Top 12 Budget Categories for Effective Financial Planning

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Making a financial plan can be intimidating, especially if you don’t know all of the essential budget categories you should include. Budgeting isn’t a one-size-fits-all process either, as the importance of each category will largely depend on your specific financial situation.

This article will review the top 12 budget categories that can bolster your financial plan.

The Prioritization of Budget Categories Will Be Unique to Your Needs

Some Expenses Have Fixed Prices, While Others Have Variable Costs. You’ll Need to Account for Both From One Month to the Next

Tools like Money Apps and Budget Spreadsheets Can Help You Visualize Your Spending Habits

Why Do I Need a Budget?

A budget can ensure that you aren’t caught off-guard by bills throughout the month—especially near the month’s end or right before you get paid. Keeping a budget can also provide long-term data based on your spending habits and serve as a snapshot of your priorities.

Effective budgets can help you plan for longer-term goals, like retirement, and inform you of what expenditures truly make you happy—and which ones aren’t necessary.

Fixed Expenses vs. Variable Expenses

Fixed expenses refer to items that essentially cost the same each month, with very little fluctuation in terms of pricing. Mortgage and rent payments, auto loan payments, and internet service bills will likely fall into this category.

Variable, or flexible, expenses can drastically differ from one month to the next. The amount you spend on groceries, clothes, entertainment, and even medical appointments can all vary over time.

Top 12 Budget Categories to Add to Your Plan

The following budget categories can help you map out your monthly expenses. Depending on your unique circumstances, these categories may need to be adjusted in terms of their priority.

Housing Expenses

Housing often takes top priority as your living space is directly tied to  your long-term health and safety. You also need a stable housing situation to perform well at work and ensure that you have the funds to make your mortgage or rent each month.

While there’s no strict maximum for the housing category, you can expect to spend anywhere from 25% to 35% of your income on your mortgage or rent payments. If your housing budget exceeds more than 35% of your monthly income, refinancing your mortgage or looking for another living space might be more expense-friendly in the long run.

Items that fall in housing expenses:

  • Rent
  • Mortgage Payment
  • Appliances
  • Household Repairs


The ability to live comfortably in your home is just as crucial for your health as actually having one, which is why utilities are usually another high-priority item. Many residential buildings in some urban areas have ordinances that require certain utilities, like water and electricity, to be considered safe living.

Utilities rarely come close to the top of the list of expenses in terms of cost, and you can reduce their cost with proper management. Depending on their usage, you can expect to spend around 5% to 10% on monthly utilities.

Items that fall in the utilities category:

  • Electricity
  • Water
  • Telephone
  • Natural gas
  • Sewer
  • Trash
  • Heating
  • Air conditioning

Transportation Costs

Owning or leasing a vehicle, along with repairing it, can be another high-priority expense. Some areas may complement alternative means of transportation, such as public transit or biking—which would result in much less money going toward this category.

The cost of owning a car includes the tags, licenses, and maintenance on top of the monthly car payments. Depending on your method, transportation or travel expenses will likely cost you anywhere from 10% to 15% per month.

Items that fall in transportation costs:

  • Gasoline
  • Car payment
  • Registration fees
  • Vehicle repairs and maintenance costs
  • New tires


Groceries (not food from restaurants) and water encompass our basic needs. Store-bought groceries and water may require a large chunk of your income, though this category offers a lot of flexibility in terms of total spending.

Cooking dinner at home with groceries can help you save money, as many home-cooked meals can last multiple days. You should probably expect to spend between 10% and 15% of your monthly income on food expenses.

Items that fall in the food category:

  • Grocery budget
  • School lunch


This broader category covers numerous subcategories that apply to different people. For example, if you live in a large, urban area with well-run public transportation, you may not have to worry about auto insurance.

Insurance may be classified under different categories depending on who you ask. Some pundits include health care in this category, for example. Depending on what type of insurance you need and your insurance premiums, you can look to spend anywhere between 10% to 25% of your income on this category.

Items that fall in the insurance category:

  • Life insurance
  • Auto insurance
  • Renters insurance
  • Homeowners insurance
  • Health insurance
  • Vision insurance
  • Disability insurance
  • Dental insurance
  • Vision insurance
  • Pet insurance

Health Care

This category may have higher or lower priority depending on your specific health needs. Health and dental insurance in America is also quite costly—making them one of the primary reasons Americans go bankrupt.

Health care costs include annual checkups, clinic visits, prescription medications, and general medicines, like pain relievers. Health care is a variable expense because some months can be costly while others don’t have any expenses. Even when you don’t have any expenses, it’s a good idea to put away a little cash for a rainy day.

