What Categories Do You Need In A Budgeting App? Demonstrated With Monarch Money

Taylor, a financial coach, discusses the importance of effectively categorizing expenses in budgeting apps like Monarch Money to simplify financial management. She emphasizes that categories should be customized to individual needs and highlights four main reasons for categorizing: tracking bill payments, monitoring spending habits, identifying trends, and enabling guilt-free spending. Taylor advises against overcomplicating with too many categories and suggests focusing on fixed, flexible, yearly expenses, and savings. She critiques common budgeting structures like the 50/30/20 rule and paycheck-based budgeting, advocating for a more personalized approach to achieve financial goals.

• Budget categories are essential for organizing finances, allowing individuals to track payments, monitor habits, observe trends, and spend money without guilt.
• Categories should be personalized to fit individual needs and financial goals.
• The primary purpose of categories is to facilitate informed and quick financial decisions.

"The goal of a budgeting app is not to spend hours and hours inside your budgeting app. It is to help you make informed, fast decisions that become habit and second nature."

• Budgeting should streamline financial decision-making, not complicate it.

• Categories help ensure necessary bills such as rent, insurance, and utilities are paid on time.
• They prevent missed payments and provide peace of mind regarding financial obligations.

"We want to see that those payments have been made, nothing's been missed."

• Categories serve as a safeguard against missed payments, ensuring financial stability.

• Categories allow individuals to track and potentially modify their spending habits.
• They can be used to gamify the reduction of unwanted expenses, such as cutting down on soda consumption.

"You might have a category specifically for soda because maybe if you're trying to quit that, you can gamify that process."

• Categories can assist in habit tracking and modification through data-driven insights.

• Categories are valuable for identifying spending trends over time, such as dining out versus grocery shopping.
• They provide data that can inform future financial decisions.

"I like to monitor trends of food budgets. I really like to see what months I'm going out to eat more versus going to the grocery store more."

• Categories help visualize spending patterns, aiding in better financial planning.

• Categories enable guilt-free spending by allocating funds for specific indulgences or entertainment.
• They provide clarity on available funds for discretionary spending, reducing financial anxiety.

"The goal for creating a budget for that category is so you can spend it without feeling guilty."

• Categories help balance enjoyment with financial responsibility, promoting stress-free spending.

• The number of categories can vary based on personal preference and financial goals.
• Some individuals may only need a few broad categories, while others may prefer detailed tracking.

"You do not have to have very many categories. There are people who have three categories: one for bills, one for their savings, and one for their variable expenses."

• The effectiveness of budgeting is not determined by the number of categories but by how well they align with personal financial goals.

• Popular structures like the 50/30/20 budget allocate 50% of income to necessities, 30% to wants, and 20% to savings.
• This structure provides a balanced approach to budgeting, ensuring essential needs are met while allowing for savings and discretionary spending.

"The 50/30/20 budget is 50% of necessities like your rent, utilities, and all that stuff, 30% of your budget goes towards wants, and 20% of it goes to savings."

• Structured budgeting frameworks offer a guideline for financial allocation, promoting financial health and goal achievement.

• Distinction between necessities and wants can be subjective and challenging to define; not often used with clients unless for educational purposes.
• Focus on saving 20% for retirement as a primary budgeting goal.
• Budgeting strategies should be flexible, adapting to individual lifestyles and values.

"There is a lot of discrepancy between what is a necessity and what is a want. It can get very jumbled, and you can really justify anything into necessities if you really want to."

• Highlights the difficulty in categorizing expenses as necessities or wants due to subjective interpretation.

"If I can get people to be saving 20% for retirement, that is absolutely the goal. That is the key number one goal I have for budgets."

• Emphasizes the importance of prioritizing retirement savings within budgeting plans.

• Budgeting by paycheck is seen as a temporary strategy; the ultimate aim is to eliminate the stress of timing bills with paychecks.
• Establishing an emergency fund is crucial to move away from paycheck-dependent budgeting.

"I do not want you to be stressing about when a bill is going to come through and if you have the money in your checking account."

• Underlines the stress associated with paycheck-to-paycheck budgeting and the need to develop financial security through an emergency fund.

• Budgets should be divided into fixed expenses, variable expenses, yearly expenses, and savings (short-term and long-term).
• Fixed expenses are recurring and unavoidable, while variable expenses are choice-driven and influenced by personal habits.
• Yearly expenses require monthly savings to ensure funds are available when needed.

"We have your fixed expenses, these are things that are just going to come out no matter what, they are recurring, they're regular."

• Describes fixed expenses as unavoidable and consistent financial obligations.

"Variable flexible behavior, choice-driven, those are all a bunch of words for the exact same thing. It is things that you have to actively pull out your card to pay for."

• Defines variable expenses as those influenced by personal choices and habits, allowing for more control and adjustment.

• Monarch is a tool that can be used to categorize expenses into fixed, flexible, yearly, and savings categories.
• Users can customize categories and groups to fit their personal budgeting style, such as organizing by paycheck or by type of expense.
• Tutorials and setup guides are available to help users effectively organize their budgets within Monarch.

"As you can see when you get set up in Monarch, you're going to have these sections already populated: gifts, auto, transport, housing, bills, utilities."

• Explains the pre-populated categories in Monarch that can be customized according to individual needs.

"You can do this in a couple different ways to categorize and reorganize this stuff. You can do it by grouping, so like I want all my home stuff and then maybe subscriptions, then auto."

