Structure Your Budget to inform
The structure of a budget determines how financial transactions are summarized. Your budget should be designed to inform the financial decision-making process. In addition to showing when and where you are over spending, it should provide the information necessary to scrutinize the variances. This is possible when transactions recorded against budget targets, are organized to provide information relevant to your particular situation.
Structuring a budget with the appropriate groups and categories, is often accomplished through trial and error, over a period of time. The chart above, can serve as a starting point. It contains eight (8) budget groups, each associated with one or more budget categories. The combination of groups and categories provide an opportunity to analyze activity in aggregate and in detail. In addition to knowing your household expenditure total; it might also be helpful to know the amount being spent in each category.
Upon inspection, you can see that the Food category is in the Personal Care group, while the Restaurants category is in the Discretionary group. This separation provides an opportunity to distinguish high-cost restaurant meals, from prepared meals or low-cost take-out. This structure allows for a more accurate representation of discretionary vs. necessary spending; which is useful information in the financial decision-making process.
Recognizing the significance of customized budget categories, the NetWorth2b Budget & Flow app was designed to accommodate an unlimited number of user defined budget categories in the Basic and Premium editions. The Premium edition has the added functionality of associating individual categories with groups, and providing group level analysis. Both apps are available for download on Google Play.