How to Set Up Your Personal Budget and Expense Categories

If you’ve ever felt overwhelmed trying to figure out where all your money is going, you’re not alone! Creating a personal budget is the key to getting your finances in order, reaching your financial goals, and simply reducing that nagging stress about money. Let’s walk through how to set up a budget that works for you and break down the expense categories you’ll need to keep track of everything.

Step 1: Know Your Income

Before you can decide where your money is going, you need to know what’s coming in. Start by calculating your monthly income—this includes your salary, freelance work, side hustles, or any other regular income. Use your after-tax (net) income since that’s the actual money you have to spend each month.

For example:

• Monthly income: $3,000

Step 2: List Your Expense Categories

Now that you know your income, it’s time to break down your spending. Categorizing your expenses helps you see where your money is going and where you might need to make adjustments. Here are some common budget categories to consider:

1. Housing (Rent/Mortgage & Utilities)

Your biggest expense is usually housing, which includes your rent or mortgage payment, plus utilities like electricity, gas, water, and trash. If you pay for renter’s or homeowner’s insurance, include it here too.

• Example expenses: Rent/mortgage, water bill, electricity, gas, trash, internet, renter’s insurance.
• Example budget: $1,200 (rent) + $200 (utilities) = $1,400

2. Transportation

This category covers getting from point A to point B. This could be car payments, gas, insurance, public transportation, or rideshare services.

• Example expenses: Car payment, gas, car insurance, bus fare, train pass, Uber/Lyft.
• Example budget: $250 (car payment) + $100 (gas) + $80 (insurance) = $430

3. Food

Food can be split into groceries and eating out. Groceries include all your supermarket essentials, while dining out covers restaurants, take-out, and coffee shops.

• Example expenses: Groceries, restaurants, take-out, coffee runs.
• Example budget: $300 (groceries) + $100 (dining out) = $400

4. Insurance & Healthcare

This includes any health insurance premiums you pay, as well as costs for medications, doctor visits, dental care, or any other health-related expenses.

• Example expenses: Health insurance premium, prescriptions, doctor/dentist co-pays.
• Example budget: $150 (health insurance) + $20 (medication) = $170

5. Debt Payments

If you have any debt, it’s important to include all monthly payments here. This might include student loans, credit card payments, car loans, or personal loans.

• Example expenses: Credit card minimums, student loan payments.
• Example budget: $100 (credit card) + $200 (student loans) = $300

6. Savings & Investments

This category is crucial for reaching your financial goals. Whether it’s saving for an emergency fund, investing for retirement, or putting money aside for a big purchase, make sure to “pay yourself first” by creating a savings account.

• Example expenses: Emergency fund, retirement savings, investment account.
• Example budget: $150 (emergency fund) + $50 (retirement) = $200

7. Personal & Discretionary Spending

This is your “fun money” for things you enjoy. It can include entertainment, hobbies, subscriptions (like Netflix or Spotify), clothing, and more. This category is usually more flexible, so you can adjust based on your financial goals.

• Example expenses: Gym membership, entertainment (movies, concerts), hobbies, clothing, subscriptions.
• Example budget: $50 (gym) + $75 (entertainment) + $50 (clothing) + $20 (subscriptions) = $195

8. Miscellaneous Expenses

Life happens, and sometimes you need a catch-all category for those unexpected expenses that don’t fit neatly into other categories. This could be gifts, household repairs, or any random costs that come up during the month.

• Example budget: $50

Step 3: Create Your Budget Plan

Now, let’s add everything up and compare it to your income. Here’s an example of what your monthly budget might look like:

In this example, the total expenses are slightly over the monthly income ($3,145 in expenses vs. $3,000 in income). This means it’s time to cut back or find ways to bring in more income.

Step 4: Track Your Spending

Creating a budget is great, but tracking your spending is key. Use a budgeting app like Mint, EveryDollar, or YNAB, or keep it simple with a spreadsheet. Update it regularly to see if you’re sticking to your plan or need to adjust your budget categories.

Step 5: Revisit and Adjust Your Budget Monthly

Your budget is not a set-it-and-forget-it tool. Revisit it monthly to see if you need to make any changes. If you spent more in one category, try to cut back in another. And as your financial situation changes, adjust your budget to match your new goals.

Example of an Easy Budget for Beginners

If you’re new to budgeting, start with these basic categories and tweak them as needed:

• Income: $3,000
• Rent & Utilities: $1,200
• Transportation: $350
• Food: $400
• Savings: $300
• Debt: $200
• Personal Spending: $300
• Insurance: $150
• Miscellaneous: $100
• Total Expenses: $3,000

This simple breakdown can help you get started and make budgeting feel less overwhelming.

Set Up The Ideal Personal Budget

Budgeting doesn’t have to be complicated. The key is to track your income, list your expenses by category, and make sure your spending aligns with your financial goals. Everyone’s budget will look a little different, and that’s okay! The goal is to create a plan that fits your lifestyle and helps you manage your money confidently.

Now, grab a cup of coffee, open up a notebook or spreadsheet, and get started on building your budget—your future self will thank you!