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Make meaningful improvements to your finances every week.

Now's your chance.

Make meaningful improvements to your finances every week.

Budget-categories

Setting Up Your Budget Categories

How detailed do you need to be with budget categories?  Do you separate lunch from dinner or lump everything into a few areas?  And which method is better?

Some people love to budget, most of us don’t.  How far should you break down your categories in order for the budget to be effective?  Do you need to separate entertainment into movies, books, concerts, plays, opera, symphony or can you lump it under one?

Keep it simple except when it comes to your “problem areas.”  Don’t’ buy a lot of clothes?  Than you probably don’t need to break down into categories like ‘work,” “gym,” “dresses,” “shoes.”  “Clothes” should be sufficient.

If you spend too much on food though, it’s probably better to be specific. “Groceries,” “dinner out,” “lunch,” “delivery.”  If your grocery bill goes up because you started cooking more at home, it’s good to see this breakdown.

If you have a broad category that seems to be creeping up, breaking it down will provide some insight into what the specific problem is.  “Utilities” might encompass everything from your electric bill to your cell phone bill but breaking it down matters when the category jumps in July because you’ve been running the air conditioning non-stop.  Now you see the problem and know you have to reign that in for August.

Having more categories can help you catch mistakes too.  A fraudulent charge on a credit card might be hidden if it’s in a category where you regularly spend a lot of money but if you have smaller breakdowns, it’s easier to spot and to resolve.

If you have a business, that budget should be entirely separate from your person spending.  Remember back to Episode 194, when Jamaal warned us about mixing the two. The IRS does not look kindly on that so keep it separate.

The important thing is that you budget at all.  If it’s kind of a hobby, go nuts.  Have a thousand categories.  If you hate budgeting, fine, break it down only as far as you need to in order to have a good handle on things.  Tell us in the comments how many categories your budget has.

Show Notes

Blue Moon:  A Belgian white.

Mint:  The easy way to budget.

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