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A line item budget is a detailed look at your income and your expenses, and it can help you manage your money more effectively.

Like any type of budget, the purpose of a line item budget is to help you understand how much money you have flowing in and out every month. It also provides the guidelines and guardrails you may need to avoid overspending and hit your savings goals.

If you’re interested in taking a closer look at your money or are sick of running out of cash before the end of the month, this guide to line item budgeting can help.

What Is a Line Item Budget?

A line item budget is a detailed financial plan that lists your income and then breaks down expenses into categories, or “line items.” It allows you to organize your expenses by grouping related costs together on separate lines to create a comprehensive financial picture

A line item budget also enables you to anticipate costs within each expense category, then closely monitor your spending to ensure you stick to your budget and don’t overspend in any specific area.

What Is Considered a Line Item?

A line item is an income or expense category that is part of your budget. For example, if you’re setting up a personal line item budget, your income line items might include salary and a rental property, while your expense line items might include rent, car insurance, and a music subscription.

If you want to make sure you’re putting some money into your savings account each month, you can even include a savings transfer as a line item in your budget.

It may be helpful to know a bit about how these budgets can work in business, as background for creating your own line item budget. Say a business is creating a new advertising campaign. They might consider:

•   Projected expenses: How much they think the cost of creating and executing their advertising materials will cost in the future.

•   Previous actual expenses: This will show how much in the past their costs actually were for such endeavors.

•   Present-year expenses: This would track the actual expenses being incurred as they create their ads. This could be done week by week or month by month.

Why Line Item Budgets Are Commonly Used

Line item budgets are commonly used because they allow you to account for everything that is flowing in and flowing out of your checking account. This makes it easy to monitor spending and compare actual costs with projected amounts and stay on top of your money.

Businesses, nonprofits, and governments tend to favor line item budgets because they allow an organization to easily identify areas where costs are exceeding expectations, track spending across different departments, and make informed decisions about where to allocate funds most effectively.

What Are the Advantages of Using a Line Item Budget?

If you are considering implementing a line item budget, consider these upsides.

Allocating Expenses Is Simple

One of the biggest pros of using this kind of budget is the ease with which they can be created. With just a few clicks on a spreadsheet, you can establish a basic structure and begin to fill in the data that needs to be recorded. And as priorities change, the budget can be changed just as easily to meet those new needs.

Interpreting the Budget Is Easy

Another major advantage of the line item approach: Making a budget this way isn’t only easy to do, it’s also easy to understand. Creating a basic list of categorized income and expenses doesn’t require any specialized accounting degree to decipher. With your phone’s calculator function, you’re good to go.

Planning Your Future Finances

It provides an easy-to-read, at-a-glance view of what to expect from your expenses in a week’s, month’s, or year’s time. And specific amounts are clearly displayed on each individual line. Those looking for budgeting for beginners tips may want to consider a line item budget for these two benefits. This kind of budget can help you avoid those surprise moments of not understanding why your checking account balance got so low.

Providing Clarity for Financial Decisions

Once a line item budget is in place, it can significantly simplify financial decision-making. Rather than wonder how much you can afford to spend on clothing or take-out, you’ll have a pre-decided spending limit. As long as you don’t exceed your targets, you can enjoy your expenditures without guilt — or running up debt.

What Are Some Downsides to Line Item Budgets?

Next, it’s worthwhile to recognize the possible drawbacks of line item budgets.

Best for Those With Predictable Income and Expenses

Line item budgeting usually relies on fixed and steady income and expenses for accuracy. It can work well for managing predictable finances, but if a budget contains line items that fluctuate significantly, it may not balance properly. This can lead to inaccurate calculations.

Typically Rigid

Another disadvantage of line item budgets is that they are rigid. It’s not uncommon to change spending habits throughout the year to fit changing needs, but those changes aren’t automatically reflected in a line item budget.