• Offers options for organizing expenses within budgeting tools, emphasizing flexibility and personalization.

• Savings categories should include non-regular expenses like travel, gifts, special occasions, auto maintenance, and home improvement.
• Simplifying budget categories can help manage finances more effectively. Unnecessary subcategories, such as gifts and donations, can be removed or consolidated.
• Consider whether gas expenses should be categorized as fixed or lifestyle expenses, depending on personal driving habits and consistency.
• Expenses related to taxis, rideshares, and parking might be better categorized under entertainment or travel, depending on usage context.

"Now I'm going to get rid of the categories that I don't really care for so for like gifts and donations I don't really need a subcategory for that."

• Removing unnecessary subcategories simplifies budget management, allowing for a more streamlined financial overview.

"I actually have a debate going on whether gas goes into fixed expense because it's something that like normally is fairly regular if you're driving you know fairly consistently."

• Gas expenses can be categorized based on personal usage patterns; regular usage might justify placing it under fixed expenses.

"I put it in towards like entertainment I went out to see a show and I had to pay for parking or I, you know, traveled and I had to get an Uber."

• Context-based categorization helps accurately reflect the purpose of expenses, such as associating parking and rideshare costs with entertainment or travel.

• Deactivating or disabling categories can help maintain a cleaner budget structure, especially when certain categories are not relevant.
• Manual recategorization of transactions is necessary when deactivating categories with existing transactions.
• Avoid excessive categorization to ensure a sustainable and manageable budgeting process.
• Consolidating similar categories, like fund money and entertainment, can reduce complexity in budget tracking.

"I'm just going to go ahead and disable those deactivate disable and then you'll see all of these are disabled."

• Disabling irrelevant categories keeps the budget structure tidy, even if they cannot be fully deleted.

"You want to be very deliberate you do not want too many categories because the more categories you have the more things you have to manually go in and sort through in your transactions."

• A deliberate approach to categorization minimizes manual sorting and enhances budget accuracy and sustainability.

"I generally get rid of fund money because I think that's the same thing as entertainment."

• Consolidating overlapping categories reduces redundancy and simplifies financial tracking.

• Personalizing budget categories to fit individual or family needs can improve financial management.
• Categories like lifestyle, shopping, and children should be retained if they align with personal spending habits.
• Renaming categories to reflect personal financial goals or preferences can enhance clarity and usability.

"I'm going to rename this one to just lifestyle because I have my travel stuff in the other savings categories."

• Renaming categories to align with personal financial strategies helps maintain clarity in budgeting.

"I keep lifestyle I keep shopping, I keep children."

• Retaining relevant categories ensures that the budget reflects actual spending habits and priorities.

• Organize fixed expenses such as student loans and regular bills at the top of your budget for easy tracking.
• Regular payments, like property taxes, can be categorized under savings to build reserves for future payments.
• Categorize medical expenses under savings if they are not frequent, and consider moving regular subscriptions like fitness back to fixed expenses if they are consistent.
• Keep a miscellaneous category for necessary but irregular expenses and avoid cluttering it with unnecessary items.

"If you're paying on your student loans, this is a regular fixed expense, so I'll just put that up here."

• Emphasizes the importance of categorizing regular, unavoidable expenses like student loans as fixed expenses.

"Sometimes medical is also a savings category; you can move that down."

• Suggests categorizing infrequent medical expenses under savings to accumulate funds over time.

• Focus on expenses within your control, such as groceries and shopping, where you can adjust spending as needed.
• Utilize a strategy of moving funds between categories to manage overspending in certain areas.
• Gamify and strategize your budget management to make it engaging and effective.

"You can play with this; you can gamify this; you can strategize throughout the month."

• Encourages a flexible approach to budgeting by adjusting spending and making it a strategic activity.

• Enable roll-over for savings categories to accumulate funds over time for long-term goals.
• Avoid creating specific categories for one-time expenses; instead, use tags for tracking such expenses.
• Set long-term financial goals, like saving for a home, within your budget framework.

"You're going to set all of these to roll over so that they can build."

• Highlights the strategy of allowing savings to accumulate over time to meet future financial goals.

"If you are moving, do not create a category for moving; what you can do is put it as miscellaneous and tag it."

• Advises against creating unnecessary categories for one-time expenses, suggesting tagging instead.

• Consolidate all subscriptions under a single category to simplify tracking and management.
• Differentiate between annual and monthly subscriptions, possibly using savings categories for annual ones.
• Consider creating subcategories for individual spending within a household to track personal expenses.

"Just create a category for subscriptions, but all subscriptions under the one same category."

• Suggests simplifying subscription tracking by consolidating them into one category.

"You can either create a category called partner one spending money, partner two spending money."

• Offers a method for tracking individual spending within a household by creating personal spending categories.

• Focus on creating categories that support making sustainable lifestyle changes to reduce debt and increase savings.
• Engage in continuous learning and feedback on budgeting strategies to improve financial management.
• Be open to exploring different categorization methods that align with personal financial goals.

"We really just want you to be creating categories where you can focus on making changes, making sustainable lifestyle changes."

• Encourages the creation of budget categories that facilitate long-term financial health and sustainability.

"I'd love to give you some feedback on if I've seen that work or not."

• Promotes openness to feedback and learning to enhance budgeting effectiveness.