It’s time to address the B-word. You knew this was coming sooner or later. If “budget” is a bad word in your vocabulary, it’s time to fix that! A budget doesn’t have to be depressing and restrictive– it can be exciting and freeing! We actually love our budget! It was exhilarating when we settled on our current process and knew we had something that would really help us manage our finances intentionally, instead of watching them as they went by. We still look forward with excitement to our end-of-the-month budgeting date.
However, putting together a budget all at once can be intimidating, so we’ll do this one step a time. Today we’ll start with setting up budget categories. Budget categories need to be personalized to fit your family’s unique financial situation. If you put some thought into tracking your expenses like we talked about last week, then you’ve probably already nailed down some good categories for your variable expenses. Today we will build on those variable expenses and add fixed expenses and periodic expenses.
Variable Expenses
Variable expenses are the expenses that change from month-to-month. Most of them don’t go away completely, but the amount we spend is never the same each month. We are focusing on variable expenses in our expense tracking report to get a real picture of how we spend our money.
You can use as much or as little detail as you like. The more detail you have, the clearer the picture of where your money is going, but the more work you’ll have splitting up those receipts from Target and Wal-mart. For example, splitting your grocery purchases up by food group is probably overkill for general budgeting purposes. On the other hand, lumping all of your online purchases into a “shopping” category isn’t going to give you enough information to make meaningful changes. You’ll find a happy medium that works for you.
Here are some typical categories that you can adapt to your own situation. Make your own rules about what expenses belong in what category. If a new expense comes up that doesn’t fit well in your established categories you can add a new category (if it’s an expense that will likely recur) or make it fit into an established category (if it was an odd one-time expense). Avoid catch-all categories like “shopping” and “miscellaneous” or use them very sparingly.
- Groceries
- Restaurants
- Gas
- Household
- Baby/Kid Expenses
- Entertainment
- Gifts
- Utilities (gas, electric)
- Cell Phone (if plan varies by usage)
Fixed Monthly Expenses
Fixed expenses are the expenses that don’t change from month to month. You know exactly how much those costs will be. You also know the dates that these expenses will be due or will be automatically taken out of your checking account.
Here are some examples of fixed monthly expenses. Some may not apply to you (or they may be periodic or variable rather than fixed monthly expenses) and there are likely other fixed monthly expenses that are not on this list.
- Mortgage/Rent
- Health Insurance
- Car Insurance
- Home Owners’ or Renter’s Insurance
- Cable or other TV subscription
- Phone
- Cell Phone
- HOA Fees
- Debt Payments
- Utilities (electric, trash, Internet)
Periodic Expenses
Since we are creating a monthly budget, periodic expenses are ones that come less often than monthly. They could be expenses that come up annually or at some other interval. Periodic expenses sometimes sneak up on us because they occur so infrequently that we don’t have them on our radar.
Once again, this isn’t an exhaustive list of possible periodic expenses. Some of these expenses may be fixed monthly or variable expenses in your individual case. Think hard to come up with all of your periodic expenses.
- Life Insurance Premiums
- Car Registration
- Magazine Subscriptions
- Car Insurance
- Property Taxes
- Club or Association Fees
- Domain registration renewals
- Tuition
Challenge–Day 6
Define categories for your budget. To help with organization, divide your categories into categories, either like I did above (variable expenses, fixed monthly expenses, and periodic expenses) or in a different way, depending on your personal situation. We will use these categories tomorrow when we continue on with setting up a fresh budget!
- What are some of your budget categories that I didn’t mention?
- What are some of the periodic categories that get forgotten until they come up?
Go to Day 7 of the Frugal Fresh Start Challenge!
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Stephanie says
January 12, 2015 at 5:27 amWhat is it about that B word that just makes me cringe?
One thing I had planned for this week was to set my budget, because I know we have a good amount of extra income yet we never see any end in savings. So I figured its time for a budget!!
Stephanie says
January 13, 2015 at 10:34 amIt will be exciting to find and save all that extra money!
Samantha says
January 12, 2015 at 6:18 amUsing YNAB has been helping me get an idea of where my money goes. I need to sit down tonight and write the categories out. The perodic ones are the hardest, becuase honestly I forget about them until they just show up.
Stephanie says
January 13, 2015 at 10:36 amYes! Those periodic ones do sneak up on you. When you do think of them, you can stick them in YNAB and start putting money toward them, which is especially nice for the big ones!
Nichole @Budget Loving Military Wife says
January 12, 2015 at 6:45 amAfter years of budgeting, we have found the simpler the better. Although in the beginning it is important to figure out where exactly your money is going, so I’m loving your strategy Stephanie to help break it down.
Of course, everybody’s budget is going to be different. But we have found that having fewer categories makes it easier on us. For example, we have a “grocery” fund and that includes all food (except restaurants) and all household supplies. We also have individual “fun money” categories, but we also use these funds for haircuts, makeup, etc. We do have a miscellaneous fund and it has saved us from constantly readjusting our budget. Some people call it a “slush” fund… but it just picks up the small random expenses like bolts at the hardware store and small car maintenance purchases like windshield washer fluid.
Stephanie says
January 13, 2015 at 10:38 amThanks Nichole! Once you get into budgeting you definitely find your groove and what works for you. Like you said, for people who are just starting out, it’s really important to get a clear picture of where your money is going.
JennyK says
January 12, 2015 at 7:00 amDoctor visit and Dental Copays, Prescriptions
Stephanie says
January 13, 2015 at 10:39 amThanks JennyK! Those are good ones. We don’t have any prescriptions, so I never think of that one!
