The Only 3 Budget Categories You Really Need

Source: @jessannkirby
Source: @jessannkirby

If managing our personal finances becomes complicated, it’s less likely we’ll stick with it. While you can get pretty high speed with a range of budgeting apps and financial planners these days, a few basic budget categories are all you really need. With a range of other family, work, and financial challenges on our plates, paring down to the budgeting essentials feels like just the minimalism we need right now.

Budgeting doesn’t have to be complicated or full of Excel sheets. All you really need is to pay attention to these three basics:


1. Essentials

This is the largest expense area for most of us, and should account for about 50 percent of our budget. Housing, groceries, insurance payments, and any childcare expenses go here. These expenses can be harder to shift quickly or cut back on in a pinch, so grouping them together can be a helpful way to see what your personal fixed expenses generally look like month to month.

Housing isn’t just rent or your mortgage payment—it’s insurance, repairs, utilities, and any other dues or fees you pay related to your living space. For those of us living in cities or without roommates and families, this may be a greater share of our budget than standard frameworks would suggest. In that case, try to take share from the spending section instead of cutting back on savings if at all possible.


2. Saving

Saving should be about 20 percent of your total income, and as you’ve always heard, you should try to pay yourself first every month from this category. “Saving” should include a plan for your investment and retirement savings, as well as short-term emergency funding. This might feel like an aggressive share of your budget to work toward savings, so it’s understandably a goal percentage for many of us versus the reality.

That said, there are a few ways to reallocate to up this savings share of your budget. Be sure you’re taking advantage of any before tax investing opportunities through your employer 401(k). You’ll also want to share any raises you get with your “future self.” That means any time you might get a bonus or promotion, kick a reasonable chunk of that money into a savings or investment product, depending on your personal financial strategy. It’s money that you won’t miss in your day-to-day budget, but definitely adds up over time.


3. Spending

Up to 30 percent of your budget can be for splurges and lifestyle spending. This might seem like a lot, but it’s also the category we would dip into for debt repayment. If you’re tackling credit cards or planning to pay off your student loans, trimming down this category is likely easiest.

You might also find that it’s the one that can get a little unwieldy. One strategy I’ve used historically is to keep separate bank accounts for discretionary spending and another for essentials. This delineation can act like a really helpful line in the sand to be sure that our standing bills are covered monthly.


Finding Your Own Personal “Bonus” Budget Categories

We’re not talking getting a bonus at work, though that’s a win for our spending plans as well. Instead, I find that my personal budgeting benefits from a few sub-categories to keep me on track with bigger goals. The beauty of ultra-simple spending plans means that a few personalized additions are barely extra work. Instead of using some generic 20+ category budget template, I add smaller breakdowns for the few places that make the biggest difference in understanding and shaping my own financial behaviors.


The Food Breakdown


Food spending in NYC is a strange beast. I’m committed to cooking more fun things at home—but work lunches are pricey, groceries are pricey. You can tell yourself any version of a story about where your own custom financial break even point is between the bring from home vs. deli salad discussion. With socializing over cocktails and networking coffees with business colleagues, this is the part of my spending that can get out of hand quickly. 

To help me get a handle on where my money goes in this category, I allocate a specific percentage of my “essentials” budget to food, then break it down further into three categories: groceries, personal food spend, and date night food spend. Since there are only a few places I frequent on a lunch rotation, it’s really easy for me to group and create a separate category in budget apps like Mint to capture this. Plus, it ensures we’re not going overboard on date night food fun at the expense of (almost always) healthier grocery options.


Splurges vs. Lifestyle


Since that spending category is a pretty big share, I also give myself a splurges allocation for investment pieces and hobbies versus things that are what I’d call “essentials plus.”  For example, I keep a separate clothing budget because spending on seasonal items can sneak up on me. I also keep a line item for things that are nice to haves but not essential—that extra walk for our dog, streaming subscriptions, and other family entertainment. Bundled together, I know exactly where to go quickly if our family budget needs cutting back.