Spending adjustments may require extensive budget rewrites in order to accurately capture a new spending plan. With a line budget, any time financial goals change, it requires reviewing and adjusting everything line-by-line in order to stay current.

Requiring Detail

Unlike a budget such as the 50/30/20 rule, in which a person wrangles three big financial buckets (or spending categories), a line item budget does require rigorous accounting of specific expenses. This can be challenging for some people.

Budgeting: Is It Worth It?

Budgeting can seem tedious. After a long day (or week) at work, the last thing you may want to do is spend time in front of a screen, plugging in data and recording how much you’ve spent.

But tracking your money can be a powerful exercise. Here are some reasons why budgeting can be worthwhile:

•   Tracking your spending can give you direct visibility into your habits and when you understand where your money is going, you can feel empowered to make adjustments.

•   Budgeting can be part of a good money mindset. Instead of thinking of budgeting as a series of spending restrictions, you could think of it as a tool you can use. It’s a technique that can give you the freedom to spend money on what is most important to you.

•   Setting money goals can provide a structure to help you build out your budget and plan for the future. So, whether you’re saving for retirement, planning a wedding, or jetting off on a trip overseas, having and sticking to a well-crafted budget can help you get there.

•   It’s also worth noting that your budget is a living document. It’s okay to make changes. As you adjust your goals or experience or experience changes in your income or lifestyle, you can (and should) make adjustments and changes to fit your new needs. Your life isn’t stagnant, and your budget shouldn’t be either.

Using a Line Item Budget for Personal Finance

Typically, line item budgets are used by small businesses to track their earnings and expenses and compare them from year to year. While businesses typically have different needs than households, creating a line item budget can be helpful in personal finances, too.

Just as they give small businesses insight into opportunities to grow the business or reduce expenses, line item budgets can help individuals manage personal expenses. Outlining each source of income and expense can reveal personal spending habits and opportunities to reduce one’s cash outflow.

The specific insights you gather from a line item budget, as well as the changes you make, will ultimately depend on your personal goals and overall financial situation.

Deciding What to Include in a Line Item Budget

Deciding to create a line item budget is just the first step. Next, consider which categories are most important for you to include. A personal budget is just that — personal.

Everyone’s financial situation is different, so this list is not the end-all-be-all solution, but here are some high-level categories you may want to consider (each will likely include several sub-categories).

Bills and Utilities

This category is fairly self explanatory — after all, everyone’s got bills to pay, right? Things worth listing in this category might include water and electricity bills; cable, internet, or phone bills; or any other monthly bill you have on your expense list.

Debt

If you have student loan payments, credit card bills, or other recurring debt payments, include them in your budget. That’s an important area to track.

Education

If you are currently attending school or have kids, you’ll likely want to consider including things like tuition and fees, the cost of books and other supplies, and any other expenses directly related to education costs.

Entertainment

This one is a little broader and can be highly customized depending on personal spending habits. Do you have subscriptions to streaming services? Do you buy lots of books?

Tickets to the movies, museums, or a concert could also be included in this category. Depending on your hobbies and interests, you may find you can expand this with additional detail.

Fees

Think of all the fees charged to your accounts. Late fee on a delayed credit card payment? ATM fees? Add ՚em here. You could add HOA fees and others to this category as well. If you pay an annual fee to your credit card issuer, that goes here as well. (Seeing how fees add up can be a useful exercise. For instance, if you are paying several fees at a traditional bank, you might opt to switch to an online bank, which typically will charge lower or no fees.)

Food

Depending on your eating habits, you could split this up even further in a line item budget into categories like groceries, snacks, and dining out.

Home

Think of things like your rent or mortgage as well as expenses for maintenance and upkeep of your home.

Income

You’ll probably want to include all sources of income, not just your regular 9-to-5. If you’re budgeting as a couple, you can include income for both partners.

Add income earned from having a side hustle or from passive income opportunities, too.

Investments

Add your contributions to all investment accounts including a 401(k), IRA, 529 accounts, or other brokerage accounts.

