At its basic level, budgeting is a two-step process. First, you estimate your income and your expenses. Second, you make a plan on how to spend or save that money. The more detailed your plan is, the better the results you will get with your money. That’s why it’s crucial to establish budget categories to prioritize and organize your expenses.
If you are not currently budgeting, I recommend that you also read my post on How To Budget Your Money. In it, I explain, step-by-step, the process of estimating, tracking, and evaluating expenses. And to learn more about budget percentages, you can also check out my post on What Percentage Of Your Income Should Go To What.
Right now, we are going to focus on budget categories. It is essential to learn to differentiate our needs versus our wants because this distinction between necessities and discretionary spending will bring a fresh perspective to our money management.

RECOMMENDED READING: What Percentage Of Your Income Should Go To What
8 Budget Categories To Consider When Organizing Your Expenses
These are the eight budget categories that I take into consideration when doing our household budget. As a personal finance journalist and coach, I put together this list considering expenses from dozens of families that I have coached. But this is not a definitive list. I encourage you to add any categories that you deem necessary for your budget.
Budget Categories List For Households
- Basic Living Expenses
- Giving
- Savings
- Transportation
- Groceries
- Insurance
- Lifestyle
- Debt
Using A Budget Planner With Budget Categories
Before we get into the details, I recommend using a monthly budget planner to manage your money. Ours makes it easy by breaking down all these categories for you and helping you track your income and net worth.

Budget Categories
1.- Basic Living Expenses
Do you know how much does it cost you to cover your basic living expenses every month? Understanding our monthly cost of living is key to your financial wellness. Not knowing how much you need every month to live on, at least covering the basic expenses, can get you trapped in the cycle of debt.

In my opinion, our basic living expenses include the cost of putting a roof over our head and connecting to the world. Thus, your basic living expenses are:
- Rent or mortgage
- Taxes
- Rental or home insurance
- Home maintenance
- Utilities such as the water, electricity, and natural gas bills
- Internet
- Telephone or cellphone
To figure out the cost of your basic living expenses, add up the monthly fees you pay in the above categories.
Basic Living Expenses Breakdown
Rent or Mortgage:
Now, let’s talk about priorities. A safe place to live in is a necessity. However, many people justify it as a necessity buying or renting a home they can’t really afford. I recommend that your basic living expenses do not exceed 30 to 35% of your monthly take-home income. If your living expenses exceed this range, you may feel strapped for cash once you factor in the rest of your budget categories expenses.
What is the monthly amount you pay for either your rent or mortgage? Most mortgage payments already include an estimated cost for your home insurance and property taxes.
Rental Insurance:
If you are renting your home, I recommend that you get renter’s insurance. It’sIt’s relatively inexpensive and will protect your assets in case of fire or damage. Even if you are hesitating to get renter’s insurance, please look into it! It is better to prepare for the worst-case scenario.
Home Insurance:
Always carry home insurance! If you are still paying your mortgage, the bank will require you to have coverage. However, paid-for homes no longer have that requirement. But, do not make the mistake of canceling your home insurance! The unimaginable can happen.

True Stories!
During my good days as a news reporter, I covered a story of a lady who drove her SUV into a home. She was driving under the influence of alcohol and ended up in the hospital. Amazingly, the residents were unharmed, but the two-story house was totaled.
As if the scene of an enormous SUV parked in the living room of a house was not surreal enough, the real shocker came to me talking to the owner. He told me he had finished up paying off his mortgage a few months ago and had canceled his home insurance. Say what?
The homeowner wanted to save money and never imagined that a drunk driver would destroy his house. Now, the cost of repairs is on him until he can get the drunk lady or his car insurance, if she had any, to cover the cost.
I also met a homeowner who was trying to sue his neighborhood’s developer. His backyard and those of a dozen other homes were collapsing into the pond the homes backed to. He had also paid off his house and canceled his home insurance. Big mistake!
Now, he was moving out, terrified that his home could sink next with his family inside. He couldn’t get any other company to insure his property, and the possibility of selling was out of the question. Who would want to buy a sinking home?
The moral of these stories
NEVER cancel your home insurance policy, even after you finish paying off your mortgage! You never know what natural or man-made disaster could happen.
Home Maintenance:
Your basic cost of living should include an allowance to take care of your home maintenance. This amount will depend on the size, age, and condition of your home. Neglecting maintenance could result in higher costs in the future.
Utilities:
If you are renting, it is possible that the landlord already includes some costs for utilities in your monthly fee. However, homeowners should keep in mind that besides your mortgage, taxes, and insurance, utilities will make up a good portion of your monthly expenses.
Some utilities you need to consider in this budget category include:
- Electricity
- Water
- Trash/Sewage
- Natural Gas
Internet And Cellphone:
I have included the cost of the internet and cellphone as necessities in our budgets because, let’s face it, they are now. After the pandemic, our internet and cellphone services have become our window to the world. A reliable connection is necessary to work and school from home.
But, considering a cellphone a necessity should not be an excuse to keep or add features that increases the service’s cost. A new cellphone with nine cameras is not a necessity. It would be nice to have one. But new cellphones or extra features such as music or streaming subscriptions are not necessities.
I recommend that you track digital subscriptions in a separate section of your budget—the ¨lifestyle¨ category, which we’ll review later in this post.
2.- Giving, Charity, Donations
Understanding your basic living expenses will help you decide how much money you can dedicate responsibly to discretionary spending, tithing, and donating to charities.
Let’sLet’s talk about tithing. Christians are taught to give 10% of their income to the church. The question many ask me is, do I give 10% of my gross or net income? In other words, do I give 10% of my income before or after paying taxes?

