How We Designed Our Budget Step 2- Budget Categories
How To Understand What Budget Categories Fit Your Lifestyle
If you haven’t read How we designed our Budget Step 1– Gathering the Information, it’s important to read before moving on to Step 2- Choosing Budget Categories.
Now that you have the important information in front of you it’s time to put it to work.
We worked as a team on this as it’s crucial for both of us to know the finances.
Our budget was designed so we were spending less than we earn each month.
By this, I mean using our net worth figure for the month and not the gross figure.
Your net income is the amount of money you get deposited in your bank account by your employer.
If you are self-employed this number may fluctuate so that’s something to definitely keep in mind.
- The first thing we did was put numbers to budget categories that we decided were “fixed” meaning “we have to pay”. Once we figured out the “fixed” costs we allocated the rest of the money to the other budget categories.
- I’ve highlighted in bold our “fixed” costs below.
- Your needs might be different than ours but it’s important to distinguish what’s right for your family. You can ask me why we chose what we did.
We decided to categorize everything we “needed” to pay or save for although these will change over time as things evolve in our life.
It’s important to visit your budget often to make sure that your goals are still on track with what you set out in the budget.
By the time you read this, I’m betting our Monthly Budget Categories have changed but the concept still says the same.
Budget Categories List
I’m sure you’re wondering what budget categories we have in the Canadian Budget Binder household?
Our household budget categories were created on a personal level which is why one of our free budget excel spreadsheets are customizable.
You have the ability to change any of the budget categories that we’ve created below to suit your financial needs.
Just remember that your personal budget categories must describe everything you are paying for in that category.
For example; If you plan to add health and beauty and groceries together and tag the category “Groceries” you should estimate the costs of both.
Deciding On What Budget Categories You Need
In a nutshell, as many, as you need to get the job done although some people who use a basic budget like to combine their budget categories.
As long as you are comfortable with your budget categories and how you plan to monitor them that’s fine.
Some people want data that is broken down heavily as we do, hence the vast amount of budget categories that we have.
- Mortgage/Rent– Whatever the payment is per month, week, bi-weekly. We pay our mortgage accelerated weekly.
- Utilities– I did an average after the first month of bills in Jan for the entire year.
Example: Jan total Utilities $450.00 x12=$5400/12= $450.00 a month approximately.
This could go up and down each month depending on the time of year.
Monthly we pay Gas and Rogers, every two months Hydro, every 3 months Reliance.
So although we are not using $450 every month we save that money for the other months as it averages out.
A Breakdown Of Our Budget Categories List
- Miscellaneous/Renovations-any items not in the budget, we tie this in with renovations as we have a bit to do. These are saved in projected expenses until they come due.
- Smokes-
Quitting Jan 30, 2012NOW SMOKE-FREE - Entertainment-Fun stuff, Dates, Concerts, etc.
- Transportation-What we use in fuel, parking, and maintenance.
- House Taxes– We have monthly automated deductions from our bank account.
- Term Life Insurance– After 1 year of being smoke-free we will see this decrease. The cost is for both of us.
- Car/House Insurance– We have both our home and car insurance with the same insurance provider for a cheaper rate.
- TFSA- Tax-Free Savings Account-Total Contributions made monthly.
- RRSP- Registered Retirement Savings Plan-Total Contributions made monthly.
- RESP– This is where we save for our son’s education using the government of Canada Registered Education Savings Plan
- Emergency Savings– This is how much we are putting aside for an emergency.
- Allowance- This is what I get for my allowance ex: Tim Horton’s coffee, beer.
- Clothing- This is how much we have to spend on clothing per month.
- Grocery– This is what we spend on groceries each month. We do not add in Cleaning Supplies, Health and Beauty as they fall under Health and Beauty.
- Work Tools– This includes travel, clothing, equipment, etc saved in projected expenses.
- Pet– This is for our dog license saved monthly in projected expenses until the end of the year. Update: Our dog passed away
- Dentist– Fees we pay to the dentist after insurance which are minimal as we have 100% coverage of last year’s fee guide. We save these expenses in projected expenses until they come due.
- Vehicle Stickers/E-Test– Cost of vehicle stickers for 2 vehicles and e-test for one vehicle per year. We save this in projected expenses until they come due.
