28 Budget Categories for Tracking Expenses
We all know how important it is to have some sort of budget in place to make sure we have enough money to pay for all of our costs. However, not everyone takes into account all of the right budget categories for tracking expenses. This can be a disaster to your personal financial situation if not done properly.
Having a good expense tracker template where you can monitor what you are bringing in and what goes out each month is a great first step towards achieving financial freedom. Remember, it doesn’t matter how much money you make, it matters how much you have left in your pocket at the end of the day.
A school teacher making $50k a year who only spends $20k of their salary has more wealth than a doctor who makes $500k a year but spends all of their money.
Read more to get control over your financial situation today by learning how to prepare an accurate budget and develop a reliable expense tracker template.
Americans Are Really Bad at Budgeting
A recent survey conducted by GoBankingRates revealed that 70% of Americans have less than $1,000 in savings. The top reason given for the lack of good financial hygiene was that they simply were not earning enough money. Most of those surveyed said they were currently living paycheck to paycheck.
When you really dive into the results of this study, it quickly becomes clear that most people have no clue what their personal budget looks like. In many cases, they are struggling with figuring out what their budget categories are and how to track all of their expenses.
Why People Don’t Budget Properly
1. We are lazy
This one is easy. You just don’t want to do it.
2. It’s boring
Yes – preparing a budget can be boring. But so is filing your taxes and going to the doctor. The fact of the matter is, we just have to buckle down and do it.
3. We are scared
Do you ever find yourself too scared to log in and check your bank account balance?
Sometimes having an accurate picture of your financial situation can be scary. We might know that we are spending a little too much but are willfully avoiding doing anything about it.
The psychology around finances and money is very complicated. Make sure that you don’t let fear prevent you from ever getting control of your finances.
4. We don’t have any clue what our actual budget categories are and how much we are spending each month
I have seen a lot of situations where someone made a good faith attempt at making a budget. But it turned out to be an epic failure because they forgot to take into account a large portion of their expenses. The truth is, you are going to miss some costs here and there. That is inevitable.
To avoid having big leakages every month, you have to bucket all of your costs into separate budget categories. Focusing on bucketing your costs into separate budget categories can help you minimize those situations where you forget to include something.
Common examples of expenses I commonly see missed or forgotten include:
- Expenses that are non-recurring and paid once or twice a year like insurance premiums or fees for an annual subscription plan
- Medical costs or estimates for medical expenses that might come up in a given year
- Items that aren’t always thought of as an “expense” like taxes or filing fees paid to a government
- Costs associated with buying gifts for your family and friends
5. Our income and expenses are ever-changing making it difficult to keep our budget updated.
This one is the biggest issue for me personally. Because I am a business owner and don’t receive a steady W-2 salary from a company, it can be very difficult for me to predict what my income will be for a given month. It can also change drastically throughout the year.
Similarly, I also have issues estimating my expenses because they are not static and change quite frequently from day to day.
If this is similar to your situation, preparing your budget is going to require a bit more time and will likely mean you have to use large estimates for a good portion of your income and expense numbers. Remember that building in a cushion for any unexpected decreases in income or increase in costs is critical if you are someone who does not maintain a lot of excess cash on hand at all times.
What is a Budget?
A budget, at the very least, means a plan for your money. It is a guide or roadmap for how you intend to spend your money. For this plan to be effective, it needs to be written somewhere, either on paper (nothing wrong with the old school method), an excel spreadsheet (my favorite) or by using some sort of software or app like Mint.
Many people have no control over their finances because they do not have or follow a budget. This leads them to spend money as soon as they receive it and blame their lack of control on just not earning enough money.
A well-planned budget puts you in charge of your finances and forces you to be responsible and accountable for how you spend your money.
Additionally, it will make it easy for you to make sure you have all your bills covered, allocate a little extra for savings, and see how much it will take to live the life you want!
