I Cut My Budget From Thirty-One Categories to Four and Lost Nothing I Was Using

My budget had thirty-one categories. I had built it in an app that made adding categories easy, and every time a purchase did not fit neatly I made a new one, which is how a person ends up with separate lines for “coffee” and “coffee beans.”

At the end of last year I did an exercise I would recommend: for each category, I tried to name a decision I had made because of it. Not a fact I had learned — a decision, where I did something different than I would have otherwise. Four categories passed.

Fixed costs passed, because knowing that number tells me the size of the reservoir I need and that number determines real choices about what work I take. Food passed, because it is my largest variable cost and I have in fact changed how I shop twice based on it. Materials passed, because it is deductible and I need the total anyway. And the unplanned category passed, because its size is the thing I watch.

The other twenty-seven produced facts. I learned that I spent £340 on books last year. That is a fact. I did not do anything differently because of it, and I am fairly sure I would not have even if the number had been double. The category existed because it was easy to make, and it was maintained because deleting things feels like losing information.

The cost of the twenty-seven was not the time to maintain them, which the app largely did automatically. It was that they made the monthly review long enough that I stopped doing it. Thirty-one lines take about twenty minutes to look at properly and produce a report that is genuinely interesting in a way that has nothing to do with managing money. It is a very pleasant form of procrastination — I know a great deal about my own spending patterns and did almost nothing with any of it.

Four lines take about ninety seconds and I do it every month now rather than four times a year.

The objection I would expect, and which I had myself, is that you cannot find savings in a category you do not track. I think this is true and I think it does not matter, because finding savings is not a monthly activity. It is an occasional audit, and for an audit you want the raw transactions, not a category system — you want to sit with a full year of lines and read them, which surfaces things no category would have grouped, like the three identical pens or a subscription you had forgotten. I do that once a year and it takes an afternoon.

So the split I have landed on is: a continuous system that is small enough to actually run, and an annual read-through of the raw data. The categories were an attempt to make the audit continuous, and audits do not work continuously, because their value comes from stepping back and there is nothing to step back from a week later.

If you want to test this on your own budget, the exercise takes about ten minutes: go through your categories and, for each one, write down the last decision it caused. Anything where you cannot name one is a category you are maintaining for the pleasure of the report, and there is nothing wrong with that as long as you know it is what you are doing.