Classification of expenses

If you start to manage a home budget, then you will fall into one of the following groups:

1. Fanatics of control “Before writing down their expenses, they download the largest Excel spreadsheet on the internet, and then expand it with more subcategories. As a result, this creates more than 300 positions to track. It looks like a great and thorough check, right? Not true. After only two weeks, you will notice that such a budget is an overgrown crumb, and you do not use even half of it. You'll also notice that some subcategories come down to 1 or 2 payments throughout the year. Get rid of excess. I myself annually throw out unnecessary items from the budget, which only take up space in the sheet.
2. Typical slack “They immediately begin to write down expenses into general categories such as the house or bills. They create a division into 5 to 8 groups of expenses that tell them absolutely nothing. In the item bills at the end of the month is 980 PLN, but how much of it went to electricity, water, rent, gas or cable? No one knows that. And no one will know until a better organization is put in place.
3. Masters of the Budget — They immediately know what costs they need to control and create categories along with the corresponding subcategories. You're not in this group, but don't worry. No one is. Each beginner has to wade through one of the previous groups, and this can take years. Do you remember your old photos? You thought then that you looked like a million dollars, and now you are ashamed of them even in front of you. It will be exactly the same with the budget.

Ways to categorize expenses

Remember that a home budget is a tool that, above all, is supposed to suit your needs, but at the same time fulfill its task. At the stage of creating categories, you not only distribute potential expenses, but also plan where your money should go and in what amount.

Hierarchy of categories

This is the easiest part of building a budget. Ask yourself which expenses are most important to you and in what order.

Basically, your family needs to eat, have a place to live, stay healthy, get to work to earn it all, etc. Step by step you create the backbone of your household budget. Limit yourself to the necessary minimum and create only a few categories.

1. Food
2. home
3. Transporte
4. Health Care and Hygiene
5. Loans and Loans
6. Savings
7. Clothes
8. Entertainment

In each person, this order may look different.

Simple categorization of expenses

You already have the main categories of expenses, but they still do not tell you anything specific. When you look in the Home section and see the amount of 980 PLN, you have no idea how it is broken down. How much did you give for electricity, water, rent, or maybe it was this new lamp? No... That was the previous month, right? Despite the desire, chaos still reigns.

So start expanding your categories, with related subcategories:

1. Food — home, city, work;
2. Home — rent, electricity, water, gas, furniture;
3. Transportation — fuel, tickets, third party liability insurance, repairs, technical inspections;
4. Health Care and Hygiene — examinations, doctor's visits, medicines, vitamins and supplements, hairdresser, beautician;
5. Loans and Loans — mortgage, installments;
6. Savings — IKE, IKZE, financial cushion;
7. Clothes — casual, sports, shoes;
8. Entertainment — games, books, movies.

At this point, you have 30 subcategories that will work perfectly as your first home budget. Of course, create only those in which you have expenses. When you don't have a car, the OC and inspection falls off, but a taxi may arrive. At home, you can not have gas, but separately pay for garbage removal. Adjust it to yourself and keep it in moderation. To begin with, such a list is quite enough. If necessary, you will expand it with the necessary items.

Complex categorization of expenses

On the net, you will find tons of sheets expanded to incredible sizes, which in my opinion, in addition to not keeping a budget, are at the other extreme. For most of us, they will simply be too complex.

See this with the example of the Food section:

1. Home — bread, vegetables, fruits, meat, dairy, sweets, alcohol
2. City — fast food, restaurant, snacks, coffee
3. Work — lunch, catering, vending machine, “pan sandwich”

As you can see, 15 subcategories have been created, and this is only the first of the main groups of expenses. The home budget in such a version is very accurate, but also not very practical. Realistically, the only reason for such accuracy is to track a specific expense that you care deeply about controlling.

Alternatively, you can track expenses from the same category among different household members in this way. You then apply the division into, for example, “books on” and “books she”.

Plan savings

In addition to the classic spending categories, I recommend that you enter the Savings category. Of course, they are not a pool of money to spend. It's about determining the specific amount you want to set aside and verifying that assumption.

Of course, you keep a budget in order to save, but without specifics there is not much chance of this. Cash that stays in your pocket likes to disperse under unexplained circumstances — so make friends with the principle of paying yourself first. Transfer the specified amount of savings to a separate account or subaccount immediately after receiving your salary or at the beginning of the month. Thanks to this, you have at your disposal the amount that is planned to cover the rest of the expenses, and thanks to this you manage it better.

What if you set too large a level of savings, and the actual expenses go against the plans and it will have to be corrected somehow? Nothing at all. You'll just do it. It is a normal process of learning how to manage a budget and to confront our ideas with financial reality.