Since I spend a lot of time on various MMM-type websites, I see a ton of budgets. And most of them have categories like entertainment, restaurants, groceries, household goods, etc.
I think it takes too much time, and I don't bother with it. I lump everything that I don't get a bill for into one pile and just call it "discretionary," so my spending just has 5 line items: rent & utilities, car insurance, phone, gas, discretionary. Am I oversimplifying things too much and missing potential savings, or making my life easier by not micromanaging the budget?
It also has the weird effect of making me feel poor at the beginning of the month, instead of the end, since it's X dollars divided by days left in the month, which inevitably goes up when I don't spend it.
I think there are two approaches to consider:
1) Lumping - like you mentioned, it may be easier to understand since rent/util go together... but it wouldn't make sense to combine phone and gas. I think if you are overall happy with your savings rate, then getting too detailed can be difficult since life has a lot of random/irregular expenses that throw off your monthly amounts (car repairs maybe 1x/yr, oil change 2-3x/yr, etc). It helps if you take trailing 3 month averages, or 6 mo, but that gets more complicated.
2) Inverse lumping - I just made this term up, but I combine categories like "grocery/restaurants/entertainment", since if I spend more on groceries.. I'll probably spend less on eating out, and a large part of my entertainment expenses are dinner/drinks out with friends. In reality, I really just track my total expenses each month (though I have a good idea of the details within) between rent/util and everything else.
Rent/util - $1.3k
All else - $1.2k (food, gas, drinks, everything else)
A lot of months, the "all else" category is $600-800, then other months it's upward of $1,500-1,800. Things like buying a GMAT review set, passport/visa renewal and application fees, and other random stuff will make spending higher, but most months will only include the regular stuff. For me, it's helpful to track 3-mo averages, and I'll dive deeper if I think the total is off, or seems higher than I remember.
At the end of the day, I am trying to hit a savings rate of 40%, and I'm usually above that, so no need for me to micromanage as long as I'm meeting my goals.
Maybe you could try the same? Just track monthly amounts in those categories, and see what seems to fluctuate how much and when, and look further into your expenses if the "discretinoary" category seems higher than you think to make sure you understand what caused the jump.
For people who are having trouble finding areas to cut expenses, it's probably helpful to break out a much more detailed list.