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All of the different categories can make budgeting so much harder than it actually needs to be. There are tons of tutorials out there (including a few of my own) that have hundreds of categories for you to list out to start budgeting.
Maybe you have sat down to start a budget in the past but within two days, you have spent more than you set for restaurants, so you give up immediately because you just aren’t good at this.
OR you have set up the perfect budget on paper where you can save a ton of money and throw a bunch towards debt, but by the time your bills are paid you have no idea where all that savings money went to!
The truth is most of our brains don’t work to track a million numbers in our head. And culture today makes us believe that we are too busy or too tired to do it on paper (or excel). And realistically, a lot of us just don’t want to look at the numbers because it is easier to not budget than to face the truth of how much you are spending.
My first month budgeting, I paid off $1,500 in debt because I side hustled more and spent less. I want your budget to be as simple as possible when you are getting started. The more realistic your budget, the more likely you are to stick with it. When I created my workbook, I realized that there are only 4 main totals that you need to help get you started.
I have lots of budgeting tutorials on my blog, but I wanted to break it down to make it as simple as possible. If you are absolutely struggling to start budgeting and you don’t know where to start, try this method instead.
The Only 4 Budget Categories YOU Need:
Bills:
Bills are the obvious category to start with. And it is usually the easiest one to figure out. In my workbook, I have you go through all of your spending for the last 30 days and then highlight all of the bills. This is the easiest one is usually the easiest to figure out for most people. When you set up your budget, list out all of the expenses that you pay for monthly.
When you’re setting this up, we are going to lump this into one category. We don’t necessarily need to break it down into every itemized bill. If you know all of your bills are $1000 a month then that’s what you need to budget for. You don’t need to budget five dollars here and there for subscriptions.
The goal with the bills category is to really look through and see what you can lower and what you can get rid of. There are plenty of things that might be in your budget right now they don’t need to be there.
Spending:
I really think spending is the category that people get the most worked up about. They think in order to have the perfect budget you have to have a budget for every category. You don’t need to budget for a coffee, takeout, and groceries all separately.
My recommendation is to have a separate bank account for all of your spending money. On payday set a specific amount for all of your spending. This includes gas for your vehicle, groceries, and any other spending that you want to do between now and next pay day. The best part about doing it this way, is that you can just open that bank account and see that you have enough spending money to make a purchase, or you don’t. There is no guess work of whether you are spending your electric bill money.
I also personally like the bank account more than cash envelopes because my husband and I can both have a debit card to the account. If there is money in the account, then we don’t have to talk about purchases. We do still use cash for a few categories like our personal money. I also like using a card because I can connect my spending to my Rakuten account for cash back purchases!
This takes a lot of the planning out of budgeting. This takes a lot of pressure off of you to know your plans for the next two weeks. But once this spending money is gone, it’s gone. This spending category will probably take the most adjustments to figure out exactly how much you need for a pay period.
Savings:
Savings doesn’t have to be complicated. While you should have specific savings goals or categories, I don’t think you need to break down every single savings goal in the beginning. Keep it simple. Just adding the act of savings when you aren’t is progress.
Start with just putting $100 in savings every month. If you find that that’s too easy, make it more. Give yourself a list of things you would allow yourself to spend the savings money on.
This might include emergencies or unexpected expenses, memberships or yearly expenses, or for holidays. It might end up being money for larger expenses that you want in the future. You get to decide your savings goals.
Debt:
This category can seem really overwhelming. When I first totaled up my debt at 22, I cried over my debt. I had no idea how I had $34,000 in debt when I had just gotten a credit card. BUT ignoring your debt doesn’t make it go away. The rude awakening that most people get is they make minimum payments on their debt forever and barely cover the interest. You’re never going to get out of debt if you only make minimum payments. And if you do, it’s almost by pure luck. When I started getting serious about putting extra towards debt, it made it really easy to keep going.
When creating this category, total up all of your minimum payments. Then add a little extra that you think you can throw towards debt. I include this is the last category because if you have set income you can budget to throw what is left towards debt using the debt snowball.
How to Implement The 4 Budget Categories:
Using these four categories, you can create a better plan using different bank accounts to hit your financial goals faster! I highly highly recommend the 5 bank accounts that I used to keep my money organized and make budgeting easier. On payday, figure out how much is going to each of the four categories and transfer to those bank accounts or make debt payments. Then you don’t touch with your budget until the next payday because you can see what is in each account.
This blog post isn’t to say that you can’t break down your goals more. But if you were just getting started, it can be very overwhelming. If you want to track your spending more closely, most banks allow you to download your bank transactions and add them up.
I highly recommend The Savvy Budget Workbook to take you through each and every step of setting up these four categories. I designed the workbook specifically to take you through the thought process of each category and give you realistic numbers to set up this four category budget system. There is a worksheet for your bills, your spending, your savings goals, and two worksheets for your debt. My goal was to create a system that makes it easy for anyone to start a budget.
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