Learn to organize your money by category 

Organize your money by category allows you to keep track of everything you spend during the month.

This categorization can be done in different ways, but the ultimate goal is always to separate spending by type.

In this way, you determine the amount you need for each category, so that you don’t spend too much money on one area of your life.

Categorizing expenses also serves to ensure that you have enough money to cover what you need every month.

Why should you organize your money by category?

In addition to those mentioned above, it’s interesting that you know the other benefits of this financial categorization in order to understand its importance.

Knowing how much you earn and how much you spend each month can be very enlightening. 

It’s in this way that you’ll understand why you’re in the red and even how to get out of the situation.

So, this strategy serves as the first step towards organizing your finances.

This way, you’ll be able to save money to invest and achieve your big dreams.

However, you will understand in more detail below the importance of this strategy for your finances, as there is another very good argument for you to categorize your spending as soon as possible: your health and well-being.

Being in debt and having a disorganized financial life can cause a number of problems for your physical and mental health. 

That’s why it’s essential to organize your money by categories

All the worry you have due to a lack of money can make you mentally ill.

A person who has a bill to pay next month and doesn’t have the money they need faces many stressful moments.

As the day approaches, the person develops enormous anxiety.

According to a study carried out in South Africa, mental illness can increase a person’s risk of a heart attack by 13 times.

Lack of money can also lead to mental problems such as stress, anxiety and even depression.

By learning to categorize your cats, you’ll know how to take care of your financial health, as well as your physical and mental health and well-being.

Here’s how to do it:

How to categorize personal spending?

First, to organize your money into categories, write down everything you earn each month.

If you have a fixed salary, enter the amount.

Also, if you work overtime or sell any products to supplement your income.

Everything you do to earn money during the month or passive income you receive should be listed.

There’s no way to classify personal expenses efficiently if you can’t see how much you’re earning in the current month. This is one of the main tips for good financial planning. 

So, the next step in organize your money into categories is to analyze whether your consumption is consistent with the amount you receive each month.

To do this, record all your expenses for the month.

It’s time to evaluate your spending in order to have good control of your personal expenses. 

You may feel nervous and think about giving up because “it’s silly, and it won’t work”.

Don’t let your mind fool you. Calm down and keep in mind that this visualization will help you enter a new financial phase.

If you’re absolutely struggling with your finances, you need to organize your spending.

Write down all your expenses for the month.

From your water, electricity and condominium bills to the coffee you buy at the bakery every day.

To make sure you write down all your expenses, you can set aside a month to do this.

That way, as you spend, you’ll update the spreadsheet or paper on which you’ve decided to put your expenses.

Next steps for organizing your money by category 

Thirdly, we come to the stage of identifying the source of the expenses.

Initially, we’ll separate expenses into two large groups: fixed and variable.

In the first group, add all the expenses that don’t change in value over time, such as rent and internet, which are household bills.

Bus fares or gasoline (transportation), health insurance, gym memberships, tuition (recurring fees) are also good examples.

As well as monthly subscriptions to streaming platforms such as Netflix, HBO Max, Spotify and others.

On the other hand, consider variable expenses to organize your money into categories, which are expenses that have no fixed amount.

For example, leisure, electricity and water bills, and food.

We recommend that you average out the variable expenses.

For example, if in the last 3 months your variable spending on food has been US$350, US$200 and US$450 respectively, you can establish the average according to these expenses.

The next step is to create categories for the bills.

Understanding the two main categories of expenditure makes it easier to learn how to classify personal spending. 

The most common categories are:

Housing, health, transportation, supermarkets, education and leisure.

You can certainly add other categories, but the ones mentioned above are the most common.

After defining the categories, feed them into your monthly expenses.

For example, your food expenses go into the “supermarket” category.

Electricity and water bills, on the other hand, should be placed in the “housing” category.

An essential tip is never to create the category “other”.

This can lead to confusion, and you won’t know exactly where your money is going.

To categorize, use an Excel spreadsheet, a familiar app or pen and paper.

Whatever is easiest for you.

Putting it into practice 

To exemplify the idea of organizing money by category, let’s consider Mrs. House:

She lives in Sacramento and drives to work every day.

