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Budgeting can be the difference between a profitable retirement and paying off toxic bills each month. One of the main challenges with budgeting is remembering all of the expenses that you spend money on each month and putting them in to budget categories. Doing this accurately is a challenge, one that gets easier with time and practice. Before you even download a new app or create a budgeting spreadsheet make sure that you know the exact categories you want to track moving forward.

There are three overarching categories that you want to keep in mind – needs, wants, and savings. From this, you can go into other categories that make the data more exact.

What is a Need?

A need is an expense that no matter how you try to avoid, you can’t. If you are following the 50/30/20 method of budgeting then your needs should account for 50% of your monthly net income. When we think of necessities they typically include the following

  • Housing – rent or mortgage
  • Insurance for your house – renters or homeowners insurance
  • Property tax (if you don’t already pay this with your mortgage
  • Car insurance
  • Health insurance
  • Medical costs that are out of pocket
  • Life insurance coverage
  • Gas and electrical
  • Garbage collection
  • Water services
  • Groceries and other food shopping
  • Car and car insurance payments
  • Bus, train or tram (public transport)
  • Broadband internet
  • Landline or cell phone
  • Student loan
  • Alimony or child support payments
  • Childcare

If you think that the 50% budget that you’ve allocated for needs seems excessive then look at whether everything in that list is actually a need. Is Netflix and Amazon Prime really a need?


The expenses in the wants budget categories are more difficult to account for in any budget as they are usually more variable than fixed expenses month-to-month. If you are using the 50/30/20 budget then this should account for 30% of your budget each month.

Wants can include:

  • Clothing, accessories, shoes etc.
  • Eating out
  • Club or gym or working out memberships
  • Alcohol and booze
  • Event, concerts and movie tickets
  • Traveling expenses like flights, car rentals or Airbnb.
  • Cable or Netflix, amazon prime etc.
  • Home decor beyond the essential.
  • Meals that you consider special (meat for grilling)

Tip: As you are creating your budget have a look at the last couple of months to start to understand how much you spend on your wants. If you are creating a family budget then have every adult in the family do the same thing. This will make sure you start from a realistic baseline.

Last But Not Least – Savings and Debt Repayments

The money left over – or in fact this could be the money you put away first, is anything for direct savings and debt repayments beyond the minimum amount. This money can be used to pay off high-interest credit cards or anything that you consider toxic debts like payday loans. If you are following the 50/30/20 budget then this should make up the 20%. Some of the budget categories could be:

  • Money towards your 401(k)
  • IRA – Individual retirement accounts
  • Emergencies fundy
  • Savings
  • High-interest credit card payments
  • Payments on loans above the minimum amount
  • Extra payments for your student loan

If you are in the habit of paying off your credit card each month then this would not fall under the savings and toxic loans repayment category instead you can credit these amounts under the specific thing you buy in your budget e.g. groceries.

How to Get Started With Your Budget

Once you’ve categorized all of your expenses you can start to use a simple budgeting tool Capital Bean would recommend you start with the envelope budgeting system which follows the zero-budget principle.

Richard Allan

Richard Allan

Richard Allan is the founder of Capital Bean and a passionate writer about personal finance, budgeting and how to save money at home and work.

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