diff --git a/prisma/migrations/20240108194443_add_categories/migration.sql b/prisma/migrations/20240108194443_add_categories/migration.sql
new file mode 100644
index 0000000..bb01af5
--- /dev/null
+++ b/prisma/migrations/20240108194443_add_categories/migration.sql
@@ -0,0 +1,65 @@
+/*
+  Warnings:
+
+  - Added the required column `categoryId` to the `Expense` table without a default value. This is not possible if the table is not empty.
+
+*/
+-- AlterTable
+ALTER TABLE "Expense" ADD COLUMN     "categoryId" INTEGER NOT NULL DEFAULT 0;
+
+-- CreateTable
+CREATE TABLE "Category" (
+    "id" SERIAL NOT NULL,
+    "grouping" TEXT NOT NULL,
+    "name" TEXT NOT NULL,
+
+    CONSTRAINT "Category_pkey" PRIMARY KEY ("id")
+);
+
+-- Insert categories
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (0, 'Uncategorized', 'General');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (1, 'Uncategorized', 'Payment');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (2, 'Entertainment', 'Entertainment');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (3, 'Entertainment', 'Games');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (4, 'Entertainment', 'Movies');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (5, 'Entertainment', 'Music');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (6, 'Entertainment', 'Sports');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (7, 'Food and Drink', 'Food and Drink');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (8, 'Food and Drink', 'Dining Out');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (9, 'Food and Drink', 'Groceries');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (10, 'Food and Drink', 'Liquor');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (11, 'Home', 'Home');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (12, 'Home', 'Electronics');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (13, 'Home', 'Furniture');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (14, 'Home', 'Household Supplies');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (15, 'Home', 'Maintenance');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (16, 'Home', 'Mortgage');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (17, 'Home', 'Pets');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (18, 'Home', 'Rent');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (19, 'Home', 'Services');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (20, 'Life', 'Childcare');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (21, 'Life', 'Clothing');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (22, 'Life', 'Education');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (23, 'Life', 'Gifts');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (24, 'Life', 'Insurance');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (25, 'Life', 'Medical Expenses');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (26, 'Life', 'Taxes');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (27, 'Transportation', 'Transportation');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (28, 'Transportation', 'Bicycle');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (29, 'Transportation', 'Bus/Train');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (30, 'Transportation', 'Car');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (31, 'Transportation', 'Gas/Fuel');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (32, 'Transportation', 'Hotel');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (33, 'Transportation', 'Parking');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (34, 'Transportation', 'Plane');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (35, 'Transportation', 'Taxi');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (36, 'Utilities', 'Utilities');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (37, 'Utilities', 'Cleaning');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (38, 'Utilities', 'Electricity');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (39, 'Utilities', 'Heat/Gas');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (40, 'Utilities', 'Trash');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (41, 'Utilities', 'TV/Phone/Internet');
+INSERT INTO "Category" ("id", "grouping", "name") VALUES (42, 'Utilities', 'Water');
+
+-- AddForeignKey
+ALTER TABLE "Expense" ADD CONSTRAINT "Expense_categoryId_fkey" FOREIGN KEY ("categoryId") REFERENCES "Category"("id") ON DELETE RESTRICT ON UPDATE CASCADE;
diff --git a/prisma/schema.prisma b/prisma/schema.prisma
index 42d4cfc..1fbfc65 100644
--- a/prisma/schema.prisma
+++ b/prisma/schema.prisma
@@ -29,11 +29,20 @@ model Participant {
   expensesPaidFor ExpensePaidFor[]
 }
 