Why You Should Prepare a Budget
When developing your budget, you will be able to determine pretty quickly if the funds you are expecting will be able to pay for everything on your list. So, if you don’t have enough money to meet everything you have listed out, your next move will be to prioritize your spending and only buy essential things.
A proper budget will ensure you have money to take care of the essentials for you and your family. If you follow a well-prepared budget, it can keep you out of having bad debt. If you already have bad debt (like the granddaddy of bad debt – credit card debt), an expense tracker template can help you gradually build a plan to pay it off.
If you still aren’t convinced yet, here are a few other reasons why having a good budget or expense tracker is always a good thing!
It Helps You Forecast and Plan
Once you are done with outlining all of your budget categories and have built a reliable expense tracker, allocating your costs among these categories will help you plan and prepare.
This will help you see which months you might be a bit short or cutting in close on having enough cash to pay all your bills. With adequate time to prepare, you can make changes as needed to make sure you are fully covered.
It can also help you see months where you should have excess cash. Instead of just spending any extra money you have, having a plan in place will help you get used to appropriating that money for investments instead of buying that new handbag or video game you have been eyeing.
Preparing your budget ahead into the future can also help you forecast how much you will need to save towards big purchases like a new car, vacation, rental properties, or even retirement.
Keeps Your Eye on the Prize
Having a budget forces you to have financial goals, save money, and makes sure you are tracking your progress. In connection with preparing your budget and expense tracker, you will set targets. Periodic updates to the budget will help you monitor your progress towards these milestones.
Whatever it is you want, you need a plan to help you get there. A budget is a way to help you keep your eye on the prize by seeing the progress you are making towards your goal.
Always remember – what gets measured, gets done. Having an expense tracker and maintaining a budget for building the assets and wealth you want to have will allow you to measure your progress over time. It is well proven that when you find a way to track something, it is more likely that thing will get done.
Helps You Spend Only the Money You Have
A recent report by Experian shows that as of 2020, adults in America between the ages of 40-75 have an average credit card debt of over $6,000-$7,000. Those numbers are actually down from prior years.
Because credit cards allow you to get something now and pay later, they encourage people to spend more than they can afford. If you get into the habit of accumulating credit card debt, you will almost certainly experience complete financial ruin at some point in your life.
Before credit cards, people knew when they were living above their means. This was obvious because if you didn’t have the money, you couldn’t buy whatever it was you wanted. However, with the emergence of credit cards and companies letting you buy now, pay later (like Affirm, Afterpay, or Klarna), it is easy for people to spend well beyond their limits.
The only way to stay within your available spending limit is to create a budget and stick to it. With a budget, you will rarely find yourself in situations where you don’t have enough money. You will know exactly how much income you expect and how that income will be spread across your budget categories. Personal finances experts have suggested that one way to stay out of debt is to use cash to pay for your expenses.
Identify Tax Planning Opportunities
There’s a reason a lot of billionaires are real estate investors.
Once you get really good at budgeting, it might be a good idea to start learning how the tax rules work. That is because different types of income are treated very differently for tax purposes. For example, earning money as a business owner is much more preferable than receiving a salary as an employee from a tax standpoint.
Having the income, and in some cases your expenses, separated out into different categories might open up some tax planning opportunities. This can be done by finding ways to shift the income you earn from less preferable tax categories (salary and wages) to more preferable tax categories (business income and rental income).
Helps You Avoid Debt and Improve Credit
Budgeting can help you work your way out of debt by coming up with a plan to pay back everything you owe. It can also keep you out of debt if you follow your budget strictly by paying your bills when they become due and not taking on more than you can handle.
Paying off debt and having an expense tracker that makes sure you always pay your bills on time will help improve your credit score over time.
Helps You Save for and Have a Happier Retirement
It is vital to include investment and retirement savings into your budget. If you make all necessary adjustments and start avoiding debts and spending wisely but fail to save and invest towards your future, one of the consequences is that you will struggle when you can no longer work actively as you do today.
