If you are just starting out and are creating a brand new budget, I do recommend breaking your categories down. Crazy right?īreaking your categories down has a lot of useful benefits. If you are an experienced budgeter like me, you might end up using both methods at the same time. So, the question becomes which method is the best? The truth is, it depends. For example, instead of just listing “food” as one of their categories in their budget, people will list eating out, groceries, kid's lunches, etc. The second way people use categories in their budget is by breaking each category down and allocating money towards each particular thing. Read: 3 Spending Habits That Are Setting You up for Failure.
Most people believe this simplifies their budget and saves time. For example, in your budget, you might only have one line item titled “utilities” instead of breaking it down into all of the smaller categories like cell phone, water, sewer, gas, electricity, etc. The first way is by lumping all categories into a single master category. Throughout my budgeting journey, I have realized there are two ways to organize your budget using categories. What things are worthy of your hard-earned income? Ultimately, when choosing your budget categories, you are choosing what's important and what's not.
EXAMPLE OF PERSONAL BUDGET HOW TO
By assigning money towards different categories, you not only make sure basic needs are met, but you get to choose how to spend the money that you do have. The way you organize your budget is critical because it will ultimately help you allocate your future money towards expenses that have not happened yet. Since my first budget back in 2011, I have changed the way I organize my budget at least a half a dozen times. If you want your budget to be effective, you need to organize it in a way that is easy to understand.
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