Types of Budget Categories

We’ve been budgeting for about 6 years.  Every week for the first 5 years but over the past year we’ve dropped down to once a month.  We are on track to save 50% of our income this year and 60% next year.  There are several factors, but one has been our budgeting methods we built over the years.

Here are just a few ways to budget that have helped us get our money under control.  Or as Dave Ramsey would say “Tell our money where to go.”

Most folks who have a budget have their categories set.  Mortgage, utilities, etc.  But there are different ways to budget each category.  Let’s look at a few and the pros/cons of each.

Cash

This is the old tried-and-true way to get your money under control.  Pushed heavily by Dave Ramsey.

Pro

  • This one is good for categories that we have trouble controlling. So, we use this for things like coffee, family dining, groceries, etc.

Con

  • Not a good one to use for things like Insurance, Mortgage, etc.

Bucket accounts

These are categories that we keep electronically but that behave like cash envelopes.  If we don’t use the money in them, they still get more the following month and that money can accumulate to be spent on something big.  We use this for categories like Furniture, Clothes, Date Night

Pro

  • The accumulation rewards not spending and allows for bigger spending later.

Con

  • The lower spending doesn’t improve the monthly net income to do things like pay off debt or invest.

Use-it-or-Lose-it accounts

These categories are the standard way of budgeting.  For example, if you budget $100 and only spend $50, then you have $50 more in net income.  We actually don’t use these at all, but I’m mentioning them because they are the simplest method and usually how most people start out.

Pro

  • If nothing is spent in that category, that money can be re-deployed to the balance sheet to pay down debt or invest.

Con

  • It can’t be used to purchase larger items or accumulate a bit of a balance “just in case”.

What We Use

Over the years we’ve settled on using Cash and Bucket accounts for everything.  Here are few reasons why.

  • If we accumulate a little bit of an extra balance in each account, it gives us a cushion or mini-emergency fund if something larger comes up. For instance, we contribute $50/mo to our Date Night account.  But we like to keep a $100 baseline balance in case we want to splurge a little bit.  We still try to spend $50/mo so the account fluctuates between $100 and $150 as we add to it and spend from it.
  • It rewards not spending. If we spend less, the balance goes up so that we can think bigger about what we want to buy.  Also, the longer we wait, we usually can find deals and discounts on whatever it is we want to buy.
  • Note that if it gets too big, we will take the excess and use it elsewhere and decrease the monthly contributions to that account.
  • Tithing.  I love how this impacts tithing.  We maintain a few thousand dollars in this account so that we can give when we’re called or a sudden appears.  It allows us to give consistently but also be flexible when needed.

Cash Accounts (almost all of them)

  • Groceries
  • Family Dining
  • Friends Dining
  • Clothes
  • Blow money
  • Coffee

Bucket Accounts (there are a lot of these, so here are just a few)

  • Vehicle – Registration, repair and maintenance, insurance, gas etc
  • Home – Repair, household, yard maintenance
  • Utilities – Water, power (gas & electricity)
  • Recreation – This is for things like gym membership, kids sports teams and equipment etc.
  • Date Night
  • Tithing
  • Gifts
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