First, even if you had only one spending category, let’s call it “expenses,” you still are far ahead of most people if you know what your total expenses are. And, to take an extreme position, even if you didn’t know your expenses or income, but you periodically calculated your total monetary assets minus liabilities, you would still have powerful information as to where you are financially.
However, the sweet spot for me, is to have several categories for your expenses. Some categories automatically suggest themselves. For example, if you have a salaried job, your pay stub will often list a number of deductions from your gross salary. It makes sense to keep each deduction as a separate category. For example, if you are in the U.S. one expense category might be federal income tax and another Social Security contributions. In that case, one expense category would be federal taxes and another Social Security contributions.
For other expenses, a general category such as “groceries” is fine. For most people, it’s not worth it to subdivide groceries into smaller grouping such as dairy products, meat, and vegetables. This is one case where the perfect (knowing how much I spend on dress socks vs. athletic socks) is the enemy of the good (knowing my total spending and how that is divided up among several general categories).