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5 Tips for Setting Up Your First Budget


4
Break Down Spending Into Categories
You'll think differently about your spending habits once you break everything down into groups.
You'll think differently about your spending habits once you break everything down into groups.
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After you've gathered your credit card and bank statements from a particular month, you can start to break that information down into meaningful categories. This will help you visualize where your money goes instead of just looking at a list of specific transactions. You can start by separating transactions into types. For instance, those purchases at Olive Garden and McDonald's can all fall under the category of "eating out," while other categories can include groceries, entertainment, gasoline or utilities.

Once you've done that, you can further separate your expenses into the more technical categories of fixed or non-fixed and discretionary or non-discretionary expenses. Fixed expenses are ones that don't change from month to month (like rent), but non-fixed expenses fluctuate (like utilities). Discretionary expenses are unnecessary, while non-discretionary expenses are necessary.

Using these categories can get sticky. For instance, one might consider rent a non-discretionary expense, but then again, perhaps your budget will force you to move somewhere cheaper. And although food is necessary, you might be paying too much for groceries. And just because an expense is fixed doesn't mean it's non-discretionary -- consider your cable bill or gym membership. But using these categories will help you make important choices in your budget planning.


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