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Budgeting For Beginners

10 Budget Categories You Need to Know About

November 20, 2021 By My Financial Planner Leave a Comment

A budget is just a plan for your money at its most basic level.

A well-thought-out budget may help you get control of your finances and spend your money effectively. A budget serves three primary goals: Pay bills, invest for the future and enjoy life today.

The first step in creating a budget is to break down typical expenses into budget categories (including areas where you tend to overspend). You can start arranging your expenditures based on your financial position once you’ve defined your fundamental budget categories.

A list of budget categories present in a basic home budget is reviewed in this tutorial. It also recommends how much of your money should be allocated to each class.

Monthly budgets usually start with your after-tax income.

1. Housing Expenses:

A housing expense is everything you pay to keep a roof over your head. Housing expense is more than mortgage or rent. Property tax, HOA dues, maintenance is part of housing expense.

Housing cost is by far the most important category for most budgeters.

2. Transportation

Covid has altered our view of the need for transportation to and from work. Still, with so many cars on the road, it is easy to see that we are still traveling one way or another regardless of their location or lifestyle.

Transportation could be a bus far, or car payments, registration and DMV fees, gas, maintenance, parking, tolls, and public transportation are typically included in this budget area.

3. Food

Groceries are, without a doubt, a necessary expense for every family. Dining out is a component that many budgeters include in their spending plan (e.g., restaurant meals, work lunches, food delivery, etc.

Food is a necessity.

Although some people may disagree, gourmet food and wine are not a necessity and should be put in your non-grocery food spending in one of the non-essential categories.

The primary idea behind your budget categories is to divide them out so that you can see what you truly need to spend and what you want to spend separately.

4. Utilities

Water, power, and HVAC (heating, ventilation, and air conditioning) are all essential components of any well-run household. Your utility category should include all costs associated with keeping these services operational.

This includes your utility bills for gas, electricity, water, and sewage. It will also cover your cell phone, cable, and internet costs for most families.

5. Insurance Coverage

The type of insurance we buy and how we categorize it is heavily influenced by our personal preferences.

Many budgeters group insurance together with the items they’re insuring. For example, health insurance would be classified as “healthcare.”

“Transportation” would be the category for auto insurance. This is a perfectly viable alternative.

Other budgeters include insurance as a separate category in their overall budget. In that scenario, it should cover all of your insurance payments, such as health insurance, life insurance, and disability insurance.

  • Renter’s or homeowner’s insurance
  • Home protection plans or warranties
  • Insurance for automobiles
  • Insurance for life and disability

6. Medical and Health Insurance

With an aging population and so many out-of-control health challenges in life, health insurance has become necessary. I know couples that the entire salary of one partner goes to buy health insurance, and they are happy with it.

It may not make sense until you find out that the husband is dealing with cancer treatment, and the cost is astronomical even with insurance and impossible to pay without.

This budget area includes any healthcare charges you may incur, such as:

  • Out-of-pocket expenses for primary care and specialty care, (dermatologists, psychologists, etc.)
  • Prescriptions for dental care that are urgent
  • Medical supplies and equipment

If you opt to divide your insurance costs into different household budget categories, don’t forget to include your health insurance premiums.

7. Debt Payments, Savings, and Investing

A crucial household budget component and frequently overlooked (or underfunded). Although saving money has little impact on your day-to-day existence, it has a significant impact on your long-term financial health.

At a basic minimum, every family should have an emergency fund and a retirement account, such as a 401(k) or IRA, set aside for unforeseen needs.

You might not be able to handle what life throws at you if you don’t have an emergency fund, such as an unexpected medical cost, a car accident, or a job loss.

This is distinct from your retirement account, which is a long-term investment strategy to help you retire comfortably.

Understanding your pattern of debt, savings, and investing can help you prioritize where the money should go.

Budget Subcategories That Aren’t Required

The money you have leftover after you’ve budgeted for your family’s necessary needs is referred to as discretionary income. This account will be used for personal costs, pleasure, and presents.

Non-essential expenses are likely to fluctuate from month to month based on your spending habits. They’re also the simplest expenses to reduce if you want to pay off debt or increase your savings faster.

8-Personal Spending

This is a catch-all category for any spending that could be classified as personal care or “lifestyle.” Gym memberships, for example, are an example of personal spending.

  • Clothing and footwear
  • Gifts for home decor and furniture

Because some personal care goods, such as soap and laundry detergent, are necessary, you may wish to include them in your food budget. After all, you most likely purchase them along with your other goods.

9. Recreation and amusement

This is where you put your “fun money” in your home budget. That’s critical!

For the majority of us, making time (and money) for leisure is critical to maintaining a healthy work-life balance. Concert tickets, for example, can be included in this price category.

