Tracking all spending every day for a month is critical for getting on grasp on where your money is going. [See previous article.] This information will eventually lead to making the best spending decisions in order to maximize your monthly surplus, reduce or eliminate debt, and begin saving for your future. Since financial problems are a leading cause of marital conflict, these steps will also lead to a happier and healthier marriage.Step two in the process of fixing your family financial problems involves organizing your spending into meaningful categories. These same categories will also serve as budget categories for your spending plan in later steps. Organizing your expenses in this way is something you must begin to do consistently and regularly. Initially you will just be doing this in order to visually analyze your spending (next step), but later you will use this information to make spending and budgeting decisions.
Recommended categories include: tithes/giving, taxes, housing, grocery/food, clothing, transportation, medical, education, insurance, debts, entertainment/recreation, savings, investments, and miscellaneous.
Tithing/Giving includes the tithes and offerings you give to your church as well as other charitable donations you may give.
Taxes includes all of the taxes that are withheld from your paychecks. Or, if you are self-employed it includes the amount you put into escrow or savings for future taxes.
Housing includes your mortgage payment or rent, utilities, home repairs/maintenance/improvements, homeowners or renters insurance, and so forth. Cable, mobile phones, internet and related expenses should probably not be included in this category since they are optional expenses that are not necessary to maintaining a residence (put them either in entertainment/recreation, miscellaneous, or a separate category).
Grocery/Food is basically your grocery expenses. Generally dining out would be included in your entertainment/recreation category, but there are some situations in which one may decide to include some of these expenses in the food category. Many people may include personal/hygiene items (i.e. soap, shampoo, deodorant, toothpaste, bathroom tissue) in the same budget category as groceries because these expenses are necessary and often purchased from the same store at the same time. Optionally one could create a separate budget category for personal/hygiene items if desired.
Clothing simply includes the money spent on clothing, shoes, and related accessories for your family.
Transportation includes car payments, car insurance, gas, oil changes, tires, vehicle maintenance and repairs, and so forth. If you routinely use public transportation such as bus, train, subway, etc. these costs will also be included in this category.
Medical includes all medical/dental/optical related expenses. Examples include: medical insurance payments, contributions to medical expense (or similar) accounts, money spent on medical care (including co-pays, etc.), all doctor or hospital bills, medications, and so forth.
Education includes all expenses related to schooling for you, your spouse, and children. This includes tuition costs or school bills, school books and supplies, etc. Money spent on extra-curricular school related activities may be included here or may be included in entertainment/recreation, depending on the circumstances. Daycare expenses may be included in this category, or may be tracked in a separate category if desired.
Insurance will include all insurance payments not included in other categories (e.g. home and mortgage insurance is included in "housing", car insurance is included in "transportation"). Life insurance is the most common expense in this category, but there may be others.
Debts includes all payments you make for consumer debt (all debts except for house and vehicle loans). This includes all credit cards, personal loans, department or specialty store cards and financing, money owed to family or friends, and so forth. Some may include student loans in this category while others decide to include them in the "education" category.
Entertainment/Recreation can include a variety of different expenses. Basically anything you and your family do "for fun" belong to this category. This would include vacation related expenses, dining out, hobbies, memberships, and many other things. Typically these are not necessary expenses, but rather money spent on things we enjoy. Some people distinguish between fun and fitness and may put expenses related to the latter in a separate category.
Savings simply includes all money put into some type of savings or account.
Investments refers to all money contributed to some sort of investment including retirement, funds, stocks, and others.
Miscellaneous refers to all expenses that do not fit appropriately into any of the aforementioned categories. Generally this category should not have much in it. If there are particular related expenses that you spend for continually or frequently, consider making custom categories for these expenses (e.g. fitness, work related, daycare).
Articles in this series...
--- Introduction
(1) Track all spending daily for a month
(2) Organize spending into meaningful categories
(3) Analyze your spending
(4) Establish a spending plan (budget)
(5) Work your plan