Medical

Expenses for medications, health, dental, or vision insurance, and copays can all be included under this category.

Personal Care

Things like toiletries, vitamins, and beauty supplies would fit into this category. Hair cuts, trips to the nail salon, and massages could be included as well. If desired, you could also include the cost of other self-care practices, like a subscription to a meditation app, gym membership, or exercise classes.

Savings

Money that you put into an emergency fund, vacation fund, or other form of savings should be accounted for in your line item budget, too.

Recommended: Emergency Fund Calculator

Services

Do you pay for any regular services? You could include things like dry cleaning services, the cost of having a housekeeper, or the fee you pay your babysitter for a night out.

Shopping

Heading to the mall? Shopping expenses like clothing, toys, and even gifts for others, could be added here.

Taxes

If you’re a full-time employee, taxes are automatically being taken out of your paycheck. But if you are a freelancer or independent contractor, note quarterly taxes in your line item budget.

Transportation and Auto

This is a catch-all category for things like your monthly metro pass, gas, car insurance, auto loan payment, and general maintenance of your vehicle (if you own one).

Travel

Add all costs associated with trips you take here. Things like hotels or lodging, air travel, taxis, travel insurance, and tickets and admission for excursions and seeing the sights.

If you’re road-tripping, you could include the cost of gas, tolls, and other car-related expenses for the trip here too. Also worth including is the cost of food while on the road.

Putting Your Line-Item Budget Together

A list this long can seem overwhelming. Take it one step at a time, and, if needed, break the work up over a few days. For instance:

•   On day one, gather all of the relevant documents (tax returns, paychecks, credit card statements, etc.), and create the skeleton of your line item budget.

•   On day two, you could aim to make it through recording your income and maybe half of your expenses.

•   On day three, you could finish adding data about your expenses and add any finishing touches or edits.

After creating this line item budget, you should have a bird’s-eye view of your spending habits. Take a close look at the information, and decide if you are happy with what you see. Now is the time to be honest with yourself and make the changes you feel are necessary. Do you want more money to put towards savings or paying down debt? See how you might alter the numbers as they currently exist for the months ahead.

Want to make cuts to your monthly expenses? Now you know exactly how much money is being spent in each category and where you could stand to hold back. Some ideas to mull over:

•  Can you negotiate less expensive car insurance? Experiment with meal planning to see if you can be intentional about your food spending and potentially cut your grocery bill.

•  Try adjusting the thermostat setting while you’re asleep or away from your home to cut your energy bill.

•  Getting hit with fees on late payments? You might want to add an alert to your calendar or a monthly notification to your phone to remind you when payments are due. Another possible option is to enroll in autopay so you never miss a payment.

Payment history accounts for 35% of your credit score. So making payments on-time consistently could not only eliminate those pesky late fees from your budget but it could also potentially have a positive impact on your credit profile over time.

Recommended: How to Stop Overspending

Tips for Staying Consistent With Your Budget

To make sure you stay consistent with your line item budget, it’s helpful to choose a specific day each month (ideally at the end) to review your expenses. This is when you gather your statements and receipts and log in actual spending and income numbers for each line item.

You can then compare your actual spending to your planned spending, identify areas of overspending, and make any needed adjustments to your budget for the following month to ensure you’re on track with your financial goals.

It’s also helpful to automate your finances wherever possible. Consider setting up auto pay for regular expenses, as well as a monthly transfer from your checking account to a high-yield savings account for emergencies and other short-term savings goals.

Line Item Budget Example

A line item budget example can be as simple as using an Excel or Google Sheets spreadsheet to make your own basic line item budget template.

At the top rows, income can be added, say, for a given month. Then, moving down the page, you can list out the various expenses you have. To the right of that, you might include “projected” and “actual.” If certain line items tend to always come in over budget, you may need to adjust your budget — or your spending habits.

You can customize the organization to best suit your needs.

