Estimated reading time: 7 minutes
Understanding 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, it’s time to put it to work.
We worked as a team as we both had to know the finances.
Our budget was designed so we were spending less than we earn each month.
By this, I mean using our monthly net worth figure, not the gross figure.
Your net income is the amount your employer deposits in your bank account.
If you are self-employed, this number may fluctuate so that’s something to remember.
- 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 remaining money to the other budget categories.
- I’ve highlighted our “fixed” costs below in bold.
- 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.
It’s essential to visit your budget often to ensure that your goals are still on track with what you set out in the budget.
I’m betting our Monthly Budget Categories have changed by the time you read this, 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 is customizable.
You can change any budget categories we’ve created below to suit your financial needs.
Remember that your personal budget categories must describe everything you are paying for in that category.
For example, If you plan to add health, beauty, and groceries together and tag the category “Groceries,” you should estimate both costs.
Deciding On What Budget Categories You Need
In a nutshell, as much as you need to get the job done, some people who use a basic budget like to combine their budget categories.
You are comfortable with your budget categories and how you plan to monitor them.
Some people want data broken down as heavily as we do, hence our vast budget categories.
- Mortgage/Rent– Whatever the payment is monthly, weekly, 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/Renovation items are 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.
Quitting Jan 30, 2012NOW SMOKE-FREE
- Entertainment stuff, Dates, Concerts, etc.
- Transportation is 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 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 put aside for an emergency.
- Allowance- I get this for my allowance, for example, Tim Horton’s coffee and beer.
- Clothing- This is how much we must spend on monthly clothing.
- Grocery– This is what we spend on groceries each month. We do not add Cleaning Supplies, Health, and Beauty as they fall under Health and Beauty.
- Work Tools include 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– We pay minimal fees to the dentist after insurance 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 look at ways to cut this cost or even do our taxes. We save this in projected expenses until due. Update: We now do our 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, a total of $250/12=$25.00 a month, go into our “projected expenses” account.
How To Pay Off Debt Fast
- Write out who you owe money to so you know everyone 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, 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, 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 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 an emergency savings fund, even if it is $25.00 a month saved.
I would aggressively pay off the debt once I’ve saved 3-6 months or even a year of emergency funds while completing the above.
Using the snowball debt repayment method, pay each one with the smallest debts first to eliminate 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 allocate that money to Savings, RRSP, TFSA, or Mortgage wherever you like.
Remember, this is what we do, and what you need to do is up to you.
Contacting your advisor for professional advice when dealing with your finances is always wise.
- When we calculated our emergency savings, we included everything in our budget except entertainment, allowance, clothing, Investments, and lottery. We knew we could put these items on hold in case of job loss or injury.
I will also post a monthly budget update where you can view our actual budget, see our categories, and see where all our money goes each month.
Discussion: What do you struggle with the most when figuring out what budget categories you need?
Now you can move on to Step 3: How We Designed Our Budget-Tracking Receipts.
- Reader Question: How Much Debt is Too Much Before You Need To Budget?
- What Kind Of Spender Are You?
- Why We Want To Pay Off Our Mortgage Early