Top 10 Budget Categories for Your Plan: Crafting Your First Budget

Creating a budget can feel like a daunting task. But it’s an important step if you want to save more money and take control of your finances. There are many different ways to build a budget, but the first steps are almost always the same: track your expenses and separate them into different personal budgeting categories.

Figuring out the right budgeting categories for your money is easy once you understand how they work. We’ll run you through the basics of personal budget categories, help you figure out the right categories for you, and run you through some common budget categories to kick you off.

What is a budget category?

A budget category is a grouping of similar expenses. When you first create a budget, you’ll need to comb through your previous month’s bank statement to itemize all of your monthly expenses. Grouping these expenses into specific budgeting categories can help you set overall goals for each category.

You can manually create your budget categories or streamline the process with the help of a budgeting app or budgeting spreadsheet. Both can help you identify like-expenses.

For example, let’s say you went to the grocery store at the beginning of the month and also purchased vegetables at a farmers market later that week. Both of these expenses could fall under the budget category of “groceries.”

Do I need categories to stick to a budget?

It would be difficult to manage your budget without set budget categories. The good news is that you can get creative with your categories and make them as detailed or broad as you’d like. As long as the budget categories are easy to spot and stick to, you’ll be off to a good start.

Can a budget really help you save money?

Yes, a budget can help you save more money and prevent you from overspending. When you create a budget, you take a look at all of your monthly expenses, group them into budget categories, and assign spending limits for each category.

When reviewing your account, you might realize you spend more money in gas costs than you realized, even when you live within walking or biking distance to your job or a store. If you want to cut back on your fuel bill, you might only use your car when you need to go beyond a certain number of miles or if you need to transport a heavy item. You should apply this same logic across all budget categories to scale back your spending and increase your savings.

Every time you free up money in your budget, you can put it towards financial goals, like building an emergency fund, saving for a down payment on a home, or paying off debt.

How to select my budget categories

The best way to determine which budget categories will work best for your money is to review your finances. When you look at your monthly expenses, colour-code them into different groupings until you identify common themes like “health costs” or “food.”

Everyone’s budget is going to have slightly different budget categories since we all spend our money a little differently. You might prioritize eating out and getting drinks with friends, while someone else might spend more money on home decor or items that make evenings at their house more enjoyable.

Your budget won’t look identical to someone else’s, so don’t worry if you don’t have the same exact individual budget categories or if you spend a different amount in each.

10 common budget categories

If you’re struggling to identify your budget categories and need some help getting started, here are ten of the most common categories to consider.

1. Housing costs

If you have monthly expenses for housing, like your rent or mortgage, it should live in its own budget category. However, you might need to include more than your housing payment when tracking this expense.

If you rent and pay a pet for or for a parking space, you might include those expenses in this category. If you own your home, you might include home maintenance costs, homeowners association fees, property taxes, and other mortgage-related expenses in this category.

Experts generally recommend keeping your housing costs to 25% of your budget, but it may be higher if you live in a city with a high cost of living.

2. Utilities

If you have housing costs, you likely have to pay for utilities unless your landlord or property management company covers this expense. This budget category should include your electric, gas, water, and other basic utility costs to keep your home running.

In this budgeting category, you can also include other related bills like your home internet, cable, or cell phone bills.

3. Insurance

Another budget category you might want to create is “insurance.” Depending on your personal situation, you may only have a few types of insurance. Here are some common types you may want to include:

• Health insurance

• Renters insurance

• Homeowners insurance

• Auto insurance

• Life insurance

• Disability insurance

• Other warranties or protection plans (like cell phone insurance)

The exact amount of this budgeting category will vary depending on your age, location, number of insurance plans, and coverage selections. Consider bundling insurance plans with one provider to save even more money on your insurance.

4. Healthcare costs

You likely have some out-of-pocket healthcare costs. This could include medical expenses that your insurance doesn’t cover, optional procedures, prescription costs, or over-the-counter medicine costs.