Items that fall in the health care category:

  • Anticipated copays
  • Prescription medications
  • Orthodontic work (braces)
  • Prescription eyeglasses
  • Primary care visits
  • Dental care visits


Everyone needs some kind of emergency fund to cover those unforeseen expenses. Regularly dedicating a small portion of your monthly income can help you save for major life events down the road.

There’s no hard line about what amount you should save, but a safe bet is between 5% and 10% of your monthly income. Saving this amount can help you handle emergency expenses and create a nest egg for a future big purchase.

Items that fall in the savings category:

  • Emergency fund
  • Health savings accounts
  • Fun money
  • Three to six months’ worth of expenses
  • Saving for a specific purchase (vehicle, college savings, vacation, etc.)


While you could argue that retirement or a 401(k) is a type of savings, we refer to savings as money that can be used for any expense without penalty. Retirement accounts like IRAs help you save money that’s intended for use in the future. If you take money out of your retirement account before the preset time (unless you have a 457(b) account), you will incur a 10% tax penalty.

Much like savings, this is another category without a hard-line amount that you should contribute but should see at least 5% to 15% of your income. Ideally, you can primarily rely on this money once you’ve retired.

Items that fall in retirement:

  • Employer-sponsored retirement plan
  • 401(k)
  • 403(b)
  • Roth IRA
  • 457(b)


This category applies to a significant portion of the U.S. population—especially those who have a student loan, credit card debt, or personal loans. Debt is a consideration that often has a lower priority level because we can pay it off over time. That said, it’s important to make sure you don’t fall behind on your payments as the penalties and fees can compound if left unchecked.

Because everyone’s situation is different, there’s no given amount of your monthly income you should dedicate to debt payments. We do, however, recommend that you pay more than the monthly minimum.

Items that fall in the debt category:

  • High-interest credit cards
  • Vehicle loan
  • Student loans
  • Personal loans
  • Medical bills

Personal Care and Hygiene Items

This category encompasses both wants and needs. Toilet paper and toothpaste should be considered “needs,” while designer clothes or expensive watches are examples of “wants.”

Because most personal expenses are lower priority, there’s no expected amount you should budget for this category, but it should remain relatively low on your list of priorities. Ensure that everything else above on this list is covered first, then look to see what you can spare on these purchases.

Items that fall in the personal care and hygiene category:

  • Shampoo
  • Deodorant
  • Toothbrush/toothpaste
  • Gym memberships
  • Shoes
  • Dry cleaning
  • Toiletries
  • Laundry detergent
  • Cleaning supplies
  • Diapers
  • Hair care


This category sits at the bottom of our list for a good reason, but it’s still essential to include. If you find yourself in a budget crunch, this is easily one of the first categories you should reduce until finances stabilize.

Sporting events, vacations, or streaming services like Netflix fall into this category. Given its otherwise low priority, there is no set amount you should spend on entertainment, and extra money can shift from month to month.

Items that fall in the entertainment category:

  • Books
  • Electronics
  • Restaurant dining
  • Concert tickets
  • Events
  • Vacations
  • Movies
  • Coffee


This low-priority category covers pretty much anything else not already discussed. That can include property taxes that are a high priority in most circumstances, but you can often work with the IRS to get a debt repayment plan.

Various “other expenses” might also include donations, parking fees, child support, gifts, and school supplies, depending on your circumstances.

Some of these other expenses are significantly more important than others, but things like home improvement can be considered a kind of investment.

Items that fall in the other budget category:

  • Miscellaneous expenses
  • Child care
  • Holiday decor
  • Special occasions
  • Alimony
  • Anniversary presents
  • Tutoring
  • Private school

How Do I Make a Budget?

Considering the budget categories we presented in this article, one budgeting method that could work for you is a monthly budget spreadsheet. Or, you can use a budgeting app like Mint or another high-end competitor.

There are plenty of resources to use, so you should do lots of research on any budgeting apps that you consider downloading. Since not all of the apps work the same, search through different apps to find what best serves your budgetary needs.

What Is a 50/30/20 Budget?

Numerous financial pundits advocate for a 50/30/20 budget scheme, in which 50% of your income goes to necessary expenses, 30% goes to savings accounts, and 20% goes to wants and miscellaneous expenses. It’s also not uncommon to see people devote 30% of their funds to wants and 20% to savings.

This strategy often faces scrutiny during periods of economic strife, such as high inflation rates. Nevertheless, many budgeting apps may recommend this plan if your current income can support it.

Refine Your Budgeting Plans

The categories we’ve discussed today, along with their corresponding priority levels, can all vary from person to person. Building the best budget for your specific needs calls for a bit of craftiness and professional assistance.

The information provided above is a guide and should not be considered financial advice. Please consult with a financial professional for specific advice regarding your financial situation.

And remember, financial planning is serious business, but it doesn’t have to be boring! Take control of your finances and budget like a pro, all while keeping a smile on your face. Happy budgeting!