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Budget Categories

Categories shape your budget. No matter the size of your budget, it’s important to organize it into categories, giving it the necessary structure and depth. This ensures you have a better understanding of where your money is going and can make better decisions. Furthermore, it’s also great for tracking progress and sticking to your financial goals. While setting up your categories, you may want to avoid being too specific or too broad. A good rule of thumb is to find a balance between both. For example, you can allocate a separate category for groceries. However, if you try to be overspecific, you may end up with categories likeMeat and Seafood Groceries andProduce Groceries. This may be too detailed, so a better sub-category for food may beGroceries, which includes all groceryrelated items.

If you don‘t categorize your budget i.e. your biggest financial tool, you risk overspending and losing track of your finances. And if you don‘t categorize it well, you may wind up making unnecessary purchases and getting into debt. Categories are like building blocks to help you manage your money. And rather than separating an already-made building into blocks, it’s smart to categorize your budget from the beginning. Also, it’s necessary to break down the categories into subcategories, just like the way a building is divided into rooms. 

Below we have created budget categories and sub-categories in a way easy to understand. Also, we’ve mentioned the percentage allocation of each category in my (an average American’s) budget. Because in many other budget category pages, you can see the allocations’ sum to be around 110%-180%. Although it’s impossible to get an exact number, it’s worth understanding that your expenses should not exceed your income. Of course, yours will be slightly different depending on your income, requirements, and desires.

1. Housing

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Housing is usually the biggest expense in your budget. It is the category that you don‘t want to forget about, as it can easily make or break your budget. Over 40% of Americans spend more than 30% of their income on housing. That number can even double in high-cost areas. The subcategories for housing include:

Rent

According to worldpopulationreview, Renters in the US pay an average of $1,326 per month in rent. And the percentage of Americans renting has been steadily increasing. If you live in a rented house, make sure you factor your rent in your housing budget.

Mortgage

Mortgage is something many people opt for when they buy a house. And some just end up with it afterwards anyways. This subcategory is the most important one that comes under housing. The average mortgage cost in the US is around $1,600 per month.

Home Maintenance

Home maintenance includes repair and upkeep of your home, such as painting, repairs, etc. The average homeowner in the US spends around 1-4% of their house value per year on home maintenance.

Property Taxes

Although not all homeowners need to pay significant property taxes, those who do should factor it in their housing budget. According to businessinsider, average property tax in the US is around $2,471 per year.

HOA Fees

Homeowners Associations (HOAs) are common in many neighborhoods. As a member of the HOA, you may be required to pay monthly or annual fees. Depending on the HOA, these fees can range from a few hundred to a few thousand dollars. Your housing budget should include these fees as well.

2. Utilities

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Many people prefer to include utilities in their housing category while preparing their budget. However, utilities are not directly related to housing, as they can also be used in other areas, such as work or leisure. Furthermore, utilities have a lot of subcategories, making it difficult to adjust them in the housing category. The subcategories for Utilities include:

Electricity

Electricity is a necessary expense in almost all households. It is also one of the most expensive utilities in your budget. According to the US Energy Information Administration, the average US household pays an average of $121 per month for electricity.

Gas

As 62 million US households use natural gas for heating and cooking, it’s an important part of most homes' utilities budget. The average US household spends around $700 per year on natural gas.

Internet

Internet is an essential utility in today’s world. In this subcategory, you can include all your internet-related expenses including your internet service provider (ISP) bill, data plan, etc.

Phone

Phone bills can easily rack up if you're not careful. This subcategory includes your mobile phone bill and any other landlines you may have.

Water

You can’t live without water. Although it’s relatively inexpensive compared to other utilities, it’s still important to budget for it.

3. Transportation

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Unless you are a “work from home” person, and never ever go out, transportation is a must-have in your budget. This category includes expenses related to your commute to work, running errands, or leisure activities. The subcategories for transportation include:

Travel

Travel subcategory in budgeting belongs to the category of transportation. Of course, some prefer to consider it a separate category, or include it in savings. However, transportation costs generally make up the largest portion of a traveler's expenses, typically ranging from 50-70% of the total cost. Here, you should also include travel insurance, flight upgrades, and other related cost. We are not including travel insurance in insurance category because it is not an ongoing cost.

Car Payment

The percentage of Americans financing a new car is around 85%. If you are one of them ( which is likely), you should factor in your car payment in your transportation budget. The average car payment in the US is around $700 per month, which occupies a fairly big portion of your budget.

Public Transportation

Public transportation is becoming more and more popular in the US. If you use public transportation, such as metro, train, or bus, you should factor in these expenses in this subcategory.

Uber/Taxi/Lyft/Bike rentals

If you use ride-sharing services or bike rentals, you should include those expenses in this subcategory. According to Zippia, 36% of Americans use such services.