Here are some purchases you might include in this budget category:

• Prescriptions

• Allergy medicine

• Over-the-counter drugs

• Feminine products

• Vitamins

• Specialty care visits not covered by insurance

• Medical devices

If you decide not to lump insurance costs into one budget category, you can also include your health insurance costs here.

5. Groceries

Food is one budget category that we all need to plan for. This category can be wide-ranging, depending on how granular you want to go. But at its core, it should include:

• Grocery store bills

• Farmers market purchases

• Some convenience store purchases

You can create a separate budget category for restaurants and dining out or include those costs here. You might include:

• Restaurant charges

• Takeout costs

• Meal kits

• Delivery app charges and subscriptions

The exact amount you spend will vary based on your diet, the number of people in your household, your preferences, and how often you cook vs. eating out.

6. Debt repayments

If you have credit card debt, a personal loan, buy now, pay later plans, or student loans, you’ll want to create a category to track these expenses.

To set up the category’s monthly amount, use the monthly payment you make on all loans and add it together. This can get trickier depending on how you use your credit card.

If you pay off your credit card each month, it’s probably best to account for your charges in the separate spending categories you’ve set up, like food, transportation, or miscellaneous nonessentials.

But if you have a balance on one or more credit cards, you’ll want to account for at least the minimum monthly payment due. Ideally, you should pay more than the minimum to wipe out your debt sooner.

Lastly, if you pay for any credit-building plans to help grow your credit score, you might want to include them here. And remember, you can check in on your free credit score at any time through Equifax, one of Canada’s credit monitoring agencies.

7. Transportation

This budget category should include the cost of getting from one place to another. This might be as simple as gas charges and car maintenance. But if you use public transportation or pay for public parking, you might group those costs here.

8. Miscellaneous essential spending

You may have some other non-negotiable bills that don’t fall neatly into the other spending categories above. You can create a specific category or a miscellaneous bucket to capture everything else.

If you find a pattern over time and find ways to incorporate these expenses into other budgeting categories, you can eliminate this bucket. But it can be helpful when you’re just starting out on your personal finance budgeting journey.

9. Miscellaneous nonessential spending

Like the previous budget category, you likely have nonessential monthly expenses that are important to you. Maybe it’s going to a concert once a month, nights out with friends, splurging on new clothes on occasion, or investing in a hobby like reading.

There are no rules for this spending category, but if your total amount is high, you may want to implement the 50/30/20 budgeting rule to reign in your spending. This budgeting method says you should spend 50% of your income on essentials, 30% on nonessentials, and 20% on savings. If you’re well over the 30% mark, that may be a good indicator that you need to make some cuts to free up more money.

10. Savings goals

Lastly, don’t forget to account for your savings goals when building your personal budget. This is an important budget category that many overlook. You can stick with a set percentage of your paycheque to go towards savings, like 20%, but be flexible. You may find you need to alter this goal to pay down debt or ramp it up to help grow your emergency fund faster.

How many budgeting categories do I need?

The above ten budget categories are some of the most common groupings people use when creating a budget, but you don’t have to have ten categories. You may have fewer or more depending on how granular you want to get.

You may also find that not all of these budget categories apply to your financial situation. Rather than worrying about hitting a set number, focus on where you’re actually spending money and outline your categories based on your historical data.

Where do property taxes go in my budget?

If you own a home and pay property taxes, you’ll want to make sure they’re in your budget, even if you only make this payment once a year. Many people lump property taxes in with housing costs, but you can add them into any budget category that makes sense for you.

You may choose to spread this cost out over time or even add it to your savings goal. This way, you can save up for your yearly property taxes.

Then, when taxes are due at the start of the following year, you’ll have the money saved already, and you won’t have to uproot your budget to afford this expense.

How do I label credit card payments in my budget?

Depending on how you use your credit card, there are two main ways to categorize your credit car payments. If you treat your credit card like a debit card and pay off your purchases right away or in full at the end of the month, you might not want a separate category for credit card payments.

Instead, you’ll budget for these expenses in other spending categories and use the money set aside there to pay off your credit card.