Line Item Budget Templates

There are many free resources online that can help you set up your budget. For example, Google Sheets offers free pre-made budget templates, such as an annual budget and a monthly budget, that you can customize to your needs.

Excel also offers free pre-made templates for budgeting that includes line items for different income streams and household expenses, with the ability to add or subtract categories to make it fit your financial situation.

Alternatives to a Line Item Budget

Though simple and intuitive in nature, line item budgets aren’t a perfect fit for everyone. Here’s a look at some other budgeting options you might consider.

50/30/20 Budget

Also known as a proportional budget, the 50/30/20 budget rule focuses on splitting income into three buckets — “needs,” “wants,” and “goals” (savings and debt repayment). Instead of creating lists of expenditures, you instead commit to spending 50% of your income on things you need to spend on (housing, food, debt, and similar “musts”), 30% on things you want (dining out, travel, and so forth), and the remaining 20% is set aside for savings and debt payments beyond the minimum.

Because spending isn’t tracked on a granular level, you might use a budgeting or expense-tracking app to help avoid overspending in any one category. You can use an online 50/30/20 budget calculator to see the breakdown of your money.

Envelope Budgeting Method

The envelope method focuses on using physical envelopes and labeling each with a spending category, such as food, bills, or entertainment. The envelopes are then filled with the maximum amount of money desired to be spent in each category, and spending throughout the month happens directly from those envelopes.

Once an envelope is empty, no more spending can be done in that category, unless taken from another. This method can be adapted to use a debit card vs. cash.

Zero-Based Budget

Similar to the line item budget, the zero-based budget takes account of all income and expenses. The difference is that with this budget, the goal is to make sure that every incoming dollar is allocated to either a saving or a spending purpose, and to leave nothing left over. Automating finances with services like automatic bill-pay and prescheduled bank transfers (say, into a high-yield savings account) can help with managing this style of budgeting.

The Takeaway

Creating a line item budget can be useful when determining your spending habits. It’s a fairly simple, detailed, and well-organized way to track your earnings and spending, but it’s not always flexible. Also, if you don’t have your budget spreadsheet on hand, it could be more difficult to make changes or check in while you’re busy living.

There are many different types of budgets and as well as apps and expense trackers that can simplify money management. A good place to start your journey is seeing what tools your bank offers.

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FAQ

What is an example of a line item budget?

A line item budget is a simple, organized way of listing income and spending in detail so you can keep things in balance and see how you are tracking over time. It can be easily made with a basic spreadsheet template, listing your income, your spending, and your savings in a given time frame, such as one month.

What is the difference between a line item budget and a program budget?

Line item budgets and program budgets are frequently used in business. Typically, a line item budget will list out individual budget expenses, item by item. In a program budget, however, the spending tends to be grouped into smaller budgets for specific activities or programs. For instance, in a program budget, all the costs related to advertising a new service could be kept together, to show the expenses required to meet that goal.

How do I create a line item budget in Excel?

One simple way to make a line item budget in Excel is to create vertical columns for each month. Starting at the top of each month, you could list various sources of income. Then below that, you could break out, line by line, all of your expenses, such as food, housing, utilities, entertainment, clothing, dining out, travel, transportation, and so on, going down the page. This can allow you to tally your earning, spending, and saving.

What tools can help manage a line item budget?

There are a number of online tools and apps that can help you set up and stick with a line item budget. For example, you might start by using spreadsheet software like Microsoft Excel or Google Sheets to set up your budget, either from scratch or using one of their free line item budget templates. To help stay on track, consider downloading a budgeting app to your phone (your bank may offer a free one) that can link to your outside accounts and help you monitor and categorize your spending.

What are the most common mistakes when using a line item budget?

One of the most common mistakes when using a line item budget is failing to update it regularly. Once you set up your expense categories and spending targets, it’s important to enter your actual expenses to see if you’re staying on track with your budget.
Other common errors with line item budgeting include: underestimating expenses, setting unrealistic spending limits, and ignoring small but recurring expenses.

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