Some hard-core Christians roll up their eyes to this question and affirm you should give 10% of gross income. But I think it is a fair question to ask.
I have seen many examples of good-intentioned people who give what they don’t have and end up in financial stress. For instance, recently, I coached a hard-working couple that needed help getting out of debt and stop living paycheck-to-paycheck.
Alex and Joy, not their real names, live a very modest life. They have two daughters. One of them is starting college in the fall. They each have their own business. Their income varies monthly. They had no savings, were a few thousand dollars in debt, needed to pay for their daughter’s college, and tithed religiously.
When we looked at their expenses and did the math, we realized that they were tithing about 20% of their gross income, or $800 every month. When it came down to paying the bills, they were over $1000 in the hole every month. They were also behind on their rent as we spoke and worried about how to pay for college.
In my opinion, this couple was giving what they didn’t have. I taught Alex and Joy how to budget, reduce expenses, and calculate giving on their take-home or net pay and not on gross income to help them get caught up with their late payments.
Later, when this couple is out of debt and stops living paycheck to paycheck, they will have even more freedom to tithe on gross income or give to more charities. Right now, I don’t think they can afford it.
I don’t want to discourage anybody from tithing or donating to charities if that’s what they want to do. However, we need to understand first if we can even afford it.
Understanding your gross and net income and prioritizing expenses, such as tithing or giving to charities, will empower you to budget accordingly.
3.- Savings
I consider savings as an “”expense”” category in my budget. This is why. I transfer the savings amount to a separate bank account. So, the money leaves our checking account and is deposited automatically into our savings account.
Although transferring the money essentially is not an expense, I like to consider it one to avoid the temptation of spending it on something else. The money is gone, and it is recorded as a debit in my checking account.

To ensure that your savings grow and not get used up in other expenses, I recommend keeping a separate account. Most banks will offer you a free savings account when you open a checking account with them. Take advantage and automate your monthly deposits to ensure you are putting money away for a rainy day or other savings goals you have.
And make sure that you are budgeting a specific amount for savings. Do not make the mistake of saving when there is money leftover because you will never hit your goal.
4.- Transportation
Transportation expenses are another category I budget for. This includes the cost of gas, car payments, insurance, and maintenance.
Now, be careful with your transportation expenses. Sometimes we can rationalize financing cars we can’t really afford or that we shouldn’t buy for the sake of “driving a reliable vehicle.”

Having a car is necessary for many people, especially those living in areas where public transportation is not available or easily accessible. What is not needed is to finance a brand new SUV just because there are more than two people in your family.
You know what I am talking about. In America, we love driving nice cars. Dealerships know so well about our love affair with new rides that they will do the impossible to hand us the keys.
Average Car Payment In America
According to data reported by Experian, one of the three credit bureaus in the United States, 87% of new vehicle purchases in 2020 were financed, up from 79% in 2019. Full-sized pickups and small SUVs were the most purchased.
According to Autowise.com, the average loan payment in 2019 for new and used cars continues to grow. Drivers are paying over $500 in monthly financing for a new car and over $300 for a used car.
Your Total Transportation Cost
After you factor in the cost of gas, maintenance, insurance, parking, and tolls, you could be spending close to $1000 a month on transportation. That’s a lot of money! And it gets worst if your household is financing more than one vehicle.
So, I will say it flat out because it is the truth. Financing a car is not a necessity. It is a want. Realizing the cost of your transportation budget category will bring a fresh perspective to your budgeting. Heck, it may even make you consider selling your financed car!
What would you do with an extra $300 to $500 per month? Imagine if you could save that money, invest it for retirement, or use it to build up your emergency savings!
Trade-offs are necessary to improve your finances. You don’t need a brand new car to get around. Maybe you can start saving to get rid of your payment and pay cash for your next ride.
5.- Groceries
I would also like to make a distinction between a grocery budget and a food budget in general. Like we rationalize expenses like a car purchase, we often justify going out to eat over cooking meals at home.
Listen, I get it. Cooking at home requires time, effort, and a lot of cleaning up. But it is also much cheaper than eating out, and it provides you and your family with opportunities to spend quality time together at the dinner table.