But if you have credit card debt you’re working on paying down, you may want to group this expense with your other debt payments. Try to come up with a set amount (at least the minimum payment, but ideally more) that you can afford to pay each month to help fit it into your monthly budget.

Tricks for saving more money, faster

Budget categories can help you take control of your spending habits so you can ramp up your savings. But if you want to find more ways to lower your category expenses, here are a few tips that can help.

Open a high-interest savings account

If you’re not earning a competitive interest rate on your savings, you’re missing out. In today’s high-rate environment, you can earn upwards of 5% on your savings by opening a high-interest savings account (HISA).

There are different types of savings accounts in Canada that earn competitive interest rates. A HISA is one, but you might also consider a tax-free savings account that lets you contribute up to a certain amount each year, tax free. As long as you follow the yearly contribution rules for this account, you won’t pay taxes on the interest you accrue or the earnings your investments make.

Whatever savings account you choose, make sure it's CDIC insured and comes with any other features you might want, like debit or virtual card access and overdraft protection coverage.

Automate your savings

An easy way to maximize your savings account balance is by making savings automatic. The best way to do this is to set up transfers every time your paycheque hits your chequing account so you can make saving money even more mindless.

But some bank accounts have other automatic savings features you might enjoy. Savings roundups, for instance, round up every transaction you make to the nearest dollar, then move the difference into your savings account.

Wait before making new purchases

If you find it easy to accidentally go over your spending categories, one tip to help you slow down your spending spree is to wait a set amount of time before making new purchases. Some experts recommend waiting 24 hours, while others suggest you wait a month or more.

There’s no wrong way to start practicing this tip. The next time Instagram serves you an ad for a product you really want to buy, save that item in your online shopping cart. Then, after 24 hours, a few days, or even a month, revisit the item to see if you still want it.

You might find you still do want to spend your money on the item, and that’s OK. But you’ll likely find purchases that you’re not willing to make when you put a buffer between them.

Plan out big purchases

If there’s a big-ticket item you’ve been wanting, like a new car, smartphone, or appliance, instead of incurring new debt to afford it better, try to work the purchase into your monthly budget.

For example, you may not be able to save $20,000 for a new car, but saving $5,000 in a few months can help you afford a bigger down payment to save on interest charges. Instead of putting a new phone on a credit card and paying it off monthly, save up for the costs so you won’t have to worry about steep interest charges.

Try a savings challenge

Need more motivation to save a little bit more this month? A savings challenge is a great way to help you see how much you can really save when you pay down your expenses and work towards a financial goal.

You might try a no-spend challenge that encourages you not to spend any money on nonessentials, like eating out or shopping for clothing, for a set period of time. You can then move the money you saved by not spending to your savings account.

You could also try saving a set amount daily or weekly to boost your savings goal. There are a variety of additional savings challenges on social media you can try. If they seem out of reach, adjust them to suit your budget better.

Limit screen time

This may seem like a weird tip, but the less time you spend online, the less likely you’ll spend money on unnecessary online purchases.

Many of us browse the internet on our laptops or smartphones when we’re bored, stressed, or even hungry. This can lead us to spending money to help fill that void. A new sweater seems like the perfect solution for our stressful day.

Set a rule to limit your screen time or sign off of your devices at a set time each night so you can unwind and pay attention to the root cause of any emotions that may be triggering you to overspend.

Try meal prepping

If you spend too much money on takeout purchases or at restaurants each night, challenge yourself to meal prep so you're less likely to continue to splurge on dining out. When you prep your meals, you can also save money on groceries since you’ll be able to plan out your meals and follow a set list when you go to the grocery store.

That doesn’t mean you should never eat out. You can still enjoy an occasional dinner out or order takeout when you really want it. But try cutting back on the number of times you eat out each week to save extra money.

Reward yourself

Lastly, be sure to reward yourself along the way for sticking to your budgeting goals. Maybe that means adding more money you saved to a fun savings goal (like a vacation fund) or celebrating with a low-cost splurge (like a coffee and a doughnut).

Remember, budgeting is all about balance and freeing up money so you can spend it in a way that aligns with your financial goals. And those goals include having fun with your money.