Fuel

Fuel is another common expense related to transportation. The average gas cost in the US is around $200 per month.

Parking

If you have to often pay for parking while commuting to work or running errands, you can include those expenses in this subcategory.

4. Food

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Food is an inevitable category in your budget. It is also one of the most expensive categories, regardless of whether you are living in 2022 (high inflation). The subcategories for food include:

Groceries

This is the most common subcategory in the food category. Groceries are a must for any household. According to the BLS, the average American household spends $5,259 on groceries each year.

Eating Out

Restaurants are a luxury that the majority of people cannot do without. An average American spends around $3,300 on eating out every year.

Coffee

Many people start their day with a cup of coffee, as it's become a necessity. In the US, a cup of coffee costs around $2. This sub-category is important to factor in if you are a coffee lover. Because according to Yahoo, the average American spends around $2000 yearly for coffee.

Alcohol

Alcohol is a luxury expense that many people include in their budget. The average cost of a bottle of wine in the US ranges from $10 to $15. Some people just spend too much on it, which is not recommended at all.

Snacks

Snacks are a common expense that many people don't factor in their food budget. But these little treats can add up quickly, so it's important to let them in.

5. Health & Fitness

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People in the US spend around $500 a month on health and fitness. Subcategories for this budgeting category include:

Gym Membership

In today's boring tech-savy world, it has become necessary to opt for gym memberships to stay fit and healthy. According to Statista, the average gym membership in the US costs around $58 per month.

Doctor

In your health and fitness budget, this subcategory should include money set aside for medical appointments. Going to see a doctor without health insurance can be expensive. Visits can cost anywhere from $150 to $450 depending on the provider or your health needs.

Healthcare

Healthcare costs, we all know, are becoming increasingly expensive in the US. These expenses are an easy fit in your health and fitness budget category.

Medication/Vitamins

The US Vitamins and Supplement industry was worth $35.6 Billion in 2022. In fact, according to zippia, as much as 77% of Americans take one or more supplements. This is an essential subcategory in your health and fitness budget category.

Personal Trainer/Coach

The average cost of a personal trainer session can range from $29-$170 depending on who you hire and where they are based. In this subcategory, you should include all your expenses related to personal trainers and sports/fitness coach.

6. Savings

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Savings is the most crucial category in your budget, as it helps you build wealth and invest in your future. Furthermore, it gives you a cushion in emergencies and enables you to achieve your financial goals. Sub-categories for savings include:

Emergency Fund

This subcategory helps you cover unexpected expenses. Your emergency fund should be around three to six months worth of expenses.

Retirement Savings

Retirement savings should be a priority in everyone's budget. You should save at least 5-10% of your income for retirement.

Investment

It's up to your own choice whether or not you want to give investment a separate category. My personal opinion, as I am not a hardcore investor, is to factor it in savings category. If investing is a serious business for you, give it a separate category. According to experts, the ideal amount to invest is around 10% of your income.

Education Savings

Education is an important investment, whether it is for you, or your kids. So, you should make sure to factor it in your savings. The ideal amount to save for education in the US is around $20,000 per child.

7. Entertainment

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We all need a break from our daily routine. Entertainment is a must. Subcategories for entertainment include:

Movies/Theater

Going to the movies or theater is a popular entertainment activity in the US. The average cost of a movie ticket in the US is around $12, and people, on average spend $59 yearly.

Concerts and Events

Events, such as concerts and festivals, are a great way to have fun. However, concerts are pretty expensive these days. Anyway, if you attend events more often, you should include the cost of tickets and transportation in this subcategory.

Books

Many people still prefer to read books. Whether ebooks or physical books, it's highly likely that you too spend money on them. Yes, this is an entertainment subcategory. That's unlike "knowledgeable books" which are automatically included in the "Educational" category.

Others

There are more than a handful of methods of entertainment. As such an "others" subcategory is necessary in your entertainment budget category.

Games

Playing games is a popular entertainment activity for both adults and their kids. Games are very expensive forms of entertainment, as PC equipments and consoles can cost a lot. And leave alone the price you need to pay for every game you buy.

Hobbies

Many people have hobbies that they enjoy, such as painting, photography, etc. If you have a hobby, make sure to factor it in your budget accordingly. It's good to have hobbies and spend a fair portion of your budget on it.

8. Kids

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Kids cost a lot of money. Depending on their age, you may need to factor in expenses for daycare, afterschool activities, tutoring, and more. The average family with children under the age of 18 spends $17,000-$20,000 every year for one child.

Childcare

If you work and need someone to look after your children, you may need to factor in the cost of childcare in your budget.

School

Kids need to go to school, and this can be an expensive expense. Depending on the age of your child, you may need to factor in the cost of tuition, books, supplies, and more.

After-school Activities

Many parents also opt for after-school activities for their children. This can range from team sports to music classes, and the costs can vary depending on the activity.

