For many of us, especially budget nerds, there’s a tendency to make our budgets overly complicated—with categories for everything. [Clears throat. Raises hand.]
Hi, I’m Ben “Granularity” Barlowe, and I used to have too many budget categories. What’s “too many,” you ask?
The answer is simple: if you’re paying more attention to sorting transactions than you are to your financial goals, you probably have too many categories. Budgeting is supposed to help you see the big picture, not create busy work!
If you’re not sure what I mean, here are four methods that you can use to check your budget before you wreck your budget:
1. Split Transactions, Not Hairs.
Take, for example, your grocery category. When we go to the grocery store, we don’t just buy food—we buy cleaning supplies, pet food, toiletries and makeup (oh my)! One-stop shopping is not only convenient, it’s nearly impossible to avoid.
So, does this mean that every time we go grocery shopping, we need to split our transaction five ways? In a word? No. Do yourself a favor, and file the entire transaction under your ‘Groceries’ category. Easy! Record your spending, and move on with your life. Don’t worry yourself over recalling the particulars of what you bought.
This approach may make the Detailed Danas in the room a little nervous—and, if there’s a strategic reason that you need a particular category singled out on its own, that’s fine. But really consider your data and ask yourself, “Is it actually useful to know how much money I budgeted for cleaning supplies?”
Maybe the answer is “Yes, absolutely,” or maybe you’ve found a little wiggle room for simplifying your budget!
2. Combine Categories If It Makes Sense.
And, speaking of housekeeping, let’s take a peek at your budget, shall we? If you’ve got a million categories, it makes budgeting quite the chore. There’s nothing more tedious than scrolling through an endless list of categories to find the one you want, and it doesn’t have to be this way!
One solution is to pin important categories to the top of your budget in the mobile app. An even more powerful tactic is combination categories. For example, I’ve created a category in my budget called ‘Fixed Bills’ for any bill that is:
- Monthly, and
- The same amount every time.
I made a note on this category, and added emojis, to help me keep track of which bills go in there. This merges six of my categories into one, and you might even have more!
Here’s another example, just for fun. Consider combining all (or some) of your entertainment and eating out categories into a single ‘Fun Money’ category—because do you really need separate categories for books, entertainment, music, gaming, movies, eating out and coffee? Probably not.
Of course, it may help you stay accountable to track some things separately, especially if you’re trying to cut back in that area. The idea isn’t to combine everything, it’s to find like categories that go well together. Maybe you decide to merge ‘Coffee’ and ‘Eating Out’ but leave the rest. That’s still one small step toward simplification.
3. Save in Specific Categories,
Spend in General Ones.
Saving money is exciting. There, I said it. As one YNABer, Carsen, put it, “Giving dollars jobs is like getting to spend the money before you spend the money (and who doesn’t enjoy spending money?).”
And the jobs that you give your dollars could be paying for your next new phone, a house project, a new refrigerator or a vacation. Whatever you’re saving for, it’s motivating to know that you’re chipping in for a future purchase that will make your life better—and the specificity is what’s so motivating!
But what happens after we pay for the new fridge or go on that vacation? Do you really need a category called ‘Whirlpool WRB322DMBB’ or ‘Woohoo! Costa Rica, 2017, Baby!’ floating around in your budget? It’s a personal choice, but my guess is “No.”
Even if you hide those old categories when you’re done with them, it’s just extra clutter. So how can you save for specifics (that vacay category name is pretty motivating!), without the category remnant muddling your spending reports? Easy! You need a Wish Farm.
With a Wish Farm, you can plant specific seeds (Costa Rica, 2017!) but, when you harvest your crop (Costa Rica, 2017!), you record the expense under a more general category (Travel). Then you delete your old Costa Rica category and your reports remain clutter-free. Be sure to read that blog post to become a Grade-A Wish Farmer.
4. Revisit and Revise.
Last, but not least, remember that your budget is a living, breathing thing. Life changes, and budgets should, too. Don’t feel like you have to get it perfect right now—these aren’t permanent decisions. Play with it!
Try a separate category for your coffee purchases for a while—maybe you need a little more focus there. But, when you’re in control, maybe you wrap that back into your ‘Eating Out’ or ‘Fun Money’ category. Your call.
The point is, keep it simple (where you can!), and always go back to our original question: “Will adding this category actually change my behavior?”