  • Sports competitions
  • Vacations and family activities
  • Subscriptions to streaming services and others (e.g., Hulu and Netflix)
  • Restaurants (if not already listed under “Food”)
  • Video game pastimes

To put it another way, this home budget area contains all of your leisure and fun. Enjoy it any way you want—you’ve worked hard for it.

10- Miscellaneous

Finally, this house budget area is for any expenses that your other budget categories aren’t covered. When you need a bit extra somewhere else, it can also be an “overflow” category.

If you have a large family, you may spend a lot of money on clothes and haircuts for your children. You might account for those products here if your “Personal Monthly Expenses” category is full.

Perhaps you’ve recently returned to school to complete your education. Your tuition and textbook costs may fall into this category in such a case.

Putting It All Together: Your Budget Categories and Percentages

You’re ready to start creating your budgeting plan now that you know how to divide your money based on simple budget categories.

Remember that this list of budget categories is only a starting point. Customizing your budget in a way that makes sense for you is the key to success.

If your new home budget isn’t functioning after a few months, make modest adjustments as needed until you’ve created a budget that works effectively for your specific needs. Effective budgeting takes time and effort at first, but the results—and the money you will save over time—will be well worth it.

Filed Under: Budgeting For Beginners

Your Money Can Work Harder For You

May 26, 2020 By My Financial Planner

There will always be a correlation between your money and your satisfaction in life. It is very important that you take care of your finances as much as you can. To optimize your financial circumstances, consider some of the handy hints outlined here.

Look at your income and expenses in order to decide upon a budget. The first thing you should do is calculate how much money you earn within a month’s time while taking taxes into account. Include second jobs and other sources of money in your income calculations. It is optimal to live within your means by not spending more than you earn.

Create a record of your spending and it will be well worth the time it takes. Compiling a list of expenses will help you keep track of your money. You should include all expenses, even if they do not occur monthly. Give yourself some wiggle room for unexpected emergencies and repairs. Remember that you do not live in Sparta. That type of minimalistic living is more of a fantasy than real life. Plan for recreation and entertainment. The important thing is to make sure your record is as accurate as it can be.

Now that you know all the details about your income and expenses, you are ready to create a budget that will meet your lifestyle needs. It should also help you attain your long-term financial goals. Eliminating the unnecessary expenses and knee jerk reactive buying is a good way to start the budgeting process. This is more a matter or planning and reaction control than budgeting. You can save money by making coffee at home instead of swinging by the cafe on the way to work every morning. Look for ways to save money.

Giving a higher priority to home remodeling projects that improve your home’s energy efficiency is an excellent way to lower your utility bills. A great deal of hot and cold air can escape through poorly insulated windows. Updating your weatherizing treatments on your windows can reduce your heating and cooling expenses. Another easy way to lower your power usage is to replace your current hot water heater with an energy-efficient one. To reduce your water bill, check your pipes for leaks and do not run your dishwasher unless it is fully loaded. Making these fixes may cost you money up front, however, in the future you will reap the benefits.

Think about replacing your current appliances with new units designed to conserve energy. Energy efficient appliances will lower your bills and save you plenty of money over time. Unplug appliances that have always-illuminated indicator lights. It’s surprising how much electricity those tiny indicator lights use up.

I use a thermal heat detector in my home. You can actually see how walls and ceilings leak energy. When heat radiates in or out, it shows as red. When cold air seeps in our out it shows as blue.

Often the loss is due to poor insulations which is relatively easy and inexpensive to fix as opposed to upgrading air conditioner and heater. The initial outlay for these kinds of upgrades is large, but they will pay for themselves over time.

Take a look at the following tips. They will help you to take control of your spending, and get your finances in good order. Energy efficient appliances improve your cash flow and your budget by reducing your energy cost. You might pay more up front, but in the long run, you enjoy lower utility bills. This will give you more money at the end of each month for you to use on whatever you want to use it on.

Filed Under: Budgeting For Beginners

Budget Planner

June 12, 2016 By My Financial Planner

Budget planner software or budget planning online serves two purposes. The first is to get out of possible financial problems. Those who have over extended themselves and need help from credit counseling and mediation  firms fall in the extreme of this category.  Losing one income, medical emergencies are other examples when budget planning becomes important in your life.

The other purpose for planning your budget is to reach a goal. It could a simple one like a major purchase from a refrigerator,  to a car or a home. Or it could be an upcoming major anniversary, an education fund or retirement. As you begin your research, remember that these are software programs incapable to have human discipline, desires and shortcomings. You still have to prioritize what is important in your life and exercise the discipline required to stay with your priorities.

The real budget planner is you. Understating your  weaknesses and strengths and working with them has more impact on your budget than understanding the budgeting software.

Filed Under: Budgeting For Beginners

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