You will gradually build a good nest egg by including reasonable percentages for putting aside money in your Roth-IRA (remember we HATE 401ks and IRAs) and investment accounts. This may involve some sacrifice on your part that may look painful today but will be well worth the short term sacrifices. You want to be able to spend your retirement years traveling and seeing the world rather than struggling to make ends meet living off social security (if it isn’t bankrupt by then) because you didn’t save enough money during your prime working years.
Prepares You for Emergencies
Our world is filled with unexpected happenings, and the recent global pandemic is an example of unforeseen circumstances that can happen to all of us. You can become sick, lose your job, or have a major disaster happen to your home. We all know the long list of sad situations that can happen. And the sad reality is that they do happen, every day.
A lot of the time, these emergencies happen when you are least prepared financially. That is why you always need an emergency fund or the ability to access cash quickly.
Every budget should provide an emergency fund that can provide you the liquidity to cover at least three to six months of your living expenses. This extra cushion will ensure you do not have to use bad debt to pay for things if, god forbid, an emergency does ever occur.
Take your time to build your emergency fund by starting early. If you bake it into your budget early enough, you will not need to dump a lump sum into the emergency fund. A few dollars now and then will eventually grow into a reasonable sum and make sure you have yourself adequately covered.
Help Your Relationship
It’s common knowledge that money is one of the top reasons for divorce in this country. Nothing causes more stress than trying to figure out how to pay for something when you don’t have the money.
When it comes to finances, you and your spouse need to be on the same page. That way, everyone can be on the same page and can work towards achieving the same financial goals. A budget is a great way to do that.
Exposes Your Bad Spending Habits
I used to get a coffee from Starbucks on my way to work every morning. Little did I realize how much money this was actually costing me every day. When I sat down and did the math, I realized I was spending almost $2,400 on my coffees a year. Needless to say, I make my lattes at home now.
The process of creating and updating your budget forces you to see what you have been spending more money on, especially those indulgences that could easily be cut out. Having an expense tracker can help you cut out a few costs here and there that can turn into significant savings over time.
Improve Your Health and Sleep Quality
Money issues cause stress. It actually causes a great deal of stress.
The American Psychological Association recently published the results from a study that determined over 26% of adults feel stressed about money most or all of the time. It is well established that stress negatively impacts our health.
When you have a budget you follow, it gives you confidence and control. This will reduce your stress because you won’t have last minute surprises or months where you can’t cover your bills.
Having good financial hygiene will also help you sleep better by reducing those nights you spend tossing and turning because of money issues.
What are Budget Categories?
The first step to creating your budget is to clearly define your budget categories.
Budget categories are groupings or lists for various types of expenses. The budget categories act as buckets on your expense tracker that will allow you to group together similar types of costs. The process involves breaking down your expenses into different groups so that you will have a clear roadmap of your spending habits.
This roadmap will show you what types of things you are spending a lot of money on. For example, you may see a large portion of your expenses are taxes paid to the IRS. If that is the case, it might be worthwhile to work with a good tax planner to see if there are ways you could reduce your tax costs going forward.
Don’t forget that your budget categories should also include different categories of income. Not only do you want to create a good expense tracker, you also want a good understanding of what types of income you are earning. Income groups can help show where your primary sources of income are coming from. It can also help you track changes over time as you hopefully start to see a shift towards earning more investment income.
Once you set all of your categories, you will then allocate your expenses among the various budget categories.
28 Budget Categories Everyone Should Have on Their Plan
No two budgets will look alike. Therefore, you need to develop a personal budget and expense tracker schedule that will work for you based on your personality and spending habits. What matters most here is that you use a consistent process that is simple and easy to use so that you are more likely to keep the schedules updated.
Now let’s dive into what detailed budget categories look like.
8 Budget Categories for Income
A good wealth building plan probably means a strategy that ultimately includes income streams providing sources of income that would fall into most of these different categories. If you find yourself in the position where you are only earning a salary today, you want to develop a plan that will help you earn different types of income in the near future.