After work, she goes to the gym and on weekends she likes to go out with friends to see new places.

Mrs. The house’s fixed expenses are as follows:

• Rent – US$1200;
• Internet – US$50;
• Gasoline – US$70;
• Health insurance – US$450;
• Gym – US$50;
• Course – US$100;
• Streaming services are$65.

In addition, your average variable bills are as follows: 

• Water, electricity and gas bills – US$200;
• Leisure – US$170;
• Food – US$380.

To organize the money into categories, we need to think as follows:

On the housing side, the expenses are: 1200 (rent), 200 (bills), 100 (Internet and gym) and 65 (streaming services).

When it comes to health, the amount spent is 450 on health insurance.

Transportation is 70, followed by 380 for supermarkets, 100 (education) and 170 (leisure).

Putting all this onto a table, we have the following:

By organizing her money into categories, Mrs. House sees that she needs US$2735 a month to live on.

Another example of categorizing expenses 

It’s important for you to know that the above alternative is used by most people who organize their spending through categories, but it’s not the only one.

If you’re on a tight budget, for example, you could use the following model:

Let’s assume that Mrs. The house has a salary of $3000, but I want to save $500 every month.

In other words, she needs to save money in order to live within her budget.

The first step in doing this is to determine the bills according to her priorities.

Rent, bills, internet, gym membership and health insurance are priorities for Mrs. House.

In these areas, she spends US$1950.

Therefore, she believes that by organize your money into categories, she will be able to save in the following areas:

Food, tuition, streaming, gasoline and going out with friends.

1950 + 500 = 2450, so she only has US$550 to distribute in the other areas.

Priority

So Mrs. The house has to use the idea of priority again.

So she makes a list from the most important to the least important expenses:

• Food;
• Tuition;
• Gasoline;
• Leisure;
• Streaming.

The following month, her goal is to eat healthily, so she stops spending on unnecessary items at the supermarket.

This saves her US$100.

As a result, the amount set aside for the supermarket becomes US$280.

Before, the total was US$550, but with the food expenses, it became US$270.

In this sense, the amount needs to be divided between the other items in order to organize the money into categories.

Moving on to Mrs. The house’s second priority is that we have the course.

After doing some research, she found a course similar to the one she was taking at half the price and decided to take it. 

In this way, from US$100, she spends US$50.

She then decides to use public transport to get to work. From US$70, her expenses dropped to US$40.

In total, she still has US$180 to distribute over 2 areas.

In this sense, she has decided to have only 2 streams that cost US$30 together, so that she can use US$150 for leisure.

Although this is just an example, you can use categorization to prioritize certain expenses over others.

In this way, you prioritize what is really important in your life and are able to save money.

Considering goals such as expenses, to organize money by category

It may sound strange, but it works.

Notice that in the example above, Mrs. House first separated out the $500 she wanted to save.

That’s exactly how you should do it.

We recommend that you create a “goals” category.

That way, you can put things like:

Buying my house, a new cell phone, replacing the floor in the house, etc.

In this way, you can separate the money as soon as you’ve paid the main bills, or you can separate them at the same time as you’re dealing with the other bills.

For example, if Mrs. House wanted to set aside US$100 a month to achieve her goal of renovating her living room so she could save on time (using only US$50).

Putting your goals in the budget to save little by little in order to achieve them is an excellent strategy because it ensures that you actually work towards your dreams.

Final tip 

The final step in organize your money by category is to analyze what can be improved.

Once you’ve categorized your spending, you can see where most of your money goes.

See what’s right and what needs to be adjusted.

In this last stage, it’s important to evaluate what you’ve been spending too much on and draw up a structured plan to reduce this expense next month. 

The idea is always to reallocate that part that is not making your financial life healthy to something that is more positive.

For example, if part of your food money goes on fast food, you need to make a change.

Start eating healthily and preparing your own food.

This will save you a lot of money, including the money you spend on your health!

Finally, we recommend that you simply start organize your money into categories.

Like other financial strategies, this one isn’t simple.

It takes patience and dedication to organize your spending, but it will all be worth it when you end the month with all your bills paid, and you’re spending organized! 

Daniel 2 de May de 2024