Today I thought I would continue on with my introductory article about building an effective budget. In this article I'll lay out the categories I use to manage my family's own personal financial picture.

Below is a screen grab of the categories I use.

These may or may not be the best choices for you; but for my situation they have proven to work well over the years. We have been using this budget for over 10 years with tremendous success. In the first few years the categories weren't quite right. We modified them to suit our needs until we found what works well for us. And that's the most important thing, finding what works for you.

Ok let's have a look at the overall structure and the accounts. In the process I'll give you an ideay why they work well for me and my family.

First off, the structure. No surprises here, Income items at the top and a breakdown of expense categories below. Money in. Money out. The last line is where it should all balance out. At the beginning of the year when we're laying out our budget we make sure the cell in row 23 is as close to zero as possible.

Let's have a look at some of those rows. Row 3 is fairly straightforward. It's also one item which thankfully we can count on to some degree. The amount doesn't vary much from month to month, and as long as my company's not laying people off the checks should continue to flow. Knock wood. Row 4 varies quite a bit from month to month. It's a moving target. As such we tend to treat it more as a "Bonus" or "found money" category. It's money we don't absolutely plan to have but realize the liklihood there will be some. And naturally we're working to help it grow.

Further down the list you'll see line items for Home Improvements and Automotive. We have found it helpful to allocate money from each budget cycle for those big expenses which only occur infrequently. We have on-going Home Improvement projects and automotive expenses like everyone else, but we also allocate money in these categories as a way to plan for a new room addition for example, or a new car.

The other line items are fairly self-explanatory for the most part. But I wanted to be sure to point out two special categories with the word "discretionary" in their titles. Those categories contain money allocations with no restrictions applied for the category owner. I have my discretionary funds and my wife has hers. We each get to spend this money however we like, no questions asked.

You can use these categories as a starting point for your own personal budget. Or toss them and start from scratch. The important thing from this point is how you use them to stay on the path to your financial goals.

In my next article I'll wrap it up with how I go about putting your budget to use on an ongoing basis.