Finding the right balance of budget categories can be incredibly frustrating, and lead to a “budgets are stupid” mindset. I had to learn through trial and error what works for me, and you will too. There are dozens of templates, tips and tricks out there that will give you “must have” budget categories as suggested by Mint.com or “categories that belong in your budget” as provided by Quicken, both great resources from Intuit on how to organize your budget.
I find though, that the these basic categories don’t tell me much on what goes into these categories, not to mention they sound so…. dry. They may work for some – but for me, they don’t have any relevance – any meaning to me. Although simplistic, they’re too generalalized. I want to balance simple with personal and specific.
One example from my budget of personalized categories
For me, a general ‘Transportation’ group just doesn’t work – its too broad, and doesn’t support my personal financial goals. Since I have three specific clusters, I need to name them in such a way to reinforces what they do. I ended up with:
Subaru Forester. I have a car payment (the infamous Subaru) which is seperate from other car expenses. So the name of my car is one line item in a completely different section of my budget than costs like gasoline. I treat this payment as part of my ‘debt cluster’ along with my mortgage and student loan (more about paying off debt and the debt snow ball to come). I grouped my ‘Debt’ regardless of the type of debt, because I don’t want to loose sight of the early pay off strategy if this line item is tucked away in a general ‘Transportation’ group.
Transportation and Gasoline. This group encompasses all of my car costs minus the payment. Consumables and obligations for the car such as insurance, inspection, registration, gasoline, maintainence, etc. as well as things like the Turnpike EZ Pass, buss pass, and paid parking when needed.
New driver fund. I also have a seperate savings account for my twin 15 year old sons who will be new drivers soon. These are both different from my debt pay strategy as well as from my daily car costs. I have goals to set aside a certian amount of cash on hand to be ready when they start driving – things like a car contribution fund for them to augment their first car purchase, ready for higher insurance rates on my insurance, liscenses test fees, etc.). These costs are all very seperate from my both my debt payoff strategy for the Subaru and for my own daily expenses on the car so I set aside this as a seperate buget category to save for when they are ready to hit the road next year (watch out world!)
When I look at my budget then, instead of one general ‘Transportation’ category, I have seperated out these three specific areas, which are to me fundamentally different from each other. The nuance may seem subtle to you – and that’s okay, because its personal, and meaningful to me.
You can unleash the power of YOUR OWN personalized budgeting categories by teasing out what you already know about where your money goes and where you want it to go. To do this, you’ll need to start with listing out all the things you spend and save for listed out in a way that you can rearrange them into logical groups that make sense to you, just as I did with ‘transportation’ needs.
Below I’ve outlined a basic Product Management technique used to organize like-information together called “affinity mapping“. If you manage finances with someone else, this is a fun exercise to do together to come up with an organization system that makes sense to both of you. Involve the whole family in the process and you’ll be surprised at what you uncover together. Its a ground up approach. Instead of starting with a list of categories someone else has provied and trying to fit all your goals and itemized costs into those buckets, start with your own goals and itemized costs, and organize them into groups that make sense to you. Have fun, and happy budgeting!
Tools for the job:
- Sticky Notes
- Black fine point Sharpie Markers or
- Dark ink pens (blue, black)
- A clear wall, window or dry erase board
Time Needed: About 1 – 3 hours
Yield: One Set of Amazingly personal, relevant and manageable budget categories
The Brainstorming Process
A great way to discover and organize what you already know is an activity that starts by harnessing the creative chaos within you and ends by providing neat, organized little groups we can call ‘Budget Categories’. We’ll start from the bottom up – with your expenses, savings goals, and other financial obligations. We’ll jot them all down, then organize them into groups (as opposed to start with groups and trying to organize all your expenses, savings goals and other financial obligations into pre-determined categories).
Step 1: Expose the chaos
Grab some sticky notes and black sharpie markers. Sit at your table and let your mind run with everything you want to do (and typically do) with your money. Think about what you want to save for, what you want to spend money on, what you want to do. Using a sharpie (so when we put the stickies on the wall in Step 2 you can stand back and still read what is written), write down one thought per sticky note, and do this until you cannot think of anything else your money does or should do for you.
When you exhaust what you can from this brainstorming session, log into your online banking accounts (checking, savings, credit cards, investments, etc.) for inspiration. Look back through back through online statements for inspiration, searching for things you haven’t already thought of first. What did you spend money on (whether you wanted to or not) and what did you save, who did you pay, what transfers were made, etc. Write each type of occurance down – one per sticky note – until you cannot think of anything else.
Its important to start with the brainstorming part first, to let the creative juices flow. You don’t want to be constrained by reality (e.g. online statements) when thinking of ways you imagine you’re money being used. Then move onto the statements to grab all the things you forgot about in the first exercise. Once you have a big pile of stickies at your table, the next step is to find large section of walk-up wall or clean surface in your home. Walk over to it, sticky notes in hand.
