Category Groups for Budgeting vs. Category Groups for Tracking?
I've just made a fresh start in my budget and am rethinking my approach to category groups. I'm torn between grouping them for tracking purposes and grouping them for budgeting, planning, living purposes. In the past, I think I have used YNAB more as a spending tracker than to truly modify or clarify my spending.
As an example of my conundrum: I have a car payment. At the moment I have that expense grouped under my "Car" category which has other car related expenses like gas, insurance and repairs. I like the idea of seeing how much my car costs me in total over time. However, my car payment is also a predictable monthly expense, and could easily be grouped with similar expenses, like my rent or utilities...part of my basic monthly personal overhead.
The question I'm asking myself is do I organize my budget so the categories are grouped as types of spending (monthly expenses, long term "true" expenses, "fun money" expenses...etc) or do I group based more on the specific thing the money is being spent on (car expenses, dog expenses, healthcare expenses...etc). The former seems more helpful in terms of budgeting, the latter in terms of tracking, both of which are important to me.
I'm not expecting anyone to answer this for me or my budget, but I am curious how others have handled this.
Often times when people are starting out and trying to get their financial house in order, temporal groupings like Daily/Weekly/Monthly/Quarterly/Annual work well for them. I was sort of set up in that manner back when I first started. Now I am set up functionally - The Home, Transpo, Medical, Giving & Celebrating, Entertainment/Electronics, Personal Stuff, Vacation/Enrichment, Finances, Everyday.
I've done both. It's not that difficult to move categories around, though it can get tedious. Basically, when I want to focus more on minimizing expenses I find more time-based categories, like Monthly, Annual, & Long term Savings helpful. At other tests I want more of an overview, so I do the House, Car, Health, etc master categories. If I don't want to move them around, I export the budget & use Excel to add a new master category column for reposting, in addition to what YNAB has,
I wish I had a good answer for this! The first few months that I used YNAB, I swung back and forth between these options on what felt like a weekly basis. Ultimately I settled on one method but I think it was more out of fatigue than finding the objectively best solution.
Currently I have categories set up for budgeting rather than tracking. I have a category group for monthly expenses; I know I absolutely need to fill these ones up every month. I have a category group for annual/semi/bi-annual ones; I use balance-by-date goals to make sure these stay on track. I also have one for "rainy day" expenses where I know I'll need to spend money eventually but not on any fixed basis.
Your "Car" category group is a good example because it covers all three of my groups. I spend a predictable amount on gas, so that's a monthly expense. Insurance and registration fees are annual. Maintenance is rainy day.
This is what I settled on because I found I was budgeting more often than I was tracking, and if I needed to combine categories across different groups I could still do so in reports. But sometimes I still think about switching everything around again...
Anecdotally, functional (tracking) groups seem to work best for people who are able to budget their entire month at one time. If you are still at the "what does THIS money need to do before I get paid again" stage (picking and choosing which categories get funded and which have to wait), temporal organization makes that process much easier.
I think it just depends on what you want and what helps you the best.
Personally, I have a lot of detail in my budget that I am sure many people would find to tedious, but I like the data it gives me. I have accounts for every debt and I also track all my assets. Things like the value of my house, car, retirement accounts, etc. That way my Net Worth report is very accurate and I can really see the progress since using YNAB. In just the last 18 months, I have increased my Net Worth over $46,000. starting at -$11,000.
I also have my categories broken down to a fine grain. I have 98 active categories right now. For long term debt like house and car, I have categories that track the amount that goes on principle and interest separate, because it motivates me to see the progress. Each leisure activity we have is tracked separate, as well as categories for Groceries, Dining Out, Take Out, and Work.
There truly is no best way. For me, the more detail the better.
Thank you all for your input. It seems like you all generally made the distinction that when you are starting out with budgeting, or when your finances are tight (cannot budget a month in advance), having your budget organized by types of spending (monthly, long-term, charitable, fun money) can be helpful. It sounds like many of you who have been budgeting for a while like having your expenses grouped by object of expense (food, car, dog, house) for tracking purposes.
I ended keeping my budget arranged by object of expense. I realized that the "goal" function helps tremendously in separating monthly expenses from long-term expenses. I can set the goal for a monthly amount on things like my car payment, rent, etc, and I can have a timed goal for the longer-term stuff. And things that are not priorities I don't have a goal for at all.
Anyway, thank you! Your responses were helpful as I was setting up my new budget.
I currently find myself in a similar position but for a slightly different reason. The default YNAB categories when I started were more Temporal with something like "Immediate Obligations" and "True Expenses" or something along those lines. I transitioned to the Functional structure years ago, but now I have a brokerage account in which I am investing my yearly (or at least less frequent than monthly) expenses. I'm battling with YNAB to retain the category balances of these expenses while making it easy to calculate the transfer amount. Right now these expenses are across across multiple categories. I will probably be switching to a Temporal structure just so I can group these expenses together so I don't have to go hunting for them every month.