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Should I Use Subcategories for My Budget?


Question: Should I Use Subcategories for My Budget?

Getting Specific with Spending Categories

Your spending categories must allow you to make sense of spending reports and budget reports in your financial software. If you use a lot of categories or subcategories, the budget graphs in your financial software may not be able to reflect the smallest part of your spending. However, if you want to follow budgeted expenses with more specific detail you can always rely on budget reports with numbers comparing actual and budgeted expenses instead of graphs.

All About Spending Categories in Financial Software


Spending Category Tips

  • To decide on how much detail to use in subcategories, consider whether you just need to have the "big picture" of an expense (such as Utilities) or if you need a general category broken down (electricity, gas, water, cable).

  • While using more subcategories is a way to really define your budget, weigh your time against having many detailed subcategories. Subcategories will require you to record more split transactions, which takes a bit more time and thought.

  • If you are not sure how detailed to get with categories, start off using more general categories and then create subcategories if needed later on.

  • If you create subcategories and later decide you do not need that level of detail in your spending and budget reports, stop using the subcategories and just use the category to classify your spending. You can clean things up by deleting subcategories, which may be necessary if you compare your expenses to past time frames.

Spending Category Examples

A variety of options for setting up subcategories are listed below to give you ideas for setting up subcategories. While looking over these suggestions, keep in mind these are just suggestions and if a set of subcategory options makes no sense to you, disregard it. Your spending categories will depend entirely on your preferences and the level of detail you need in budget and spending reports.

Household Expenses:

  • Lump all general household spending such as paper toweling, plastic wrap, laundry soap and light bulbs under Household Expenses.


  • Create subcategories under Household Expenses such as "Paper-Plastic", "Cleaners", and "Consumables".

  • Categorize all insurance payments under Insurance with the option of entering the type of insurance in the notation field in your financial software.


  • Use an Insurance category with subcategories defined by type of insurance, such as Homeowners, Auto, Medical.


  • Create subcategories under the category that defines the insurance: Home or Household category with Home Owners or Rental Insurance subcategory, Auto category with Auto Insurance subcategory, Medical Expenses category with Medical Insurance subcategory.

Loan payments:

  • Record the payment under Mortgage, College Loan or Auto Loan with no subcategory.


  • Create a subcategory for the loan payment under a Home or Auto category and record both principle and interest there.


  • Create a loan category such as Mortgage or Auto Loan, record the principle portion of your payment under this category and record interest in an Interest Expense category. You also might use a category such as Interest Exp-Mortgage to keep mortgage-related interest separate for income tax purposes.


  • Use a loan category such as Auto Loan with Principle and Interest subcategories. This also works well for tracking tax-deductible interest payments associated with mortgages.

Note: If you decide to track the value of an asset associated with a loan, separate interest and principle since only the principle portion of your payment affects the value of the asset.

Track an allowance or cash spending:

  • Record the cash withdrawal in an Allowance category. This works well for regular, small amounts used for "fun money" or discretionary spending.


  • Use a cash account, recording the withdrawal as a transfer from the account or source of income (such as a paycheck) as a transfer to a cash account. Take down the balance of the cash account by recording spending done with the cash. This will require that you have a handy method for taking note of your spending, such as a notepad and pen or PDA software.

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