Step 8: Categorize your expenses

By now you have (hopefully!) been tracking your expenses for a while so you should have a reasonably good idea of your spending. Ideally you would have at least 1 month’s worth of data to look at, if you have more than a month that’s even better. In the next few steps we will be looking at your expenses in detail to get a better idea of where your money is going, how much you spend on various categories and most importantly, whether this spending pattern is aligned with the way you WANT your money to be spent.

The first action step will be identifying the different areas that you are spending your money on by categorizing various expenses into groups, which will allow us to analyze in which areas of your life there is a potential to save more (or less) money.

There is no one set way of doing this, everybody will want to classify their expenses in their own way depending on their personal situation. If you have a car you’ll need a category for car expenses: petrol, insurance, car loan, car maintenance. If you don’t have a car, you probably don’t need this category. You might travel a lot for work and rent cars regularly, in which case you might want a “travel” category with “car rental” as a subcategory. Or maybe you need a general work category with any work expenses (travel, clothes, lunches out). If you work from home on an online business, you might not need any of the above however.

As you can see, it all depends on your own situation and preferences, so make sure to set it up in a way that works for you. Play around with it a little until you are happy with the categorization, but know that you can always change it.

With time the way you classify your expenses might need be modified anyway, some expenses might disappear, new categories emerge, and you might move a specific expense into a different category. Don’t worry about these changes and that you can’t get it 100% “right”. Instead see this as a logical consequence of your increased understanding of your finances as well as your life evolving and with that your expenses changing as well.

Step 8 – Categorize your Expenses – in detail

• Pull out your list of expenses that you have been keeping, be that in a notebook, online programme, spreadsheet or anything else you might have used.
• Look at the different expenses and start identifying different expense categories by grouping them together in a for you logical way. Below is an example but feel free to adapt this to your needs and expenses.
  • Everyday expenses
    • Groceries
    • Restaurants and bars
    • Hobbies, sports, books
    • Toiletries and make up
    • Medical expenses
    • Clothes
    • Other general expenses / spending money
    • Pets
  • Car
    • Petrol
    • Maintenance
    • Insurance
  •  House
    • Household goods and furniture
    • Home maintenance
  • Monthly bills
    • Rent / mortgage
    • Electricity bill
    • Water bill
    • Gas
    • Cable and TV
    • Telephone, internet
  • Yearly bills
    • Taxes
    • Insurance (life, health care, home)
  • Savings and investments
    • Loans and debt payments
    • Savings plan
    • Investments payments
    • Pension payments
  •  Other
    • Charity
    • Presents
    • Travel and holidays
• As said, make sure to make the above list work for you, by adding in and taking out (sub)categories or moving some of the subcategories elsewhere.
• Looking at your list and working with a full month’s data, start listing the various expenses in each (sub)category so you get a total number per group. For example under groceries, find all your groceries expenses from the last month and total them. If you are using a software programme to track your expenses, you might not need to do this yourself as the programme most likely would have already done this for you, but you’d still want to do a quick check to make sure everything is registered as you want it to be.
• You will most likely find that you haven’t got al of your expenses fully categorized or that you are missing expenses that were never registered. That is okay, with time you’ll become better at tracking your expenses, as well as fine tuning your categories so that it really works for you. For now just work with what you have and keep adding and adjusting.
• If you have more than one month of expenses tracked already, do this step for each month separately, so first total all the grocery expenses for month 1, then month 2 etc. and register them next to each other. This will allow you to compare and find a more average pattern.
• If you haven’t yet got more than one months of expenses, add a note in your calendar or diary at the end of next month to repeat this procedure and list your expenses for that month.
• Make sure to keep up your habit of registering any expenses, as not only will it come in handy in later steps, but also the further you get down the 100 steps mission and the more financially literate and independent you become, you will want to gain even more insight in your money affairs.

Once you’ve got a total for each category that is us done again for now. In the next few steps we will look at the various expenses in detail, although make sure to come back to this step regularly at the end of each month to update your expense list.