- Yearly Taxes- Income Tax Fees divided by 12 months. I will be looking at ways to cut this cost or even do our own taxes. We save this in projected expenses until due. Update: We now do our own income tax return using the free online Netfile software.
- Christmas- We pick names at Christmas so $50 per person x2 people and 5 nieces and nephews $30 each total $250/12=$25.00 a month go into our “projected expenses” account.
How To Pay Off Debt Fast
Related: Free Downloads Debt Repayment Planning Sheet
- Write out who you owe money to so you know everyone that you need to pay.
- Find out the total balance owing on each debt so you know how much debt you have.
- Find out the interest rate (this might be shocking but you need to know) If you do not know the interest rate then you should call the provider but first read step 5 below.
- Once you have all your debts listed I would budget in to pay the highest interest off first but continue to pay the minimum balance off on the others. Once you pay the highest bill off move on to the next highest on the list and bang that off.
- Call the credit card companies and ask them to lower your interest rate. If they tell you they can’t ask to speak to someone higher up until you get that rate lowered. Sometimes you might have to suck it up because no one wants to hear what predicament you have gotten yourself into so that you can’t pay your debts.
- Check around and compare the best credit card offers and see if any offer a 0% balance transfer that you can take advantage of.
Simple Debt Repayment – The Snowball Method
We personally like to have 1 year in our emergency savings but that is what helps us sleep better at night.
If you have debt I still recommend you have an emergency savings fund even if it is $25.00 a month saved.
Once I’ve saved 3-6 months or even a year of funds in emergency funds while completing the above I would aggressively pay off the debt.
Using the snowball method of debt repayment paying each one by one with the smallest debts first to get rid of them while paying the minimum amounts on the larger debts.
Once you pay a smaller debt off you roll that money into the next smallest debt until your debt is paid off.
When your debt is clear you can then allocate that money to Savings, RRSP, TFSA, Mortgage wherever you like.
Remember this is what we do and what you need to do is up to you and it’s always wise to contact your advisor for professional advice when dealing with your own finances.
- When we calculated our emergency savings we included everything in our budget except entertainment, allowance, clothing, Investments, and lottery. These were items we knew we could put on hold in the case of loss of job or injury.
I will also be posting a Monthly Budget Update where you can view our actual budget so you can see our categories and where all of our money is going each month.
Discussion: What do you struggle with the most when trying to figure out what budget categories you need?
Now you can move on to Step 3 In How We Designed Our Budget-Tracking Receipts.
Our 10-Step Mini Budgeting Series – The Full Series
at my bank i have 2 credit cards. One that i use and one that i never use. The amount available on the unused card is over 10,000.00
I have asked several times to have that card cancelled but they keep telling me that it would not help my credit rating to do so. Since i don’t use and haven’t used it in over a year I believe that having that card is not helping me. I read once that it is not the total owing on cards that counts but the total available that is part of your credit history. Should i insist that they cancel this card? Does it do anything to my credit score having it?
I’d just get rid of it if you’re not using it. You’re right that it will be added to the amount of money you have at your disposal.
If you have room on a lower interest credit card or line of credit would you recommend transfering balances from higher interest cards to a line of credit with a lower interest rate and have only one payment per month rather than making smaller payments on two or three cards?
Sounds like a plan to me as long as you check to see if there are any charges for the transfer and as always read all the fine print. Ultimately I would talk to your financial advisor or bank for professional advice but if it were me I’d look into it. Cheers
Good post. My husband is retired, has a disability, and is in ill health so there’s no question about who works at our house! We’re fortunate that he has a pension because, when I was ill myself and unable to work for almost a year, we had to live on that money. We know now that we can do it, but it’s very difficult. Far better when we have both his pension and some earnings from whatever job I’m working at. 🙂
That’s great that you know that you can do it but with effort. The most important thing no matter what anyone says is that they need to budget. Even if someone thinks “why bother” I owe more money than I make, what’s the point. That’s the biggest point. You have to know exactly where your money is going and where it needs to go each month. You also need to know how much more money you would need to make to pay the bills each month. You and your husband seem you know the path and what to do. Keep at it. Cheers Mr.CBB