What Should I Include in My Budget?

Financial literacy is often overlooked yet very important for anyone. Very few people get the opportunity to learn about personal finances, which leaves them making bad decisions once they start earning money and have to make the most out of it. In 2020, the lack of financial literacy cost Americans a staggering $415 Billion. In addition, about 40% of Americans have less than $300 in savings, and around 30% have a long-term financial plan.

It is easy to assume that everything is going on well until a disaster hits you. If you got involved in a personal injury suit and have to battle out in court for more than a year, can you afford the legal fees? Suppose a close family member was diagnosed with a serious medical condition, and your medical cover is not enough to cater to the costs. Will you sustain their medication until they recover? If you lost your job and have to support your family, will you do it comfortably? These are the questions that should get you back to the drawing line and get you to rethink your financial situation.

At the heart of personal finance is a budget, something most of us dread to hear. Budgets bring to life certain truths that people do not want to know about their financial status. Budgeting is not easy and tends to starve you of the financial freedom to spend as you wish. However, it is a necessary evil if you are to get your financial status right and set your path to a better life.

What is a budget, and what does it do?

A budget estimates revenue and expenses over a specified period and is often compiled and re-evaluated periodically. In simple terms, it is a plan outlining how you will spend your money. It gives you a clear picture of how money flows into your accounts, from work, side gigs, and profits, and illustrates how it flows out.

Budgets can do many things to you, but the main one is keeping your finances in control. It gives you a sense of direction and the foundation needed to have short, medium- and long-term financial plans. Think of it as the tactical measures you put in place to achieve a strategic goal. It zeroes down to every cent you spend and ensures you have some discipline on how you spend your money.

Many people live from paycheck to paycheck and seem to have nothing left to save, despite earning healthy amounts. You can not know how your money is spent without having a budget. Here, you can take steps to cut some of these unnecessary expenses and focus on the important ones and then save the rest. Some of these unnecessary expenses drive people into debt, most commonly through credit cards. Bad finances are like a disease, and if you plunge too deep into debt, it will take a lot of time to salvage the situation. The best way is to be proactive from the word go and take charge of your finances by having a budget.

Things to Consider before making a budget

Living with a budget will change your life, and it is important to make the right one. Do not be very harsh on yourself, as this will only push you to abandon it after a few months. This is why you need to do some due diligence and get a few things right before making a budget. These will go a long way to ensure that you make the right budget for your lifestyle.

1. Why do you want to budget?

The first thing to establish before you start budgeting is the reasons behind it. Do some soul searching and see why it is important to you. Reasons could vary from the need to get your financial status in order or to help achieve a long-term goal, but it should always be clear from the word go. It is not enough to budget because people are doing it, and it is the responsible thing to do. Such generic and weak reasons will not motivate you to stick to your budget for the tough implementation part. Commonly, people decide to budget to pay off big debts and then proceed to make a huge purchase such as a home or car. Knowing why you are making spending sacrifices is vital as it drives you to success. It also gives you the focus needed to stay on course and follow the budget to the latter.

2. Set goals and prioritize them

Once you get the reasons behind your move to live by a budget, break them down into goals and prioritize them. If wishes were horses, we could all achieve what we wanted financially, but this is not possible, and that’s why prioritizing is key. Priorities are not cast in stone, and they depend on what you want to achieve and your current financial situation. For instance, you can get out of debt faster if you make paying it off a top priority and spend a lot of money on monthly payments. One rule of thumb is that you should always save for retirement as you work on all the other goals. This way, your retirement goal should be a top priority.

3. Give your goals a time limit

Timelines on budgeting goals help you understand how much you need to contribute monthly to achieve them. It helps break them down into the long, medium- and short-term goals before going into the specifics. Time limits also help change priorities as you can put more money in the short-term ones and less in the long-term ones. You will be required to make some trade-offs and sacrifices to achieve some of these goals, and timelines will help you put the right ones.