Step 2: Combine similiar things
You are now standing in front of the clean wall or surface with a huge pile of sticky notes in your hand. Possibly hundreds. You are about to contain the chaos. The sticky notes in your hand are chaotic and you are about to tame them into submission on your budget. Your sticky notes are probably all over the place. For instance, on just the topic of ‘car’ you might have have stickies that say things like: gasoline, car insurance, car maintainence, car washes, car payments, turnpike passes, new car funds, bus pass, inspection, new tires, emergency assistance, fuzzy dice, pay off car early, new driver fund, etc. But never fear – we’ll not blindly bucket all things into a generic ‘Transportaion’ category without first thinking about what goes into that group.
Now, this is important – you want to look at the top sticky note in your hand (let’s call it ‘Sticky Note #1’)….. and wait for it…. place it on the wall. Yep – that’s it! Place it anywhere on the wall.
Now – look at Sticky Note #2 in your hand, look back at Sticky Note #1 on the wall. Do this a few moretimes. Ask yourself “Do these relate to each other in some way?” Do not try to answer the question yet of how they relate, only that you feel or think there is a connection. This is where the magic of affinity mapping starts to work. If you feel they have an affinity with each other, then THAT is personalization at work. To you, if they are in some way related or associated to each other, place Sticky Note #2 right next to (or above, or below) Sticky Note #1. If they do not feel related or associated in anyway, put Sticky Note #2 farther way, so it looks as if its part of another group.
Repeat the process for every sticky note in your hand. Look at Sticky Note #3 – does it relate to Sticky Note #1 and #2, or is it fundamentally different? If its the same as either Sticky Note #1 or Sticky Note #2, put Sticky Note #3 next to the one it most closely associates with. If its fundamentally different than #1 or #2, move it to its own group. Go onto Sticky Note #4, #5, #6, etc. placing them into an existing group or creating a new group until all your stickies are out of your hand and onto the wall somewhere.
Step 3: Fine tune your groupings into manageble clusters
First, if you’re a coffee or tea drinker – get a cup of coffee in hand, then step back to admire your work. You should see groups of sticky notes loosely associated into clumps of like things. Since you have a coffee in hand, sip your coffee and spend time now looking at what is on the wall, evaluating your groups of stickies.
Rule #1: No Single Sticky Notes allowed
If you see a few single sticky notes floating out side of the group from your first pass group, look for concessions or adjustments in how you associated the other stickies – rearrange the combinations to have the loner sticky note fit in.
Rule #2: Balance the groups
Look at the relative volume of stickies in the different groups – do some groups have only one or two, while others have dozens? Although there are cases where this occurs, our purpose is to create a manageble list of groups – so each cluster will represent a budget category. Think about how you itemize things when tracking your spending and planning your savings – you know yourself best. For instance, does ‘New Car Fund’ more closely associate to you with a ‘Savings’ group or a ‘Automobile’ group? That is your preference.
Rule #3: Do the category shuffle
My personal recommendation is to have somewhere between 4 (at the lowest end) and 20 (at the highest end) clusters when done. Any more or any less, you may want to reshuffle stickies to get them inline. Count up the total number of groups on the wall. If the total number of groups seems to high or too low, go back to Rule #2 and adjust your stickies until you have a set of groups in place that make sense to you, and is an intuitive way for you to itemize your money when its moving (because money is almost always on the move!)
Step 4: Every group shall have a name
For the most part – all your hard work is now done. Your savings and spending goals are laid out in front of you in logical groupings that make sense to you. They are personal, meaningful and relevant and are everything a good budget category needs to be in order to be effective.
Now, the last step is to name each group of stickies. You can grab a blank sticky and write the name of that group down, and place it right above or ontop of a sticky note cluster. Think about a phrase that makes sense to you.
Do this for each grouping. Think about what stickies goes into that cluster and pick a simple, meaningful label that describes the purpose and contents of that group. When possible, aim for one-or-two-word category names.
Finished! These category labels are your budget categories. Congratulations, and happy budgeting! Transfer them to your favorite budgeting workbook, software, tools, etc. and start managing your money in a way that is meaningful, and personal to you.
Quick tip: Take a quick picture with your phone to save the categories and what budget items went into them for future reference.
General, fit-for-the-masses budget categories might look something like this:
- Medical & Healthcare
- Saving, Investing & Debt Payments
- Personal Spending
- Recreation & Entertainment
Although they are a great place to start working from the top down, it can be difficult in practice to make these meaningful for you and your goals in the daily grind of managing your budget and tracking your expenses.
Do the affinity mapping as a ground-up approach to understanding what budget categories will make the most sense to you. This investment of time will go a long way to seeing how your own financial goals can easily translate back into personalized and meaningful budget categories.
Leave a comment below and let me know if this brainstorming process helped you personalize your budget categories.