Rolling with a new category during month
Let’s say hypothetically, we don’t have / budget a housewares category. We then get new dinner plates. Are people just modifying and adding new categories as they go? I can see where these items would creep up every so often
Yes, it's fine to add a new category as the need arises. And it's fine to delete or hide them when they're no longer needed.
If you add a category, you'll need to fund it from somewhere. I assume (if you're following rule 1) that your TBB is at $0.00, so you'll need to "Roll with the punches" and fund it with available money in some other category. Or wait until your next pay event, and fund it from TBB. But if you've already spent the money, you'll need to pull money from somewhere to fund the category.
The need for creating a new category especially comes up as you realize need for True Expenses you hadn't realized. As in, an annual fee for something comes up, and you say, "Oh, yeah, I forgot about that..." So you create a new category, fund it (from somewhere) and then figure out how much money you need to put in per month, in order for it to be filled up and ready for the next scheduled expense.
After the first year, unexpected TEs like that aren't as common, but yeah, you'll come across the need for a new category now and again, and there's no problem with just adding it.