Baby sitter

If you often need someone to look after your children for a few hours a week – or just for date nights – you may need to factor in the cost of a babysitter. The cost of a babysitter can range from $10 to $20 an hour, depending on where you live.

Tutoring

If your child needs extra help with their schoolwork, you may need to factor in the cost of a tutor program. Tutoring can range from a few hundred to a few thousand dollars a year.

Allowances

Allowances are a great way to teach kids about budgeting and money management. Depending on the age of your child, you may need to factor in a small allowance for them.

School Lunch

In the US, school lunch is often free for students. But you may need to factor in the cost of school lunch if your child is enrolled in a private school.

9. Pets

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As much as 67% of households in the US have pets. If you own a pet, you need to factor in the costs of food, vet visits, and more. Owning a dog can cost up to $1,500 a year, while cats are slightly cheaper to have.

Food

The cost of pet food can vary depending on the type and size of your pet. According to the American Pet Products Association, the average cost of pet food is around $260 per year.

Veterinary Visits

Veterinary Visits can be costly, especially if your pet needs special care or treatment. The average cost of a veterinary visit is around $45-$55, according to lemonade.com.

Supplies

Your pet needs supplies such as beds, toys, carriers, and more.

Grooming

If you have a dog, cat, or other pet that needs regular grooming, you may need to factor in the cost of grooming.

Training

Training your pets is essential if you want them to be well-behaved. Include the cost of training in your pet budget if you want to invest in it. However, do keep in mind that this can be a costly expense.

10. Insurance

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For sure, insurance is an important category in your budget. From car insurance to health insurance and more, you need to factor in the cost of insurance. According to RamseySolutions, an average American family spends $1,779 per month on insurance.

Health Insurance

Health insurance is an essential expense, especially for those who don’t have employer-sponsored coverage.

Car Insurance

If you own a car, it's mandatory to get car insurance in the US. The cost of car insurance in the US is around $1,400 to $2,100 per year.

Home Insurance

Home insurance protects you from losses due to fire, theft, and other disasters.

Life Insurance

Life insurance is an important expense for those who have dependents. The cost of life insurance can vary depending on your age and health.

Pet Insurance

Pet insurance is an important expense for pet owners. It can help cover the cost of vet bills, if your pet becomes injured or ill.

11. Debt Repayment

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As over 80% of Americans are in debt (except mortgages), debt repayment is a necessary budget category for most. For ones budgeting purposes, debt repayment may be subcategorized among the following categories:

Credit Card

Credit card debts are the creepiest and most expensive type of debt. Forbes states that the average American had $6,004 in credit card debt in 2022 Q3. As the interest rate on credit cards is usually high, this sub-category should be a big concern in your budget.

Student Loans

In the US, student loans are no surprising thing. According to Forbes, the average student loan debt is $28,500 per borrower.

Personal Loans

You may have taken a personal loan for some purpose. Personal loans include those from a variety of lenders including banks, credit unions, and other lenders.

Medical Loans

Medical bills can be a huge burden on the family budget. Especially in the US, we all know how expensive health care can be. As such medical loans are a thing here. You may also adjust medical loans within the "personal loans" subcategory, based on the loan's amount and significance.

Alimony/Child Support

If you are divorced and paying alimony or child support, include those expenses in this sub-category.

Subscriptions (Misc)

Today, in the digital age, subscription services are more popular than ever. From streaming services to magazine subscriptions, you need to factor in the cost of subscriptions. According to CNET, the average American spends around $219 on monthly subscription services.

Streaming Services

Streaming services such as Netflix, Hulu, and Amazon Prime are becoming increasingly popular. The cost of streaming services can vary depending on the type of service you choose.

Music Services

Music services such as Spotify and Apple Music are also popular nowadays.

Magazine Subscriptions

Magazine subscriptions are not that common, but definitely a thing.

Online Classes

Online classes have gotten big enough to become a part of an individual's budget.

Software

Software such as Adobe Creative Cloud and Microsoft Office are essential for many professionals.

Personal Care (Misc)

Often, caring about yourself is not a priority in a budget. However, it is important to factor in the cost of personal care. This can include haircuts, clothing, and more. The average American spends around $3,000 a year on personal care.

Grooming

Grooming can encompass a variety of products from makeup to skincare. A person can spend anywhere from $50 - $500+ on grooming products.

Haircuts

Getting a haircut is an important expense for many. As it is frequent, like every 6-8 weeks, this can add up.

Coaching

Investing in yourself can be a great way to better your personal and professional life. Coaching can range from mental health, career, and more.

If the 2008’s intimidating financial market crash taught you one thing, it was that categorization is the key to smart budgeting. Even when diversification of your investment portfolio failed, budget categorization saved you. Allocating enough funds to an emergency fund, a retirement fund, and a rainyday fund protected your financial future.