By Philip Brewer
There are a lot of budget templates out there. Any will serve the purpose, and if you've got one that's working for you, that's a good enough reason to stick with it. If you don't have a budget, though, or if you're going to be changing your budget categories around for some other reason, I've got some thoughts on what makes a good category.
My own thinking in this area dates back some fifteen years, to when I was setting up spending categories in Quicken. The software came with some default categories, but I found they didn't suit me. I was reminded of this just recently, when (working on another post) I was looking through the Bureau of Labor Statistics document that lists the relative weights of various categories of spending. I was intrigued to find that their categories look a rather lot like mine.
My categories
When I was designing the structure of my categories, the first change I had to make was to get rid of a top-level category for insurance. Instead, I put insurance expenses where they belong: auto insurance under transportation, health insurance under medical, and homeowner/renter insurance under housing.
I also eliminated a top-level category for utilities. I put the power bill under housing. (I'd put heat, water, garbage, sewer, etc. there too, but those items are included in the rent where I live right now.) I put the cell phone and internet charges in a new top-level category for communications, and put postage there as well.
In addition to putting car insurance under transportation, I made sure to put all my smaller transportation expenses there as well--not only fuel and car maintenance, but also bus tokens and bicycle maintenance. Having them all right together makes sure that I know just how much owning a car really costs compared to the alternatives.
Categories matter
Budget categories are important--they can either illuminate or obscure our spending choices. For example, does the fitness center membership go under entertainment, or under medical? You can make a case for either. Your choice is driven by your values, and by your view of how the world works. But be aware that it will influence your future behavior. (For example, suppose you decide to cut your spending and start by looking for something to trim from the entertainment budget: Is the fitness center membership there, or safely tucked away under medical?)
As I said, the Bureau of Labor Statistics categories turn out to look a lot like the categories that I used. (In particular, they put both insurance and utilities in almost exactly the same categories where I put them, except that they had a merged top-level category for "education and communication" which does include phone, internet, and postage--but also has tuition, text books, child care, and nursery school.)
Because our categories match up so well, it was easy for me to see how my spending compared to the average consumer. That's not an important comparison--my spending is influence by my own values, so there's no particular reason that it would look especially like that of the average consumer--but for me it was an interesting comparison. For example, because we live in a cheap apartment, our housing budget is a much smaller fraction of our total budget than the average consumer's. Our spending on food, clothes, and entertainment, though, is roughly in line with the average consumer. My budget line-item for medical is hugely higher than average, because I'm about to go out and (try to) buy my own medical insurance, instead of getting it as an employee benefit.
Looking at the BLS categories would be especially useful if you're creating your first budget, in that it's going to have lots of categories that you probably wouldn't think of. Many of those categories will come in at zero and should just be left out. (We don't have a line item for "renting and repairing medical equipment" or for "moving, storage, and freight.") But it's a useful memory-jogger to see the long list of categories and think, "Oh, yeah, we do need to budget a little something for new sheets and towels." The average urban consumer, for example, allocates 0.555% of the budget to "Club dues and fees for participant sports and group exercises." If you do yoga or aerobics or tai chi or belong to a softball league, you'll want to have the expense as an item on your budget.
As I say, if your budget is working for you, there's probably no good reason to change it. But if you're changing your categories anyway for reasons of your own (or making a new budget), you could do much worse than basing your categories on those used by the BLS.
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