+model Category {
+  id       Int       @id @default(autoincrement())
+  grouping String
+  name     String
+  Expense  Expense[]
+}
+
 model Expense {
   id              String           @id
   group           Group            @relation(fields: [groupId], references: [id], onDelete: Cascade)
-  expenseDate     DateTime         @db.Date @default(dbgenerated("CURRENT_DATE"))
+  expenseDate     DateTime         @default(dbgenerated("CURRENT_DATE")) @db.Date
   title           String
+  category        Category?        @relation(fields: [categoryId], references: [id])
+  categoryId      Int              @default(0)
   amount          Int
   paidBy          Participant      @relation(fields: [paidById], references: [id], onDelete: Cascade)
   paidById        String
diff --git a/src/app/groups/[groupId]/expenses/[expenseId]/edit/page.tsx b/src/app/groups/[groupId]/expenses/[expenseId]/edit/page.tsx
index 188d08f..bb32da0 100644
--- a/src/app/groups/[groupId]/expenses/[expenseId]/edit/page.tsx
+++ b/src/app/groups/[groupId]/expenses/[expenseId]/edit/page.tsx
@@ -1,5 +1,5 @@
 import { ExpenseForm } from '@/components/expense-form'
-import { deleteExpense, getExpense, getGroup, updateExpense } from '@/lib/api'
+import { deleteExpense, getExpense, getCategories, getGroup, updateExpense } from '@/lib/api'
 import { expenseFormSchema } from '@/lib/schemas'
 import { Metadata } from 'next'
 import { notFound, redirect } from 'next/navigation'
@@ -13,6 +13,7 @@ export default async function EditExpensePage({
 }: {
   params: { groupId: string; expenseId: string }
 }) {
+  const categories = await getCategories()
   const group = await getGroup(groupId)
   if (!group) notFound()
   const expense = await getExpense(groupId, expenseId)
@@ -35,6 +36,7 @@ export default async function EditExpensePage({
     <ExpenseForm
       group={group}
       expense={expense}
+      categories={categories}
       onSubmit={updateExpenseAction}
       onDelete={deleteExpenseAction}
     />
diff --git a/src/app/groups/[groupId]/expenses/create/page.tsx b/src/app/groups/[groupId]/expenses/create/page.tsx
index e603e59..405db26 100644
--- a/src/app/groups/[groupId]/expenses/create/page.tsx
+++ b/src/app/groups/[groupId]/expenses/create/page.tsx
@@ -1,5 +1,5 @@
 import { ExpenseForm } from '@/components/expense-form'
-import { createExpense, getGroup } from '@/lib/api'
+import { createExpense, getGroup, getCategories } from '@/lib/api'
 import { expenseFormSchema } from '@/lib/schemas'
 import { Metadata } from 'next'
 import { notFound, redirect } from 'next/navigation'
@@ -13,6 +13,7 @@ export default async function ExpensePage({
 }: {
   params: { groupId: string }
 }) {
+  const categories = await getCategories()
   const group = await getGroup(groupId)
   if (!group) notFound()
 
@@ -23,5 +24,5 @@ export default async function ExpensePage({
     redirect(`/groups/${groupId}`)
   }
 
-  return <ExpenseForm group={group} onSubmit={createExpenseAction} />
+  return <ExpenseForm group={group} categories={categories} onSubmit={createExpenseAction} />
 }
diff --git a/src/components/expense-form.tsx b/src/components/expense-form.tsx
index d14d72e..d00211a 100644
--- a/src/components/expense-form.tsx
+++ b/src/components/expense-form.tsx
@@ -28,14 +28,17 @@ import { Input } from '@/components/ui/input'
 import {
   Select,
   SelectContent,
+  SelectGroup,
   SelectItem,
+  SelectLabel,
   SelectTrigger,
   SelectValue,
 } from '@/components/ui/select'
-import { getExpense, getGroup } from '@/lib/api'
+import { getCategories, getExpense, getGroup } from '@/lib/api'
 import { ExpenseFormValues, expenseFormSchema } from '@/lib/schemas'
 import { cn } from '@/lib/utils'
 import { zodResolver } from '@hookform/resolvers/zod'
+import { Category } from '@prisma/client'
 import { Save, Trash2 } from 'lucide-react'
 import { useSearchParams } from 'next/navigation'
 import { useForm } from 'react-hook-form'
@@ -44,11 +47,18 @@ import { match } from 'ts-pattern'
 export type Props = {
   group: NonNullable<Awaited<ReturnType<typeof getGroup>>>
   expense?: NonNullable<Awaited<ReturnType<typeof getExpense>>>
+  categories: NonNullable<Awaited<ReturnType<typeof getCategories>>>
   onSubmit: (values: ExpenseFormValues) => Promise<void>
   onDelete?: () => Promise<void>
 }
 
-export function ExpenseForm({ group, expense, onSubmit, onDelete }: Props) {
+export function ExpenseForm({
+  group,
+  expense,
+  categories,
+  onSubmit,
+  onDelete,
+}: Props) {
   const isCreate = expense === undefined
   const searchParams = useSearchParams()
   const getSelectedPayer = (field?: { value: string }) => {
@@ -67,6 +77,7 @@ export function ExpenseForm({ group, expense, onSubmit, onDelete }: Props) {
           title: expense.title,
           expenseDate: expense.expenseDate ?? new Date(),
           amount: String(expense.amount / 100) as unknown as number, // hack
+          category: expense.categoryId,
           paidBy: expense.paidById,
           paidFor: expense.paidFor.map(({ participantId, shares }) => ({
             participant: participantId,
@@ -82,6 +93,7 @@ export function ExpenseForm({ group, expense, onSubmit, onDelete }: Props) {
           amount: String(
             (Number(searchParams.get('amount')) || 0) / 100,
           ) as unknown as number, // hack
+          category: 1, // category with Id 1 is Payment
           paidBy: searchParams.get('from') ?? undefined,
           paidFor: [
             searchParams.get('to')
@@ -95,6 +107,7 @@ export function ExpenseForm({ group, expense, onSubmit, onDelete }: Props) {
           title: '',
           expenseDate: new Date(),
           amount: 0,
+          category: 0, // category with Id 0 is General
           paidFor: [],
           paidBy: getSelectedPayer(),
           isReimbursement: false,
@@ -102,6 +115,14 @@ export function ExpenseForm({ group, expense, onSubmit, onDelete }: Props) {
         },
   })
 