These are examples of budget categories for the various different types of income you earn.
1. Salaries and Wages
This includes money you get from your employer each pay-period. This can also include any bonuses of tips you receive from your job.
If you are a business owner or self-employed, this is the salary you pay yourself from your business. This does not include the net income of the business.
2. Interest Income
Interest income includes interest earned on your cash. If you have money in a savings account, that money should be earning you interest every year. Checking accounts sometimes pay interest as well.
Also, if you loaned money to someone, you should also be getting interest payments as compensation for lending them the money.
You can also earn interest by holding certain types of investment securities such as bonds.
Dividends are paid to holders of stocks. Some public companies pay dividends to their shareholders each quarter. Include any dividend income in this bucket.
4. Capital Gains or Losses
When you sell an asset, the gain from the sale is generally treated as a capital gain. Examples of the types of assets that give rise to capital gains when sold are:
- Your home
- Mutual Funds (which you should never own)
- Rental properties
If the asset was sold for a loss, that is called a capital loss.
As a general rule, the amount of the gain or loss is equal to the amount you received when you sold the asset minus what you originally paid for the asset. There are exceptions to this where the amount of the gain for tax purposes may be subject to certain adjustments.
5. Net Income from Business
Net income from a business is the net profit the company makes after taking into account all expenses, taxes owed on the income, and salaries paid to the owners.
The reason this is included as a separate category from salaries and wages is that this type of income is treated very differently for tax purposes.
6. Income from Self-Employment
If you are self-employed, include the income you receive from your work in this category. Self-employed individuals include people who work for themselves but do not own a business.
For example, a copywriter who does freelancing on Upwork would be considered self-employed. All of the money they receive from clients who pay them to write articles should be included in this category.
7. Rental Income
If you are a real estate investor or own rental properties, include the rental income you receive for renting the properties in this section.
8. Other Income
Always have a catchall bucket for any other less common types of income. These can include anything from alimony or child support received from an ex-spouse to social security payments you get from the government after retirement.
Include any other type of income you earn during a year in this miscellaneous bucket. If the amount is significant, feel free to create your own separate income budget category.
20 Budget Categories for Your Expense Tracker
When preparing your budget categories for your expense tracker, a good suggestion is to always have separate line items within each category for discretionary and non-discretionary items. This is because if you ever need to reduce your costs, you will want to be able to easily identify the expenses that can be reduced or eliminated.
Here are 20 budget categories for your expenses.
1. Housing Costs
One of your largest types of expenses will be your housing costs. If you own your home, chances are good you may have a pretty large mortgage payment. If you rent, your monthly rental payments will probably be one of your larger expense items (especially if you live in NYC like me).
The first item on your expense tracker should be your monthly mortgage payment or rent. If you have a mortgage, make sure you track the full payment amount including both the portion attributable to principal repayments and interest costs.
In addition to your mortgage or rent, there are other expenses associated with your home that you will want to track within this category. These include:
- HOA (Homeowners Association) dues if you live in a condo association
- Property repairs and maintenance costs
- New furniture and fittings that will be needed for your home or apartment
- Gardening and lawn care
- Pool supplies and maintenance
- Any other costs associated with maintaining and owning the home that don’t properly fit into a more specific bucket below
2. Food and Groceries
Top on this list is groceries for you and your family. Eating out at restaurants, food takeout, and meals at work could be included in this category as well. We recommend separating out costs for buying groceries from eating out because the latter is a discretionary item that could potentially be cutback if more cash is needed in a given month.
3. Personal Items
Similar to your groceries, make sure you include your personal care items. These can include anything from shampoo and toothpaste to cleaning products for your household.
This section can also include a wide range of types of expenses such as books, coaches, self-improvement seminars, gym memberships (if not included in health expenses), and visits to the hairdresser or nail salon.
