Personal finances can be overwhelming at times. Budgeting helps you determine what you can afford and what you cannot. It is an invaluable tool that helps you better manage your money by prioritizing your spending. It can help you identify unnecessary expenses, adapt quickly if your financial situation changes, and reach financial goals.
In order for your budget to be effective, you need understandable organization. By assigning money to categories, you are able to make sure your basic needs are met as well as choosing how to spend the money you have. You can approach categories in a variety of ways. You can have fewer more general categories, or you can break it down into smaller more specific categories. Some people even do a combination of the two.
People brand new to budgeting tend to benefit more from smaller more specific categories. By breaking categories down, you get a powerful insight into your spending habits. Catching mistakes becomes easier. The most important thing is to ultimately keep things simple. Find a category system that works for and resonates with you. Below you will find some category suggestions. You can add to or delete from this list as you feel necessary.
This category encompasses all sources of income. For most people, their main source of income is from their employer. Think about all the ways you make money, but only list guaranteed income. You shouldn’t depend on income that is not guaranteed. These sources may include salary or wages, tax refunds, investment income, child support, side hustles, predictable work bonuses, alimony, and any other dependable source.
Utilities is an important budgeting category. Most people of these regular expenses. The two most notable are water and electricity. It is important to make sure you have the money to cover these expenses. Other utilities you might need to budget for include phone, sewage, cable or satellite, internet, trash, and natural gas.
Along with utilities, you need a place to live. It is an essential budget item. Housing could come in the form of rent or a mortgage. If you do own your own home, you will also need to include expenses that go along with maintaining it: maintenance and repairs, property taxes, home improvements, and HOA fees. You should also consider renters or homeowners insurance if you don’t already have it. You can contact a Jackson insurance agency for more information.
This category can vary greatly from one person to the next. Remember to include all food sources. Many people find that they eat out a lot more than they realize. This may be a category where you can cut back. Include expenses like groceries, coffee, and eating out.
Regardless of how you get from one place to the next, you need to include it in your budget. This category includes more than just paying for gas. Make sure to account for things like parking, auto insurance, car payment, maintenance and repairs, public transportation, emissions testing, and associated fees (tags and titles).
Although many people prefer to use this as a catchall category, it is beneficial to break it down as much as possible. This will help you more accurately assess your financial situation. Credit cards and student loans are often the biggest sources of debt. But consider breaking it down even further by listing each debt separately. List each credit card and lender. Don’t forget any medical bills and personal loans.
These are just some of the main categories you might include as budgeting categories. Other categories you might consider include personal care, insurance and healthcare, education, leisure and entertainment, savings, and miscellaneous. Breaking down your budget helps you see how much you are making and where that money is going. Once you have a handle on your expenses, you can make better financial decisions.