WalletHub asked a panel of experts to share some advice on how people can organize their budgets.
Qiyang (Cliff) Lian
Ph.D., CPA, Assistant Professor of Accounting – University of Wisconsin – Green Bay, Cofrin School of Business
What are the most important categories to include in a budget?
Categories like housing, food, and utilities are always prioritized and often predictable. In contrast, contingencies like car repairs or urgent care visits are difficult to forecast. If an individual has not yet established an emergency fund, it is prudent to treat these expenses as a recurring item. This approach reduces the need for high-interest credit during financial shocks and promotes long-term financial health.
What categories do people often forget to include?
A frequently overlooked category is deferred tax liability. As side hustles and contract work become more common, many receive gross income without tax withholding. Similarly, retail investors often overlook the capital gains tax implications of day trading. One approach is to set aside roughly a third of non-W2 income into a high-yield savings account to prevent a liquidity crunch during tax season. As individual tax brackets and local obligations vary significantly, consulting with a CPA can be beneficial.
Is it possible to have too many categories in your budget?
In cost management—specifically within Activity-Based Costing (ABC)—we stop “going down the rabbit hole” when the cost of identifying further cost drivers exceeds the marginal benefit of that information.
For instance, an individual may micro-categorize meals, drinks, and supplements rather than using one single “food” umbrella. While granular tracking offers deep insight, the administrative burden often leads to “budget fatigue” and unnecessary stress over minor variances. A more sustainable, cost-effective approach is to aggregate related expenses into broader functional categories.
What are some tips that can help people organize their expenses better?
Some prefer marking due dates on a calendar to ensure timely payments, while others utilize autopay, which requires a cash buffer to avoid overdrafts. The key is finding a system that aligns with individual habits. The same logic applies to organizing expenses: start with a standard framework, test it, and tweak it to suit your lifestyle.”
Source: Budget Categories | WalletHub