Chapter 02: What to Include in Your Budget

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Save more, spend smarter, and make your money go further

If you’re making a budget, congrats! For many people, having more money seriously adds to their freedom — and budgeting is a great way of giving yourself as much financial freedom as possible in the future, as well as improving your financial situation in the present.

In the previous chapter, we discussed what a budget is and how to create your own budget. But now you’re probably wondering: What should be included in a budget?

In this chapter, we’ll be discussing more in-depth the various items to include in a budget and how you can go about calculating your own budget. It may take some time before you figure out a budget that works for you, but having a budget is a crucial part of saving money and achieving financial freedom.

To learn more about things to include a budget to make sure you’re accounting for all of your expenses, continue reading the chapter from start to finish, or use the links below to navigate the post.

For more information about budgeting and how it can benefit your life, be sure to continue reading the remaining chapters in the series as well.

What Should Be Included in a Budget?

A budget should include your income, savings, debt repayment, and general expenses.

Income

To calculate your total income, you need to account for all of your different income sources. There are various ways you can earn money in addition to your main source of income, like by investing or taking up a side hustle.

In order to cover all your living expenses, it’s important to have a good salary, but sometimes that isn’t enough. In that case, you’ll need to either cut back on costs or figure out a way to make more money through additional income sources.

How to calculate your total income depends on if you get paid hourly, daily, weekly, or monthly.

  • If you get paid hourly, you’ll want to multiply your hourly rate by 2,000.
  • If you get paid daily, you’ll want to multiply your daily rate by 200.
  • If you get paid weekly, multiply your weekly rate by 50.
  • If you get paid monthly, multiply your monthly rate by 12.

If you have multiple income sources, you’ll need to combine them to figure out your total income.

Savings (Including Retirement)

Savings can include both short-term and long-term savings goals such as saving for your down payment, buying a new car, travel, and more. You may also want to consider including emergency savings as well—you can never be too prepared.

It doesn’t matter how old you are when you create your first budget, it’s never too early to start saving for retirement. Saving for retirement early means you can create and plan the future that you want, and it also means that you’ll be able to live comfortably when you’re older.

In addition to budgeting, another good way to save for retirement is to start investing. How much you spend on investments will differ for each person, so make sure you do some research into investing before getting started.

Debt Repayment

Living a debt-free life is the ultimate goal, but the only way you can really achieve that is by accounting for your debt in your budget. This can include credit card debt, debt from medical bills, college debt, or debt from numerous other circumstances.

Try paying off your smaller debts first before moving onto those larger, more daunting debts.

General Expenses

The items to include in a budget will look different for each person, as people have different circumstances that impact their spending, it’s still helpful to have a general idea of what to include in a budget. There are some key living expenses that most people include in their budget.

For the most part, the expense portion of your budget should consist of three basic categories:

  1. Necessities: Your necessities are essential expenses that you can’t live without, like rent and groceries.
  2. Savings: This can include your personal savings account, 401k, and more. Your savings are how much money you’re going to put away each month. The goal of budgeting is to allocate more money towards your savings, so try your best to not dip into your emergency savings unless absolutely necessary.
  3. Discretionary spending: Discretionary spending are non-essential items that you can purchase if you have money leftover. This includes expenses like recreation and entertainment.

Note that if your income doesn’t cover your expenses, you may need to cut your expenses to fit your budget.

Calculating Your Budget

You’ve probably practiced budgeting for groceries, rent and other housing costs using budgeting formulas, such as the 50/20/30 budgeting rule, which splits your finances into three main categories:

  • Essentials: 50% of your income
  • Savings: 20% of your income
  • Wants: 30% of your income


However, if you’re using a more nuanced formula, as you might with this online budget calculator, there are plenty of other small budget items that are all-too-easy to forget about. You can also try envelope budgeting, which is a money management technique to help you keep track of how much money you have by putting your cash in physical envelopes.

Another good way to save money is with the 52-week money challenge, which is when you start with saving $1 in the first week of the challenge, and then going up a dollar each week after, so by week 52, you’ll be saving $52. With this money challenge, you should have saved a total of $1,378.

The last thing you want to happen is to be in a budget deficit. A budget deficit is when your spending is greater than your revenue, which can end you up in a lot of debt. But learning how to budget is a great way to prevent this from happening.

Budgeting will help you save money and prevent you from spending beyond your means. It’s also important to have the right amount of money in your checking account to reduce the risk of fees and ensure you’re in a good financial position.

25 Things to Include in Your Budget

Here are 25 common things to include in a budget:

  1. Rent
  2. Food and Groceries
  3. Daily Incidentals
  4. Irregular Expenses and Emergency Fund
  5. Household Maintenance
  6. Work Wardrobe and Upkeep
  7. Subscriptions
  8. Guests
  9. Travel Expenses
  10. Memberships
  11. Prescriptions and Medicines
  12. Pet Care
  13. Bank Account Fees
  14. Parking
  15. Car Registration
  16. Entertainment
  17. Birthdays
  18. Holiday Gifts
  19. Charitable Contributions
  20. Labor Union Dues
  21. Child care
  22. Healthcare
  23. Education
  24. Personal care
  25. Utilities

Some of these 25 budget items might not apply to you, but they are all things that are frequently overlooked by those who are budgeting.

