What Does an Ideal Budget Look Like?

If you’re starting to get your finances under control and are wondering what an ideal budget looks like, we’ve got you covered. I started a money management app and method called YNAB, and today I show you what my budget looks like!

In this post you’ll see what a budget looks like with all the necessary pieces, plus, you’ll:

• Learn how to set up your budget
• Minimize you accounts
• Simplify your categories

Let’s dig in!

The ideal budget is simple: it gets you maximum results with minimal effort. How do we get there?

Setting Up Your Ideal Budget

You might be waiting for me to talk about the 50/30/20 budget and how there’s a one-size-fits all breakdown of how much you should spend on each category, but there isn’t.

Your ideal budget is completely bespoke for you and your financial goals and can’t be distilled down to catchall budget percentages. 

To save money and have more guilt-free spending money, a zero-based budgeting method is key. That means you take all the money you have right now in your checking accounts and savings accounts—and assign that money to specific budget categories—whether it’s earmarked for student loans or to pay off debt, or going to housing costs or an emergency fund. Every dollar is given a job: and that means total clarity for your take-home pay.

Along with an ideal budget being a zero-based setup, you want a lean budget too. No one wants an overly complicated personal finance situation. When I budget, I’m:

• Aware, which means my monthly income is aligned with my values. That brings me a lot of peace and contentment.
• Looking forward, so I’m ready for the “unexpected.”
• Flexible, understanding that life is anything but “expected.” 😉
• Liberated, because I’m not living right on the edge financially, from paycheck to paycheck.

Those are the values I get from budgeting. The focus of an ideal budget is to maintain those values, while cutting anything possible. Maximum value for minimum effort. To that end, I present the lean budget, and my ramblings as I work through it with my own personal budget.

Choosing Categories for an Ideal Budget

If I were wearing long sleeves, I’d roll them up, because this is going to take some work. My current budget file goes back over a decade. I can see now that I’ve experienced a bit of category bloat.

I have 38 categories.

More categories isn’t bad, to the extent that you gain awareness that drives decisions from your extra granularity and line up to meet your financial goals. The question to ask is:

Do I care to know how much I’m spending in this particular category?

1. Will it help me spend less (frivolous expense)?
2. Will it help me spend more (a noble goal) to track this separately?

Here’s what a shorter and simpler budget might look like, put together by a new YNAB budgeter.

See his full financial setup here or look at a whole trove of real budget examples!

Now, back to my budget….and a bit of that category bloat we were looking at. We have:

• Personal: Toiletries
• Personal: Miscellaneous
• Personal: Gifts
• Personal: Kids’ Activities
• Personal: Business Expenses

There used to be eight there, but I cut it down to five. Not bad. Remember, your evaluation of the usefulness of a category comes down to whether you really, truly care how much you’re spending in a particular category. Another example:

• Recreation: Dates
• Recreation: Family
• Recreation: Hers
• Recreation: His
• Recreation: Vacation

The His/Hers categories must stay, because Julie and I like to have our own money, and if they weren’t separate well, that defeats the purpose. Vacation is for specific vacations we want to take, with target dollar amounts. So I’m comfortable keeping that one separate… the Dates and Family though… those really can be combined. I’m not deriving any value in knowing that I spent X on Dates, but Y on Family stuff. I’ll start a Recreation: Dates & Family category, and hide the other two.

I went from five to four there. Not bad.

I have a master category called Insurance, with three subcategories:

• Car
• Life
• Homeowner’s

I budget the exact same amount into each of those categories each month. So… why not combine them? They’re ripe for consolidation.

I’m going to rename our Housing master category to Bills and do some serious category surgery there, consolidating, and adding the insurances. 

My setup before I simplified (marked here as variable: v and fixed: f, not marked in my actual budget):

• Housing: Gas (v)
• Housing: Property Taxes (f)
• Housing: City Utilities (v)
• Housing: Furniture, Appliances, Improvements (v)
• Housing: Lawn & Garden (v)
• Housing: Other (v)
• Insurance: Car (f)
• Insurance: House (f)
• Insurance: Life (f)

My setup after I simplified:

• Bills: Utilities (combined Gas and Water/Garbage, both variable, but manageable as such)
• Bills: Fixed (includes property taxes, Lifelock, life insurance and health insurance)
• Housing: Interior (was furniture, appliances, improvements)
• Housing: Exterior (was lawn & garden)

I have to keep the Housing ones separated as interior/exterior because I’m in charge of the exterior, and Julie’s in charge of the interior. If we meshed them all up, well, that would get confusing.

I also have:

• Health: Doctor & Dentist
• Health: Drugs

But as I look back through the Drugs category, I quickly realize that we almost never use it. I’ll consolidate down to one and move it to the Bills master category.

We also have:

• Clothing: Kids
• Clothing: Adults

Do I really care to know what I spend on kids’ clothing vs adult clothing? No. These categories get consolidated, and moved to the Personal master category. I just looked at my category spending report and clothing represents less than one percent of our budget. It probably doesn’t even need its own category… I’ll add it to Personal: Toiletries and rename it Personal: Clothing & Toiletries. Excellent. Two more categories bite the dust.

In Transportation we have:

• Gas & Oil
• License & Taxes
• Repairs & Tires

I do want to know what I’m spending on repairs & tires because that will dictate when we finally buy a new car. The license & taxes category is used for the renewal cost of our vehicles (a tax masked as a registration). It’s fixed, so I can bump it up to my Bills: Fixed category.

I’m down to 25 categories. I’d like to get down to 10, but am not sure that’s even possible. Well, I should say, it’s perfectly possible, but I think I might start losing some budget value at that point.

The Categories in My Ideal Budget

Personal

• Toiletries
• Miscellaneous
• Gifts
• Kids’ Activities
• Business Expenses

Recreation

• Dates & Family
• Hers
• His
• Vacation

Bills & Housing

• Mortgage/Rent
• Health
• Utilities (combined Gas and Water/Garbage, both variable, but manageable as such)
• Fixed (includes property taxes, Lifelock and the three insurances)
• Housing: Interior (was furniture, appliances, improvements)
• Housing: Exterior (was lawn & garden)

Clothing

• Kids
• Adults

Transportation

• Gas & Oil
• License & Taxes
• Repairs & Tires

Your category structure all goes back to that question from above. You need to justify why you need to track that line-item separately.

Now You’ve Got a Budget!

This was long. As I wrote this, I actually manipulated my budget, thought through the simplification process, and dumped it here into this post to give my ideal budget. Hopefully you grabbed something insightful from it! 

Want to play around with setting up your own zero-based budget, totally for free? Try the free trial from YNAB—a budgeting app and proven method where you can organize your financial life to be simple, streamlined, and efficient.

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