4. Don’t forget about fun

Fun money is an important category, and have it on your list as well. This is money left for activities that you enjoy doing, and all work without play will make you unmotivated. With the right allocation, this amount and the activities it will allow you to engage in will help you stay on course and achieve your goals. Fun activities can infer many things, and you will have to make some trade-off here. Work around how you can have fun and get your mind off work and other responsibilities.

5. Look for ways to cut expenses

It is hard to run a budget successfully without cutting costs. This will help you free some funds that will be used to build towards the goals you defined earlier. The more funds you can free, the shorter it will take to achieve the goals. The first place to start is by assessing your lifestyle and how your typical day looks like. Narrow down to all the instances you spend money, such as lunch, coffee, or fuel. These costs might seem small, but they add up to significant amounts in the long run if you do the math. Have the expenses you can forgo on standby, and the process will be easier.

6. Be ready to fail

Besides the numbers and goals, you need to have the right mindset to set and succeed with a budget. Do not expect to get everything right from the word go, as change is always uncomfortable. You will get it wrong the first few months and end up spending more than anticipated, but do not give up. Learn from your mistakes and work towards improving areas you failed in. Make it a process of constant improvement as you adjust and make lifestyle changes before you eventually settle in and work towards your goal. The budget you set during the first instance should not be final, and improve it as well. As you start living within the budget, you will realize ways you can save more or areas you need to increase your allocation.

Things to include in a budget

Personal budgets vary individually, but they circle back towards the same things. All our needs are related. We have compiled a few budget categories that will help you track expenses and save more.

1. Rent/Mortgage

The first expense in your budget is that of the roof you live under. This is a basic need, and have it settled first. If you are lucky to inherit or own a house, you won’t need this budget item. However, seek to take care of this as it is a constant expense.

2. Utilities

Utilities are tied to your house expenses, and they represent the costs required to run the place you live in. There is an opportunity to save money here as utility bills are not always constant. For instance, your water and power bills will not always be the same, depending on the season. However, it helps to list them and indicate the upper limit so that you are not forced to find money elsewhere to pay for them when they are high.

A special category of utilities is the phone and internet, which is essential today. Here, you can go for bundled cable packages to get value for money.

3. Transport

The details of this category depend on how you commute to and from work. If you own a car and drive, include the amount spent on gas and additional funds for regular fixes such as oil change, new tires, among others. Some people have auto insurance here, while others prefer to bundle all their insurance costs in one.

4. Food

This is a basic need, and it is hard to establish the amount of money required for this category. If you eat out frequently, have this as a sub-category here. You will most likely get this wrong the first time, but see how you work with different amounts to develop a definitive figure. Some people include household supplies such as toothpaste, tissue, soap, and water here, and it depends on you.

5. Savings

Once you have allocated enough for your basic needs, decide how much you want to save. This money will help you take care of crises such as job loss and legal fees and aim to have at least 6-months of your salary in savings. This will give you a soft landing if something affecting your income happens. It helps break down your savings structure, especially if you are looking to achieve multiple goals with the money from this category. Have an emergency fund to take care of unexpected expenses and have a different savings fund that will help you to make big purchases in the long run. Always be clear about what you are saving for.

6. Insurance

If you have multiple insurance policies, it helps to create a category for that. Common covers include medical insurance, auto insurance, and life insurance, among others. A rule of thumb is to try and get all these covers from one service provider and ask them to bundle them up as it allows you to get a discount and save some money.

7. Education

This category applies to those who plan to pursue further studies or have children who are in school. Education costs are high, and you need to plan for them. A tip to get this right is to set aside some money for your kids’ education before they start using it up. This will help you to get ahead of their tuition payments and have uninterrupted school time. Be sure to include associated costs such as school trip fees, school supplies, tutor fees, and extracurricular fees.