If you are someone who prefers to do most of your shopping at places like Wal-Mart or Target, it might be difficult to separate out personal items from groceries. It certainly is ok to combine those two categories. However, we do recommend keeping discretionary items (like a fancy type of makeup) separate from basic necessities (like bread) on your expense tracker in case you ever need quick and easy ways to reduce costs.
You will typically have a number of different types of utility charges every month. These are usually pretty easy to identify because they show up on your bank statement each month. However, make sure you include all utilities here as some might be easily missed.
- Propane or gas
- Security system
- Trash collection
Some of these items may be included here or in the household section above. Just make sure you don’t double count the same expense twice!
5. Health and Medical Care
Nothing beats being alive and in good health. If you want to live longer and healthier, you must plan to allocate enough funds for routine medical care.
If you are an employee, your health insurance premiums are likely deducted from your salary each month. However, business owners and self-employed individuals may be paying their premiums out-of-pocket (and in a lot of cases, these costs may be quite high).
Under this category, you need to include any amount you are likely to spend on medical costs during the year, including:
- Health insurance premiums
- Dental insurance premiums
- Emergency medical care
- Medical devices and supplies
- Costs to see specialists which aren’t fully covered by insurance (such as dermatologists or chiropractors)
- Prescription medications
- Annual physical costs not covered by insurance
- Dental check-ups
- Eyeglasses or contacts
- Vitamins or supplements
- Mental health and therapy costs
- First-aid supplies
- Gym membership or workout classes
A big cost throughout the year involves getting around. Whether you have a car or take public transportation, you will likely be paying a lot in transportation costs. Make sure you track all of the expenses associated with transportation costs on your budget. These can include:
- Purchase of a new car or monthly lease payment
- Gas (watch out for large swings in the costs of gas as the price of oil changes)
- Bus tickets
- Subway or train passes
- Taxis or Ubers
- Oil changes and other repairs to your car
- Parking fees
Clothing should always have its own category. In a lot of cases, if things are really tight, you can probably go years without spending any real amount of money on new clothes. As long as you have the basics covered, you should be good to go!
8. Debt Payments
Debt payments include any payments you are required to make (or should be making) on outstanding debt. Commons types of debt include:
- Mortgage payments on your home (if not included in housing costs above)
- Auto loans
- Mortgages on rental properties
- Margin loans on stocks
- Student loan payments
- Credit card debt (pay this bad boy off as soon as possible)
- Business loans
- Any other loans you have outstanding or money you owe
For any debt that is considered “bad debt,” use your budget to come up with a schedule to pay it off as soon as possible. Any extra cash you have on hand should be repurposed to pay off any bad debt.
Most of us have various different types of insurance. The premiums on these policies can be quite high at times. Even though these are only paid once a year, you want to make sure you track all these costs on your expense tracker.
- Auto insurance for your car
- Homeowners insurance or renters insurance
- Health insurance or dental insurance (if not included in medical costs above)
- Life insurance
- Long-term care insurance
- Insurance on rental properties you own
- Business insurance
- Professional liability insurance (like medical or legal malpractice)
- Umbrella insurance
- Any other type of insurance premium costs
Most people like to take a break and enjoy time off away from home. We should all take routine vacations as a means of relaxing and seeing the world. Just make sure you budget for the costs!
11. Professional Fees
You may have a need to use certain professionals throughout the year for various different reasons. Many of us pay to have our taxes done each year and might use a CPA or tax professional to help file your tax returns. Some of you may also have a need to work with a lawyer on various different issues.
Any costs for professional services should be included in this category. It is never recommended to use a financial advisor. However, if you do, make sure to take into account their pretty hefty fees for (mis)managing your money.
Kids are great, but they are expensive little things! As parents, it’s essential to know how much you spend on your children and how to budget for future expenses. Maintaining a separate category for children is a good way to make sure you don’t miss anything.
Here are some types of expenses to include in this group:
- Babysitters or nannies
- Diapers and formula
- Kids’ fun activities
- School and tuition
- School supplies
- Tutors or lessons
- Sporting activities and summer camps
- Allowances (it’s never too early to get them started on maintaining their own budget)
- 529 plans for saving for college or other future educational costs
Life isn’t worth living if we aren’t having fun right!? So of course we need a separate category for entertainment expenses.