1. Rent

The first and biggest fixed expense to consider is your rent or mortgage payment. Not that your mortgage payment will also likely include your property taxes and home insurance, along with principal and interest on the loan.

Your rent expense refers to how much you spend towards rent on a monthly basis. It’s such a big item, it might even be easy to forget! But be sure that you are allocating a portion of your monthly income to paying rent and other associated living expenses as well. Saving for a down payment on a house is another expense that you can include in this section in your budget.

2. Food and Groceries

Food can be a pretty big expense if you don’t budget wisely. If you’ve moved out and have a new job, you might get carried away going to new restaurants and ordering appetizers, dinner, and drinks on a regular basis. Don’t fall into this temptation; instead, add food costs to your budget, and set aside a fixed amount for eating out.

The majority of your budget should be put toward groceries, which will save you money long-term. It’s important to calculate your grocery budget at the beginning of each month to make sure you don’t overspend. Using a meal prep service can also be a good way to save money and reduce the amount of times you go out to eat.

3. Daily Incidentals

It might not seem like you’re spending a lot of money on your daily latte from your favorite cafe, or a drink after work. But these costs can add up substantially over the course of a year. You should try and total these costs and include them in your budget.

4. Irregular Expenses and Emergency Fund

It’s difficult to budget for one-off expenses because you won’t know about them in advance, but you should always have some money set aside for them. If you learn about an impending expense (like a wedding) you won’t be caught off guard. Irregular expenses can sometimes shred your monthly budget, so try and set aside money for them even if it’s only a one-time thing.

5. Household Maintenance

Household maintenance is an inevitable living expense. If you hire cleaners to clean your apartment once a month, or take your car to the carwash, be sure to include these costs in your budget. Household cleaners, repairs or replacement for damaged appliances, and furniture cleaning can all be expensive as well, and you should remember to budget for these.

6. Work Wardrobe and Upkeep

Does your workplace require that you wear a suit and nice shoes? Then budget for the cost of replacement items as they wear out and also budget for the cost of dry cleaning and shoe repair. A solid work wardrobe may be essential if you’re going to continue making a good income.

7. Subscriptions & Data

Subscriptions to music services, streaming services, and online publications are frequently overlooked in household budgets, so be sure to include them if you have them. Remember that you should also budget your phone and data usage to make sure your plan isn’t too expensive for your means.

8. Guests

Do you have family or friends that visit you each summer or for the holidays? If so, then you’re probably going to spend extra money on groceries, laundry, and transportation when they visit, not to mention your “showing friends around town” expenses. The best way to account for this budget item is to put a small amount of money away each month, even during the months where you’re not going to have any visitors.

9. Travel Expenses

The opposite of the last item, you’ll want to budget your trip whenever you travel out of town to visit family or friends. How much you choose to budget for depends on how you’ll be traveling, where, and how far. Figure out where you’ll be traveling and determine what the gasoline/train/flight costs will be, and also be sure to budget for lodgings and food.

Vacationing is a whole different story. Typically, long vacations require their own distinct budget because there are so many costs associated with longer trips. Including your travel expenses in your budget is a good way to make sure you allocate enough money towards your trips and don’t overspend when you’re on them.

10. Memberships

You might have to pay monthly fees if you’re a member of a gym or yoga studio. Definitely include these budget items in your budget. If you’re a gym member, be sure you keep track of how often you actually go to the gym. It’s so easy to sign up for a monthly gym membership and wind up not going for a long period of time. Memberships can be pretty expensive, so make sure you make a habit out of going so it’ll be worth the expense (plus, your body will thank you for it).

11. Prescriptions and Medicine

It’s difficult to predict prescription costs because you never know when an illness is going to strike, but you should include over-the-counter medications on your budget. Common budget items medicines include Tylenol, Advil, Tums, and Claritin.

12. Pet Care

Our furry friends bring so much joy to our lives, but they can also take quite a bit out of our budget. Be sure to plan for veterinary costs, like vaccinations and checkups, as well as monthly costs like grooming and pet food.

13. Bank Account Fees

Banks occasionally charge fees for their services, including low balances, transfers, account maintenance, and overdrafts. Include these costs in your budget. You can use these budget items to determine where your finances are going awry every month.

You might also consider switching from a corporate bank to a credit union. Credit unions usually have much lower rates and fees than large banks.

14. Parking

Parking is another expense that’s easy to forget about, but it can add up in huge increments over time. If you’re commuting to work in an urban area, chances are you’re going to have to pay for parking now and then, or perhaps you’ve signed up for a monthly parking plan at your job or at a parking structure. Include these expenses in your budget, and leave additional room for when you’re going to pay for parking when you visit an amusement park or when you’re traveling.