8. Clothing

This category will depend on how many dependents you have and how old they are. It is a category that can be adjusted easily since people do not buy clothes that often, and you can go for cheaper options. While many people do not leave an allocation for this category, times will come when you have to buy your kids’ clothes as they will outgrow them. You can have it in place and contribute monthly before withdrawing the entire sum for a one-off shopping after a couple of months.

9. Debt

This is a critical budget category and if you have debt, plan to pay for it as quickly as possible. The longer you drag debt payments, the more interest you pay, making it expensive for you. Look at possible debt payment strategies and strive a lot into these payments as it will free up some money that you can save or channel into other categories.

10. Entertainment and self-care

At the end of it all, you need to give thanks to your body and mind for working hard to get the money you are creating this budget for. Have some amount to cater to entertainment, which includes concerts, movies, dates, trips, and games. This is a category that most people tend to blow a lot of money on, and allocating a healthy amount will help you stay within the budget. Self-care is different from entertainment as it includes things you need to do to improve your body and mind health. It includes items like a gym membership, salon, SPA, makeup, and babysitting fees.

11. Miscellaneous

Miscellaneous is not a vital category, but it acts as a buffer from eating into what other categories have. It also gives you the room to stretch the amounts you allocate depending on the need. Did your car run down, and you need to spend a little more than the allocation to fix it? Do you need a little more on food and home supplies?

Commonly forgotten things in a budget

It is impossible to budget for everything, and the things you miss out on can make the whole budget crumble. This class of things can be categorized as “incidentals,” which refers to items that you cannot foresee. Others might also be overlooked, only for you to realize that there is no allocation for them when they come up.

They include;

Irregular house maintenance

The systems in your home will not run smoothly forever, and you have to repair them from time to time. The hard thing is that you cannot anticipate when these systems break down and when they do, you are often required to fix them immediately. Take an example of your HVAC system, which is very important during winter. Imagine the heater breaking down in the middle of the night, making the place uncomfortable for your family. You won’t have any other option than to call an HVAC repair contractor to fix it immediately. Think about those irregular things you replace in your home from time to time. It is easy to exclude these in your budget, and they can eat into the other categories and affect your plan.

Monthly Subscriptions

We use digital services a lot and can forget to include the amounts we use to pay for these subscriptions. Common ones include Netflix, Hulu, Amazon Prime, Spotify, Apple Music, and Fab Fit Fun. These subscriptions cost small amounts, but if you sum them up, the cost of having them becomes significant. Find a way of including these subscriptions in your budget by either creating a separate category for them or including them in your utilities section.

Taxes and Annual Payments

Annual payments can easily be forgotten due to the length of time between the payments. Once you make one payment, you have peace of mind for 12 months, and it is easy to miss out on them top of mind. They include taxes and payments for your car registration, among others. Taxes are particularly sensitive since you cannot avoid paying them, and it is vital to have a category for them. If you are making a monthly budget, create a category for taxes, as you would rather have a surplus than a deficit.

Gifts and Event Money

It is easy to avoid setting aside money for the events you will attend. First, look at the events you have to host, for instance, your children’s birthday parties, your marriage anniversary, or a house warming party. These events take a lot of money, and do not forget to include them in your budget to accumulate the funds before the actual date. Second, look at the events you will be attending. How many weddings have you been invited to? Other people’s events might seem negligible to your budget, but you might be required to buy gifts and probably a formal outfit, especially if you are heavily involved. These are items that cost a significant amount and have them in your budget as well.

Home maintenance supplies

Do you own a pet? How much does it take to maintain your green lawn? Do you have to buy a tool or organic fertilizer from time to time? These are the kinds of things that fall under this category. When budgeting, it is easy to focus on what happens between your four walls and forget what is outside. Landscaping is costly as you have to buy a few supplies and occasionally contact an expert for help. If you are keen on landscaping and spend a lot of resources on your garden, have a category for the associated costs.