Megan says
January 12, 2015 at 9:04 amYNAB has really gotten me thinking about these catrgories. I have one for our live-in Maid/nanny, two separate catrgories for Diapers/formula, and one for Amazon since we are purchasing a lot of random goods that we can’t get here like baby cough medicine and movies etc. we just had our car registration come up as well as a fee for picking up,our dogs at the airport. To get the dogs released they wanted $200 in addition to the $2,600 to ship them here in the first place and the car was almost $500 because you pay all your insurance here upfront for the year. Now we know we need catrgories to save up for both of them so we don’t loose a whole paycheck. We are still trying to get things back on track.
Stephanie says
January 13, 2015 at 10:40 amBudgeting itself is an eye-opening experience, but doing it overseas surely has even more surprises!
Megan says
January 13, 2015 at 12:01 pmWell it doesn’t help that there is a lot of corruption. Technically we were not supposed to pay fee to get our dogs I know people who payed nothing but they have no accountability so they just decide at the time how much they can shake us down for and we love our dogs so we can’t just leave them there. We won’t find out about any traffic tickets till we go to register our cars again. The unknown is very frustrating and impossible to plan accordingly.
Stephanie says
January 14, 2015 at 8:51 pmYikes! That is totally frustrating and scary Megan!
Kellie says
January 12, 2015 at 9:29 amWhat we’ve been doing hasn’t quite been working. Most of our income is eaten up by regular expenses, and the rest has been staying in the checking account as a “slush” fund for whatever comes up. We should probably envelope more expenses and leave the envelopes at home until we need them!
Also, this might not necessarily be a budgeting tip, but if you have an irregular expense that you are writing a check for, deposit that money into a different checking account and write the check out of there. Example, we had a car repair bill and a late wedding bill that we were anticipating. Once we got the bills, I transferred the money into the checking account that I literally keep $1 in to keep it open and wrote checks out of there. This way, the money is accounted for and I don’t have to keep remembering to check if it has been taken out yet. I made this mistake with the butcher, and a month later I still have to remember that the check hasn’t been cashed yet.
Stephanie says
January 13, 2015 at 10:44 amIn Day 7 I talk more about this. If you’re using YNAB, you essentially have envelopes, but you can have the simplicity of having your fewer accounts. Before we used YNAB, we had a million savings accounts for all of our sink funds where we would put 1/12 of each of our annual expenses each month. It was a hassle, so I really love the way YNAB solves that problem.
Kellie says
January 14, 2015 at 8:12 amI could see where that would come in handy, but I would still have to balance my check book. I don’t have those kinds of expenses come up very often, but it is nice to have when I know I will need to mail a check to someone who may not deposit it right away. For normal operating, we only use one checking account. It is something Dave Ramsey encourages, and has simplified our lives after we got married.
Sarah says
January 12, 2015 at 11:59 amZoo/Museum memberships
Water park/theme park annual passes
Stephanie says
January 13, 2015 at 10:45 amYes! Annual passes and membership fees are good to remember.
CherylJ says
January 12, 2015 at 12:59 pmNow that our 3rd and youngest son is coming upon graduation, I wish I had created a category for educational during his freshman year, to include all the academic testing and study guides. As well as extra curriculum items that the school didn’t pay for.
Stephanie says
January 13, 2015 at 10:45 amHindsight is 20/20, right!? 🙂
sarah says
January 12, 2015 at 1:37 pmDon’t forget about the “giving” category! (This would include offerings to church and other times when asked for donations.)
Since I started using YNAB almost 2 years ago, I now have all those variables contained…don’t forget about IRA fees, lockbox fees, etc.
Stephanie says
January 13, 2015 at 10:48 amOur giving categories are at the top of our budget, but I totally forgot them here! Thanks Sarah!
[email protected] says
January 12, 2015 at 1:43 pmThese are good categories for a start — though like Nichole, I’ve moved to simplify my categories over time, reducing all kinds of food money into a single category, for example. I do have two “slush” categories; one, I’m free to spend every month for whatever reason (entertainment, a meal out with a friend, a fun-but-not-necessary purchase, gifts), and one is for necessary expenses that I haven’t planned for specifically (examples might include a professional expense I can’t get reimbursed, or clothing/shoes if I wear out something I already have.) I think it’s a good idea to expect your categories will change and adapt over the first six months or so as you figure out a balance between specific and simple/easy.
Stephanie says
January 13, 2015 at 10:47 amYes! When you have a handle on your spending you can definitely simplify and do what works for you!
[email protected] says
January 12, 2015 at 2:01 pmIt’s the periodic expenses that kill you, whether they are irregular or unexpected. Travel costs is a big one for us. Surprise sibling weddings tend to throw a wrench in the budget…dealing with that one this month!
Stephanie says
January 13, 2015 at 10:51 amTravel can really get your budget! Fortunately there are probably a limited number of sibling weddings! 🙂 Have fun though! Better a wedding than a funeral!
Jodi says
January 12, 2015 at 7:15 pmI have a haircut category, which is periodic. I also have mowing to pay monthly, but only March thru October.
Stephanie says
January 13, 2015 at 10:53 amAwesome! A seasonal one. Good thinking Jodi!
Mona says
March 20, 2015 at 7:09 pmI am trying to get my budget set up and found this on pinterest. How can I find days all the days? It is all very exciting. Starting the budget at end of this month and trying to get things together. Right now anything and everything will help. 🙂
Lauren says
February 7, 2016 at 10:23 amChristmas gift giving – gonna budget for it all year so that it’s not a stressful topic once it comes time to start shopping for everybody!