To put it simply, a budget is really just a plan for your money. A well-thought-out budget can help you take control of your finances and use your money with real purpose, so you have enough to pay your bills, grow your savings, and still enjoy life today.
The first step involves breaking down your regular expenses into budget categories, in order to get a clearer picture of your spending patterns (including areas where you tend to overspend). Once you’ve identified your basic budget categories, you can start allocating your spending based on your own individual financial circ*mstances.
This guide reviews a list of budget categories found in a basic household budget. It also offers suggestions for how much of your income you can contribute to each category.
Top 10 Budget Categories
- Housing (25-35 percent)
- Transportation (10-15 percent)
- Food (10-15 percent)
- Utilities (5-10 percent)
- Insurance (10-25 percent)
- Medical & Healthcare (5-10 percent)
- Saving, Investing, & Debt Payments (10-20 percent)
- Personal Spending (5-10 percent)
- Recreation & Entertainment (5-10 percent)
- Miscellaneous (5-10 percent)
Want more specifics about what goes into these budgeting categories? Let’s dive in!
Assembling Your Home Budget Categories
The Essential Budget Categories
All monthly budgets start with your disposable income — we can define this as the amount of money you take home from your paycheck after taxes, retirement savings, and other deductions.
Your disposable income is what you have left to spend on your home budget categories. They’re usually categorized under housing, transportation, food, utilities, insurance premiums, and other essential costs.
1. Housing (25-35 percent)
The amount you pay to have a roof over your head constitutes a housing cost. This includes everything from rent or mortgage payments to property taxes, HOA dues, and home maintenance costs. For most budgeters, this category is by far the biggest.
2. Transportation (10-15 percent)
Regardless of your location or lifestyle, everyone needs to get from point A to point B. Typically, this budget category includes car payments, registration and DMV fees, gas, maintenance, parking, tolls, ridesharing costs, and public transit.
3. Food (10-15 percent)
While food is a survival necessity for humans, it’s also a budget area for the savvy financial planner. Whether you’re grocery shopping and cooking at home, or sampling the culinary scene in your geographic locale, it’s crucial to account for food expenses. Many budgeters include grocery shopping and dining out in this category (e.g., restaurant meals, work lunches, food delivery, etc.)
However, if you’re a gourmand with a palate for White Stilton and vintage Tawny Ports, you might want to put your non-grocery food expenses, like gourmet foods and wine, into one of the non-essential categories.
The basic idea behind your budget categories is to itemize each one. This way you can see where your expenses lie in terms of your needs versus your wants.
4. Utilities (5-10 percent)
Water, electricity, and HVAC (heating, ventilation, and air conditioning) are vital to practically every well-functioning household. Your utilities category should cover all the expenses that keep these services up and running. Everyone’s expenses are going to be a little different based on where they live — a household in Syracuse, NY, won’t have the same heating bill as home in Austin, TX.
Utilities generally include your gas, electricity, water, and sewage bills. Households can also factor in their “connectivity” expenses, like your cell phone bill, cable or streaming services, and internet expenses.
5. Insurance (10-25 percent)
The insurance budget category depends very much on your own, individual preferences.
Many budgeters will categorize insurance with what exactly they’re insuring. Health insurance, for example, would fall under “Healthcare.” The insurance on your vehicle would fall under “Transportation,” and both are totally valid — do whatever helps you feel most organized.
Other budgeters include insurance separately as one of their basic budget categories. In that case, it should include every single insurance payment, such as:
- health insurance (only what’s not deducted pre-tax by your employer)
- homeowner’s or renter’s insurance
- home warranties or protection plans
- auto insurance
- life insurance
- disability insurance
6. Medical & Healthcare (5-10 percent)
As the old adage goes, “health is wealth.” Maintaining both your health and overall well-being are essential, so it’s critical to include enough in your budget to cover these costs. If you plan for routine medical care, like yearly physicals, dental appointments, and mental health care, you’ll live a much healthier life in the long run.
The medical and healthcare budget category includes anything you might spend on healthcare, such as:
- out-of-pocket costs for primary care
- specialty care (dermatologists, psychologists, etc.)