So, your grocery budget should be separated from your eating out budget. Expenses for restaurants should be tracked within the so promised “lifestyle” category that we are yet to talk about.
If you have no idea how much to budget for groceries, check out my post on How Much To Spend On Groceries Per Month. I give you a breakdown according to family size and recommend what items to include or not in your grocery budget.
And, if you are not meal planning, please put it into practice as soon as possible. A weekly or monthly meal plan will save you tons of money and time.
RECOMMENDED READING: Meal Planning For A Month Made Easy [With Pictures]
6.- Insurance
Insurance is the next category you should track in your budget. What expenses actually make it in this list will depend on how you pay for these services.
If your health insurance is taken off your gross income, you do not want to include it in your budget because it would be like registering the expense twice. If you pay insurance out of pocket, you want to have it in your insurance budget category.

Only track insurance expenses on your budget that you are paying with after-tax money, such as renter’s insurance, life insurance, home warranties, etc. You can keep a separate list with the expenses taken out of your check with pre-tax dollars to stay informed.
7.- Lifestyle
We are finally getting to the now-famous “lifestyle” budget category. What should you track in this section of your budget? You should include all those expenses that make up the way you live.
Your lifestyle budget category should include:
- Restaurants
- Entertainment
- Digital subscriptions
- Haircuts, manicures, and pedicures
- Cable
- Gift
- Health expenses (other than health insurance)
- Gym fees
- Family or kids’ activities
- College or school expenses
- Personal expenses

Can You Live Without It?
As you can see, all of these are expenses that we could live without. That’s how you know if what you are spending money on or not is a necessity. Can you live without a gym membership? Yes. Can you live without cable? Yes. Can you live without groceries? No.
Now, most of us really have to be honest with ourselves because we get attached to our things, cars, subscriptions, etc. After all, the way we spend our money creates our lifestyle. Hence, the image other people perceive of us.
It is hard to make changes in how we spend our money if we feel that those will compromise people’s perceptions. That’s why budgeting should be regarded not only as a process of organizing expenses. It is also a way to prioritize decisions that will positively impact our quality of life.
Making lifestyle sacrifices is key to improving your financial health. And the ultimate way to measure financial wellness is by tracking your net worth. This takes us to our last budget category: debt.
8.- Debt
I have on purposed set debt as the last category on your budget because most of the things we owe money on, besides your home, are not necessities.
Many people can argue with me that a student loan is necessary to go to college. But it really is not. I know many people who worked hard to get scholarships. Many others work during the summers and throughout their college years to pay cash for college.

Getting student loans is a convenient way to pay for college if you don’t have the money. But it is not the only way to get a degree. Please, don’t think I am not being sensitive to people’s needs. I need to touch on this subject because student debt is crippling so many Americans.
Debt And Your Purchasing Power
Ultimately, any kind of debt that you acquire, from your mortgage, to credit cards to a car loan, will directly impact your purchasing power and quality of life.
Now, of all these debts I mentioned, only one, the mortgage, has the potential to grow in value. Other than that, all the stuff you get in debt for loses value or lacks value.
Tracking your debt is critical to understand what percentage of your income is going towards debt payments. So, in this budget category, you should include the monthly payments for:
- Car loans
- Personal loans
- Payday or title loans
- Credit cards
- Student loans
Paying Debt Off
Some people think they should focus on paying the highest interest debt first. But, because I am a big proponent of paying the debt off quickly, I recommend using the debt snowball method.
The debt snowball method focuses on getting out of debt ASAP. In this case, the interest rate is not a big concern because you will save a lot more money by getting rid of the debt fast.
It is when you are planning on staying in debt for an extended period that interest rates matter. Obviously, the more you remain in debt, the more it will cost you, whether at a low or high-interest rate.
RECOMMENDED READING: The Debt Snowball Method
In Conclusion: Budget Categories Organize Your Personal Budget
These are the eight budget categories that I recommend you focus on:
- Basic Living Expenses
- Giving
- Savings
- Transportation
- Groceries
- Insurance
- Lifestyle
- Debt
The purpose of categorizing your expenses is to bring awareness to where your money is going. Understanding your basic living expenses, a.k.a. the cost of putting a roof over your head, is key to improving your financial wellness.
Usually, for most people, mortgage or rent and utilities are the highest expenses in their budget. It makes sense to group them together as those are necessary expenses we need to focus on first.
Income Vs. Basic Living Expenses
Understanding your actual monthly income and basic living expenses will give you an idea of how much money you will have left for other necessities. It will also help you decide how much money you can afford to give to charities or to tithe.
And finally, consider making sacrifices today on your lifestyle so that you can have more money to get out of debt soon. Paying off your debt is the fastest way to grow your net worth, gain back your purchasing, and also your peace of mind.
And, feel free to add other categories to this list to organize your expenses!
Questions Or Comments?
Was this list of budget categories helpful? Please, let me know your thoughts, or feel free to ask me any questions in the comments section below. I answer to all personally.
Pin it! Budget Categories To Organize Your Personal Budget