Even with these additional categories, you won’t cover everything in your budget, and do not be extremely disappointed if you find something you did not plan for later. Learn from this and purpose to include it in your next budget. If you have a hunch that your budget has not captured a lot of things, bump up your miscellaneous and emergency funds section so that they can cushion you against these unforeseen expenses.

Personal Budgeting Best Practices

The journey to successful budgeting is not definite, and you will encounter many unexpected challenges along the way. In addition, you can also make use of a few lessons from various budgeting techniques to improve your journey and be successful.

  • If you earn money monthly and struggle with cash flow, divide the income into weekly amounts and break this into your budget. Some people struggle with holding money for a whole month, and splitting this into weekly items will help. You can also come up with weekly mini-budgets within your larger monthly one to sort this out.
  • Consider moving to a cash-only budget if you tend to overspend on certain categories. Today, the use of electronic cash gives you access to money wherever you are, and this can tempt you to overspend on certain categories. Identify the problem categories such as entertainment and clothing and spend here using cash only. This way, when the cash runs out, you won’t have any money left to spend, which will keep you in check.
  • Get budgeting software to help you stay in line. You will find multiple budgeting apps today and find one that suits your budgeting style. These apps will save you the trouble of calculating how much has been spent on each category as they will automatically deduct and show you how everything is going. Most of these apps can be synced with your bank accounts, making things easier.
  • If you have a family that is part of your budget, have regular review meetings and make the whole process open to them. It does not help to impose lifestyle changes on your family members, and they do not have an idea of why you are doing it. They will probably think you are mean and want to make their life harder. Engage them in making the budget and explain why you are doing it, let them own it, and be open to changing their lifestyles.
  • Try and find a passive source of income. The aim of a budget is not to live frugally for the rest of your lives. It is the foundation of better personal finance, and the goal is to improve the quality of your life with time. If you drive an old car, a budget should help you have the funds to buy the car of your dreams within a couple of years. If you live in a small apartment, the budget should help you raise enough money required as deposit for a mortgage. Invest your savings in CDs, high-yield treasury bonds, and any other venture that will generate you more money. A budget is not a silver bullet to financial success, as it depends on how you use the money you save to improve your life.
  • Once your expenses are lower than your income, boost your savings as opposed to increasing your spending. Recurrent expenditure won’t go away in your budget, and try to reduce them as much as possible. If you have debt and clear it, redirect most of the money you used to pay the debt into savings, as this will help you achieve your goals much faster than anticipated.

Frequently Asked Questions

What are the five basic elements of a budget?

All the budget categories can be clustered into five essential things: income, fixed expenses, variable expenses, discretionary expenses, and personal financial goals. Fixed expenses are ones you cannot do without, like rent, food, and insurance. Variable expenses change from time to time, like home maintenance costs, clothing, and transport. Discretionary expenses are specific to your life scenario, and personal financial goals are savings and pension schemes. These five basic elements are the foundation of a simple budget and can help you to break down all the categories you want to have in yours.

How much should I set aside for food every month?

Food is a special budget item since it is hard to know the exact amount you spend every month. It becomes harder if a family is involved, and you cannot estimate what everyone eats every day. However, try and work with a minimum of $250 for every adult and $150 for every child per month. This should be enough to cover in-house food and occasional dining out. However, it is not cast on stone and always revise these figures if they do not work for you.

How do I feed my family on a budget?

You can follow a few tips to reduce your monthly spending on food while still keeping your family healthy. Some of them include planning for meals every week, ditching junk food, and making use of leftovers. You can also opt for pulse cooking, where one meal stretches across two days to avoid cooking very often. Get a balanced diet and switch between animal and meat protein.


Budgeting is not hard, and once you make the bold step, you will live to remember that moment. Living a carefree life without managing your finances will have you wasting years of your life without making any meaningful progress. Some of the key items you need to include in your budget have been listed here. Find a top budgeting app today and create one to manage your finances.