- dental care
- urgent care
- prescriptions and OTC medications
- supplements and vitamins
- medical devices and supplies
If you decide to split up your insurance into each separate home budget category, remember to include your health insurance premiums here, too.
7. Saving, Investing, & Debt Payments (10-20 percent)
This often-overlooked (or dare we say, underfunded?) home budget category is arguably the most important. Although saving money may not have an immediate impact on your life day-to-day, it can position you toward positive financial health down the road.
At a bare minimum, every household should have an emergency fund earmarked for unexpected expenses, as well as a retirement account such as a 401(k) or IRA.
While we always want to hope for the best, life can sometimes be unexpected. Without an emergency fund, you may find yourself in dire straits if you get blindsided by a sudden medical expense, car accident, or job loss. Note that this emergency fund is separate from your retirement account, which is a long-term plan to support you during your golden years.
This budget category can also be used to pay down any high-interest debt you’re carrying, such as credit card bills, personal loans, or student loans.
If you’re saving a full 20 percent of your income and you still aren’t making a significant dent in your debt, you’ll need to start cutting back in other areas, starting with your non-essential spending categories.
The Non-Essential Budget Categories
Once you’ve budgeted for your family’s essential needs, the money you have left for non-essentials is called your discretionary income. Discretionary income is what you’ll use for things like personal expenses, recreation, and gifts.
Non-essential expenses tend to vary from month to month, depending on your spending habits. They’re also the easiest expenses to cut back on — especially if you want to pay down debt or build your savings more quickly.
8. Personal Spending (5-10 percent)
This category is a catch-all for anything that could be considered a personal care or “lifestyle” expense. Personal spending includes things like:
- gym memberships
- clothes and shoes
- home decor and furnishings
- gifts
Because some personal care products are essential, such as soap and laundry detergent, you might want to include those in your food budget category. After all, you probably buy those with your other groceries.
9. Recreation & Entertainment (5-10 percent)
It’s extremely important to have fun — we’re definitely advocates for a good time! Your recreation and entertainment category is how much you’ll spend for your leisure time, and it’s best to be mindful and moderate in this particular category.
For most of us, carving out time for fun (and the money to afford it) is essential to maintaining a healthy work-life balance. This budget category can include things like:
- concert tickets
- sporting events
- family activities & vacations
- streaming services and other subscriptions (e.g., Hulu and Netflix)
- restaurants (if you didn’t include this under “Food”)
- video games
- hobbies
In other words, this home budget category includes all your fun and entertainment. Enjoy it however you want to — you’ve earned it!
10. Miscellaneous (5-10 percent)
Finally, this home budget category is reserved for anything that isn’t already covered in your basic budget categories. It can also be used as an “overflow” category when you need a little extra somewhere else.
For example, if you have a larger family, you probably have substantial amounts that you spend on clothes and haircuts for your kids. If you’ve maxed out your “Personal Monthly Expenses” category, you could account for those items under Miscellaneous.
Have you started going back to school in order to work toward a degree? This could be another situation where you could categorize expenses like your tuition and textbooks under Miscellaneous.
Still Having a Hard Time Making Ends Meet?
If you’re struggling to cover your bases financially, even with budgeting, know that you’re not alone. In today’s financial world with steep inflation and a rising federal interest rate, making ends meet can be tough.
Start by cutting back on expenses that fall under the categories of the Non-Essential umbrella, like your personal spending or recreation and entertainment expenses. If you can hold off on buying a new pair of shoes in order to contribute more to your emergency fund, consider making that move.
It’s also wise to pay off your debts wherever you can, as interest rates on revolving debts like high credit card balances can contribute to the squeeze each month. Slowly but surely, with careful planning, you can start to ease the strain.
Your Budget Categories & Percentages: Putting It All Together
Now that you know how to allocate your income based on simple budget categories, you’re ready to start building out your own budgeting plan.
Remember, this budget categories list is just a starting point — the key to success is to customize your budget in a way that makes sense for you.
If you find that your new home budget categories aren’t quite working after a few months, feel free to make small adjustments — the goal is to create a budget that works well for your own needs. It might take some initial work, but the results, and especially the money saved over time, will be well worth the effort.
