I’m all about intuitive spending. You should have the freedom to spend as you please (to a certain extent of course).
That’s where the 3 category budget comes in. You do not need a laundry list of categories in order to successfully save money and reach your financial goals.
Having a budget that does not serve you can lead to stress and become difficult to maintain.
The first step in creating any budget is to evaluate your current spending habits. Once you audit all of your expenses you’ll be able to better allocate your income to the 3 categories.
This is your largest category! It should include things like your rent/mortgage, utilities, debts, car insurance, etc. All of your fixed bills that are necessities should be in this category.
This should include all of your current savings goals. Whether you’re saving for your emergency fund, sinking funds or your first house. This category should be determined based on your current financial goals.
The best category! This is all of the money you have to spend on variable expenses like groceries, the hair salon, and eating out! This is the category that gives you the most freedom to spend as you please.
This looser budget will cause you less stress because you won’t constantly need to be tracking all of your expenses. Once you set the first two categories on auto-pay, the spending is easy to track because it’s the only amount that’s left in your checking account! Whatever is left over you can roll over into savings.
This 3 category budget helped me max out my Roth IRA last year and buy my first house. But remember, personal finance is personal so you have to do what’s right for you. If you like the detailed budget then stick to that! Whatever you find most sustainable is the right method for you.
Kseniya is a licensed real estate agent in Tampa Bay and founded The Money Minimalists to teach others how to achieve their financial goals (like buying a house!). Her blog focuses on real estate, budgeting and personal finance tips. You can also follow her on Instagram.