Use Budget Categories to Spend Less and Save More

No one likes budgets.  They’d rather have a root canal.  But a budget does help us to spend less and save more.  One way to customize your budget to fit your needs it to create categories for the different expenses that you have.

Categories keep expenses organized.  When you look back at ATM receipts, you can tell when you withdrew the money but not what it was for.  The same goes for entries on a statement.  Paper and online statements don’t put deposits and withdrawals into categories.  The added information lets you know where to subtract the money from in your budget.

Start with a few simple ones.  Don’t make things complicated right away.  Most people are already less than enthusiastic about putting together a personal budget so the more painless the better.

List all of the income and expenses from the last full month.  Go one by one and decide what would best describe that item in a budget.  For example, a payment to the water company would go under “Utilities”.  Your son’s soccer uniform payment can fall under “Entertainment”.  If you have more than one child, you can create a category under each of their names for any expenses related to their hobbies.

Broad categories let you fit things in place easier.  Words like “Income”, “Insurance”, “Housing Costs”, “Entertainment”, “Living Expenses”, and “Savings Account” are appropriate.  Subcategories can be created for each of these to leave a place to record specific bill amounts.

This is actually the fun part.  There is no limit on categories.  In fact, the more specific you can be the better it will be when the time comes to choose between needs and wants.  Unnecessary expenses can be eliminated over time to streamline your spending.

If you use a check register to record ATM withdrawals and checks written, leave a space to enter the category name for the entry.  Later, when you review spending, you can pinpoint where the money is going.  Finding points of overspending is part of the reason for creating a budget in the first place.

You may want to stick to broad categories if you are tracking spending in a specific area.  That one area can be more detailed and the rest of the expenses lumped in bigger categories.  Even if you don’t think that you need a budget because you don’t spend much money, it is a useful tool.

Setting up a personal budget for your home teaches valuable organizational skills.  This is a help when tracking investments or growing your business.  Bad spending habits here can cost you profit dollars.

Since reconciling categories can be a tedious job, set a time once a week or once every two weeks to enter these figures in a spreadsheet, a ledger book, or into a software program designed for personal finances.  After a month or two, when you have started to make changes in spending, you can reconcile your entries on a monthly basis.



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