The types of expenses included here will be very different for each person and will vary based on your preferences and hobbies. Common examples of entertainment costs are:
- Sporting events
- Movie or theater tickets
- Subscriptions to streaming services like Netflix, HBO Max, Hulu, or Amazon Prime
- Music (Spotify or Apple Music)
- Books or audiobooks
- Software subscriptions
- Club memberships
- Boats or recreational vehicles
- Sporting lessons
Anything that you do for fun should be on this list.
14. Business Expenses
If you own a business, it probably makes sense to have a separate budget for your business and personal finances. In any event, don’t forget to take into account and budget for all those expenses associated with running your business.
15. Investment Expenses
If you have any expenses associated with your investments, such as bank fees, you can include them in this category.
Having a pet is a great thing! Just make sure you budget for all the costs it takes to keep Fluffy and Daisy happy!
17. Gifts and Charitable Donations
Probably the most commonly forgotten expense is gifts. Don’t forget that the holidays are one of the most expensive times of year! Make sure you include on your expense tracker a line item for gifts for all your loved ones.
If you are charitably-minded, you may also want to budget for donations to a few of your favorite charities throughout the year. Don’t forget to claim a tax deduction for these donations!
If you do not plan properly, there is a good chance taxes will be your single largest expense. In many cases, you pay taxes you don’t even realize you are paying.
Don’t forget to take into account any taxes you will owe the IRS or state tax authorities during the year. If you are self-employed, a business owner, or have income sources outside a W-2 salary, you may be required to make estimated tax payments each quarter.
Failure to properly account for taxes can cause a pretty big cash flow issue around April 15th every year. Trust me, the last person you want knocking on your door is Uncle Sam looking for his money!
Different types of taxes can include the following:
- Income taxes
- Corporate taxes
- State taxes
- Property taxes
- Vehicle taxes or personal property taxes
- Payroll taxes
- Sales tax
19. Emergency Fund
If you do not currently have an emergency fund, your budget should take into account the cost of slowly building one over time. Make sure you allocate enough money to build up a reserve of 3-6 months expenses in case of emergency!
20. Other Expenses Not Covered Above
Always include a catchall category for any expenses which are not easily included in the categories above. You can also feel free to create your own separate categories of expenses if needed.
Updating Your Budget
What you have here is a comprehensive list of budget categories. It may look intimidating at first, but eventually you will get the hang of it and will be happy you did it!
All you need to do is create one comprehensive schedule with all the budget categories one time. Thereafter, you will just need to update the amounts in each category from time to time.
You should have a schedule for updating your budget on at least a monthly or quarterly basis. Get in the habit of setting a specific time each week or month where you revisit your budget to make any necessary updates. Being disciplined in keeping your expense tracker updated will make your life much easier in the long run!
Download Our Budget and Expense Tracker Template
You can download our budget and expense tracker template in excel to help you get started on building your own personal budget. Feel free to download and customize this template as you see fit.
Now that you have a better idea of what your budget categories should look like, it’s time to start building your budget today.
To build wealth you will need to first have a real picture of where you stand financially. This will allow you to start making the required adjustments to cut costs and save more money.
Remember to create a plan that will be easy for you to use and that is tailored to take into account your personal financial situation. Get started with your budget today!
15 Income Producing Assets to Invest In
The key to building wealth is to own several different types of income producing assets. If you ever want to achieve financial freedom, you better start accumulating assets. The best assets to buy...
How to Become an Accredited Investor
One lesser known fact in the investment world is that there are certain investments that are only available to certain types of people. These people are known as "accredited investors." Getting...
The 9 Reasons Why You Should Never Use a Financial Advisor
Wealthy individuals understand one thing that many do not – you can’t delegate investment decisions and management of your money to someone else. You should always be CEO of managing your...