Author Topic: Budget categories  (Read 2493 times)

BlueHouse

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Budget categories
« on: May 13, 2015, 07:23:26 PM »
I've been tracking all of my expenses for many years, but I've never really been good at getting a high level picture.  Of course I know where my money is going, but I tend to have 2 or 3 giant categories, and then 100 small ones.  I've consolidated categories and simplified over the past few years, but it's still too detailed and leads to too much data, and no real action.

How many expense categories is the ideal number? 
How deep of a hierarchy, if a hierarchy is used?
What categories do you track in your budget?
Do you track your property tax with housing or do you mix it in with income taxes?
Do you track auto insurance as the cost of owning an automobile, or do you combine it with other insurance products?
Any other hints or tips that could make my tracking easier? 

I'm currently using Quicken for mac 2015 if that helps.

Ziggurat

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Re: Budget categories
« Reply #1 on: May 13, 2015, 08:46:03 PM »
I find it helpful to think in terms of alternatives.  So yes, auto insurance is part of my Transportation category.  Without a car, I wouldn't be paying it, so it is naturally a part of that cost. And a bike or the bus is an alternative, so Transportation is the top-level category, not "auto".  Similarly for property tax, it is part of my Shelter category.  It wouldn't exist if I were renting.  Keeping the total costs of a certain option together helps evaluate how much you could save if you took a different approach.

How many categories and levels is a personal decision of course.  Whatever provides utility in tracking and looking for ways to reduce spending. Personally I think about seven or eight high level categories is lots, and anywhere from two to five or six subcategories in each, and no deeper levels than that. 

My top-level categories (with some subcategories, many also have "other" subcategory to catch small things): 
Food (groceries, eating out)
Shelter (mortgage interest, utilities, tax, repair/maint, insurance)
Entertainment/Rec (vacation, my discretionary, spouse discretionary)
Goods&Services (clothing, medical, personal care, household, dental/disability insurance)
Transportation (fuel, insurance, repair/maint/replacement)
Giving (charity, gifts, kids' education)
Communication (phone, internet)
Savings (mortgage principal, pension, FI).

We've been planning and tracking using YNAB for about a year and a half, and this lets us see our "savings rate" at a glance, how much will go away later (when kids are self-supporting), and many of the big costs - food, transport, shelter with some breakdown for each.

amberfocus

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Re: Budget categories
« Reply #2 on: May 13, 2015, 11:39:32 PM »
My main categories are:

- Housing: mortgage/rent, property taxes, insurance, maintenance
- Utilities: electricity, water, phones, internet, trash/recycling, heat
- Transportation: gas, insurance, maintenance, taxes (and loan/lease payment if there is one; ditto with bus/train fares)
- Healthcare: medical/dental premiums, deductibles, co-pays
- Consumables: groceries, entertainment, dining out, pets, miscellaneous, gifts
- One-offs: vacations, major vet bills, larger projects

Obviously this will vary between individuals. If you have kids, that would almost certainly be a separate category. Debt repayment might be one as well if one has student loans or credit card debt. We spend so little on clothing, personal care, and household items that it's all subsumed into "miscellaneous", but it might make sense to break those out separately for other people.

I set/track my budget (and investments) with a good ol' fashioned spreadsheet, and I've just discovered the magic that is pivot tables. They're awesome for conceptualizing useful categories, slicing and dicing data in different ways, and plotting various charts. I'm not familiar with any proper budgeting software, though (aside from Mint).

Ultimately, I would categorize based on what you want to track and where you want to improve. If you want to optimize on groceries, or spend a lot of vacations, then it might make sense to dive down into the weeds and itemize everything out more fully. For higher level views, the above works for me.

Travis

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Re: Budget categories
« Reply #3 on: May 14, 2015, 12:40:37 PM »
I'm a YNABer and this comes up on a daily basis in those forums.  It's such a personal comfort decision it's very difficult to say "what is right."  That being said, break it down in such a way that if you're looking to trim expenses you can see enough detail to make an easy decision.  For myself, this is in enough detail that I know where my money is going with very little investigation needed, but not so much that every single thing I could possibly spend money on has its own line item.  In case studies we often see people give us a large expense that consists of several important things that we then have to go back and tease out more details in order to guide them.

I have a 5 hierarchies to my budget, and each sub-item is a separate line.
Fixed expenses - rent, auto insurance (auto and rental), netflix, phone, internet, trash, tuition. These are things that are the same amount almost every single month give or take a few cents.

Variable expenses for living - groceries, eating out, fuel, water bill, electric bill. Necessary monthly expenses, but can vary through frugality, coupons, special deals, or planned events

Short term savings goals - non-food shopping and fun money, vehicle registration, birthdays, christmas, clothes. Things I need to save for, but are infrequent yet somewhat predictable

Long term savings/emergencies - vehicle maintenance, vehicle replacement, emergency fund, airline tickets. Long term items not on any kind of schedule, but are bound to come up sooner or later

Investments - IRAs, taxable investment accounts, 529. My 401k comes right out of my paycheck, but these I put in myself during the month.

My insurance bills are lumped together because they're with the same company and come out as a single payment.  If I was a homeowner again, I'd separate mortgage and property tax if they were paid separately, otherwise they'd be a single item on the budget because that's how it was paid. 

mak1277

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Re: Budget categories
« Reply #4 on: May 14, 2015, 01:09:45 PM »
Three categories:

Cash in (recurring)
Cash in (non-recurring)
Cash out