· Add extra expenses to your budget, such as a car MOT or boiler service for the months when you know they are due.
· Calculate your average food bill and budget this amount each week/month.
· If you know you have a lot of birthdays in one month, make sure you plan for this and allocate more money to that category.
· If you like to allocate even amounts, add up the costs of certain categories for the whole year and simply divide it by 12.
· Financial situations can change, so it’s important to review your budget to make sure it’s accurate regularly. You can read more about this in our budgeting blog post.
Budgeting categories will help to create financial stability and give you a stronger financial future. Overall, you’ll be more in control and have the money you need for the day-to-day and any unexpected expenses, too, without having to use an overdraft or get into debt. When you know how much you’re spending, you can prioritise what you do with your money. A budget will help ensure you don’t live beyond your means and reduce the worry and stress that can come with poor money management.
Get started with personal budgeting today.