15. Car Registration

Most people budget for gasoline costs, but people often forget to budget for car registration costs. In some states, like California, car registration can be fairly expensive, so you’ll want to account for it in your budget so you won’t be surprised when you get that notice in the mail that your current registration is about to expire.

16. Entertainment

Who says that you can’t budget for fun things, too? You should budget for any and all expenses that pertain to “having fun,” whether that’s going out clubbing, going to the movies, or attending concerts.

It’s difficult to budget for entertainment because you might never know when you’re going to be doing something fun (some people prefer to be very spontaneous with their entertainment activities).

When you’ve itemized all your living spaces, determine how much money you have left over and set aside a decent portion of it for entertainment purposes. Even if you don’t use your entire entertainment budget each month, you’ll be able to put the extra cash away in savings or roll it over to the next month.

Don’t be afraid to give yourself more than a few bucks for entertainment! Saving money is no fun if you’re always stuck at home. And always remember that the more you cut back in other areas, the more you’ll be able to allocate to your entertainment budget.

17. Birthdays

Budget for birthdays! Even if you prefer your birthday to be low-key, you might want to dish out some money on a cake or a nice bottle of wine, and you should always keep some money in the budget for friends’ birthdays. If you have children, you’ll definitely want to budget to throw birthday parties. (You can use any leftover for savings, or create a back to school budget!)

18. Holiday Gifts

The holidays can be taxing because of the huge financial strain that gift-giving has. But you can make the holidays a whole lot easier on yourself and your finances if you practice holiday season budgeting. Estimate how much you typically spend on gifts around the holidays, and then divide by 12: that’s how much money you’ll want to put away each month.

Here’s a pro tip for you: oftentimes, memories are far more worth the expense than a gift is. If you don’t have young children, you might consider taking your family on a short vacation rather than spending an exorbitant amount of money on gifts. You could spend a huge deal less, you’ll cut down on all the time you spend holiday shopping, and you’ll create memories with your family that are far more valuable than material goods.

19. Charitable Contributions

A donation to a favorite charity is a worthy expense, and it’s an item that you should definitely include when you’re planning out your budget if you’re altruistically inclined. Make a list of your favorite charitable or religious organizations you may want to donate to on a monthly or annual basis. You might also want to leave room for “unexpected charitable causes,” such as fundraisers for injury-stricken people.

20. Labor Union Dues

You might not pay much attention to this budget item if your dues come out of your wages, but if they don’t, you’ll definitely need to include them on your budget. You can either include them as an additional expense, or you can generally subtract them from your income.

21. Child Care

If you have children, including child care expenses in your budget is crucial. Child care expenses including things like a babysitter, summer camp, daycare, or any other type of care provider. These costs can add up quickly, so it’s important to include child care expenses in your budget to make sure you account for them in your budget.

22. Healthcare

It might be easy to overlook that copay that you pay for every time you go to the dermatologist, but copay costs can seriously add up over time. Healthcare costs will likely become more apparent in your spending as you get older, so it’s definitely a good idea to include health in your budget now to get in the habit.

23. Education

Education expenses will apply to those who have children, but this can include any age group. Education expenses will include things like school trip fees, school supplies, tutors, educational subscriptions, and college textbooks.

24. Personal care

Do you see a therapist each week? Or do you achieve self-care in the form of monthly facials? Personal care is crucial for your mental health, but it’s also important to include these expenses in your budget. If you need to cut back on costs, you may want to think about switching to monthly therapy or doing at-home facials instead of going to a spa.

25. Utilities

Having a separate category for utilities in your budget can really help to make you aware of how much you’re spending on household costs. Utilities will include things like:

  • Water
  • Electricity
  • Gas
  • WiFi
  • Trash

There are various ways you can go about lowering your utility bills, like taking shorter showers, washing your clothes in cold water, and turning down the thermostat when you sleep.

Whether you include all of these items in your budget or only a few of them, you’re bound to ease your money stress and improve your finances when you begin budgeting and tracking your spending.

What If I Forget Something in My Budget?

So, you forget to include something in your budget– don’t panic just yet. Forgetting to include something in your budget is not the end of the world, especially if you’re new to budgeting.

If you forgot something in your budget, you’ll just have to cut back on some other expenses to make up for the expense you forgot to include. You might not be able to eat out as much as you planned for this month, but that’s okay! Just make sure to include that expense in your budget for the next month.

Figuring out what to include in your budget takes practice, but once you figure out what works best for you, you’ll have much better control over your finances.

Budgeting May Take Some Practice But It’s Worth It

Budgeting is a learning process, and it’ll most likely take some trial and error before you figure out a budget that works for you. What to include in a budget will differ for each person, but the items listed above are a good place to start. If you need help with budgeting, you can use Mint to make a budget for free, or you can try our free budget template.

So now that we’ve answered the important questions of “What is a budget?” and “What should I include in my budget?”, we can move onto the next chapter in our budgeting series, which is where we’ll discuss how you can figure out your living expenses and income and how you can manage that with a good budget.

Save more, spend smarter, and make your money go further

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