Budget Tip: Categorize it

Assuming that you have written it down and got a quick look at where you are in your finances, it is time to dive a bit deeper in organizing your budget.

Just like how genres help us to find movies and music that we like or how the isle labels help us find items at the grocery, categories on items simply makes it easier to find what we are looking for.

It is the same thing with our budget. It is just easier to find expense items in a whole list of expenses if they are categorized. In order to use your budget as a “quick reference” for financial decisions, it’s the categories that makes it quick.

Let’s say you are thinking if it is feasible to buy another car. You could easily scroll down to the transportation category and calculate how much more you are going to spend on gas, car maintenance and insurance for another car. Then make the appropriate changes on your budget, then sum it all up and you are done! The numbers should be able to tell you if you can actually afford a new car.

How detailed does it have to be? Depends on how anal you want to be. It is nice to be able to really track down every penny you spend but who has the time for that. So for now let us stick with some general categories that most of us use.

Shelter

The biggest thing a family tend to spend on is Shelter or Housing, that is why many have given up and just ended up on the streets because housing has become over priced in recent years. Under this category includes mortgages or rent, homeowners association fees, renter’s or home insurance, mortgage insurance if you had to get one and an allowance for home repairs. It is a big chunk of an expense, that is why the earlier you payoff a home the more you save in the long run.

Transportation

The second biggest expense is usually transportation. This is where car payments fall under and whatever the car needs to make it run. The most annoying of it all is gas. It is not the actual price of gas but the taxes that they put on it, especially here in California. It is literally highway robbery! Included under this category are car maintenance and insurance. Give your car the care it needs and it will last you for years. Of course the fancier the car the higher the maintenance and insurance cost so consider that when you are shopping for one. And just like the housing situation, if you have your car paid off it will save you at least 3 to 500 dollars a month, better yet, if you can do without a car in your area then don’t get one!

Utilities

Next category that everyone has to deal with are utilities. We all need water, electric and gas. For warmer climates gas may even be optional unless you cook with it. For electricity, all the craze is on solar, but people forget the initial and maintenance cost of the thing. It is a good idea, just make sure to calculate the true cost of having it and not just the savings they say you’ll have when they are selling it to you. Also remember that most of these solar companies are NOT roofers. They do not care about your house nor your roof when they are installing the panels up there so usually the installation causes roof leaks which you’ll need to have repaired costing you more. If you have the space, opt for a stand alone type of installation, where you can even turn the panels depending on where the sun is facing throughout the day or season.

Those are the big 3 categories that takes a chunk of our income. Those are the must-haves for us to live comfortably. There are some penny pinching we could do with them but for the most part, we simply have to suck it up and pay up unless you can pull off living off grid.

Here are the rest of the categories depending on our chosen lifestyle.

Entertainment – We usually have more than what we need. If the campfire was all they needed back then, we can surely lessen our subscription to Netflix, Hulu, Prime Video, movie tickets and whatever else we got going on.

Food – We all need to eat, but I am sure most of us could do with less. American portions are big! One trick to losing weight and saving up is to eat less or order for one and share or take it home for the next meal. This category includes groceries, dine out, your lattes and other cravings.

Insurance – I would like to say that this is a must but not everyone is willing to spend money on it. This includes life insurance, long term care insurance and health insurance. Be mindful that most of these insurance are not for you but for your family. You have to ask yourself

Will they be able to survive if you lose your income, get sick or die?

There all kinds of other insurance but those are the top three.

Clothing – optional. I read in one of the Jack Reacher novels a clever concept about clothes. He says, if you got multiple sets of clothes, you would need a closet to put them in, the closet would need a house, you would also need to wash and dry them so you’ll need to buy machines, and spend money on water and power not to mention the mortgage for the house. So technically your clothes is costing you more than just the price on the tag. Hence clothing is optional.

Child Care – Most people use public school and after school programs for this. If you ever you have the luxury of having a family member volunteering to take care of your children, please pay them at market price. It is not worth being thrown back at you as a favor you owe.

Giving – Its a weird concept but somehow it works. How could you make more money by giving it away. I have no idea and I don’t know how to explain it but when we aimed to set aside 10% of our income for charity, even though we weren’t there yet, but the intention alone somehow initiated something in the universe. We slowly got our finances straightened out, stopped some of the bleeding, paid off a car, learned ways to save on stuff and soon enough we were able to lower our debt and fulfill the 10% for giving. Try it out and see for yourself.

All these are just general categories. Every family has their own need and comfort level. Ease into it. Write everything you can think of that you spend money on. Once you got it all down. Then you could start purging.

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