+  const categoriesByGroup = categories.reduce<Record<string, Category[]>>(
+    (acc, category) => ({
+      ...acc,
+      [category.grouping]: [...(acc[category.grouping] ?? []), category],
+    }),
+    {},
+  )
+
   return (
     <Form {...form}>
       <form onSubmit={form.handleSubmit((values) => onSubmit(values))}>
@@ -138,7 +159,7 @@ export function ExpenseForm({ group, expense, onSubmit, onDelete }: Props) {
               name="expenseDate"
               render={({ field }) => (
                 <FormItem className="sm:order-1">
-                  <FormLabel>Expense Date</FormLabel>
+                  <FormLabel>Expense date</FormLabel>
                   <FormControl>
                     <Input
                       className="date-base"
@@ -201,6 +222,43 @@ export function ExpenseForm({ group, expense, onSubmit, onDelete }: Props) {
               )}
             />
 
+            <FormField
+              control={form.control}
+              name="category"
+              render={({ field }) => (
+                <FormItem className="order-3 sm:order-2">
+                  <FormLabel>Category</FormLabel>
+                  <Select
+                    onValueChange={field.onChange}
+                    defaultValue={field.value.toString()}
+                  >
+                    <SelectTrigger>
+                      <SelectValue placeholder="Select a category" />
+                    </SelectTrigger>
+                    <SelectContent>
+                      {Object.keys(categoriesByGroup).map((group) => (
+                        <SelectGroup key={group}>
+                          <SelectLabel className="-ml-6">{group}</SelectLabel>
+                          {categoriesByGroup[group].map(({ id, name }) => (
+                            <SelectItem
+                              key={id.toString()}
+                              value={id.toString()}
+                            >
+                              {name}
+                            </SelectItem>
+                          ))}
+                        </SelectGroup>
+                      ))}
+                    </SelectContent>
+                  </Select>
+                  <FormDescription>
+                    Select the expense category.
+                  </FormDescription>
+                  <FormMessage />
+                </FormItem>
+              )}
+            />
+
             <FormField
               control={form.control}
               name="paidBy"
diff --git a/src/lib/api.ts b/src/lib/api.ts
index 6ff55b6..2a03ded 100644
--- a/src/lib/api.ts
+++ b/src/lib/api.ts
@@ -48,6 +48,7 @@ export async function createExpense(
       id: randomId(),
       groupId,
       expenseDate: expenseFormValues.expenseDate,
+      categoryId: expenseFormValues.category,
       amount: expenseFormValues.amount,
       title: expenseFormValues.title,
       paidById: expenseFormValues.paidBy,
@@ -124,6 +125,7 @@ export async function updateExpense(
       expenseDate: expenseFormValues.expenseDate,
       amount: expenseFormValues.amount,
       title: expenseFormValues.title,
+      categoryId: expenseFormValues.category,
       paidById: expenseFormValues.paidBy,
       splitMode: expenseFormValues.splitMode,
       paidFor: {
@@ -207,11 +209,16 @@ export async function getGroup(groupId: string) {
   })
 }
 
+export async function getCategories() {
+  const prisma = await getPrisma()
+  return prisma.category.findMany()
+}
+
 export async function getGroupExpenses(groupId: string) {
   const prisma = await getPrisma()
   return prisma.expense.findMany({
     where: { groupId },
-    include: { paidFor: { include: { participant: true } }, paidBy: true },
+    include: { paidFor: { include: { participant: true } }, paidBy: true, category: true },
     orderBy: { expenseDate: 'desc' },
   })
 }
@@ -220,6 +227,6 @@ export async function getExpense(groupId: string, expenseId: string) {
   const prisma = await getPrisma()
   return prisma.expense.findUnique({
     where: { id: expenseId },
-    include: { paidBy: true, paidFor: true },
+    include: { paidBy: true, paidFor: true, category: true },
   })
 }
diff --git a/src/lib/schemas.ts b/src/lib/schemas.ts
index 14b253c..be90481 100644
--- a/src/lib/schemas.ts
+++ b/src/lib/schemas.ts
@@ -45,6 +45,7 @@ export const expenseFormSchema = z
     title: z
       .string({ required_error: 'Please enter a title.' })
       .min(2, 'Enter at least two characters.'),
+    category: z.coerce.number().default(0),
     amount: z
       .union(
         [
diff --git a/src/scripts/migrate.ts b/src/scripts/migrate.ts
index ed1a3a5..903f119 100644
--- a/src/scripts/migrate.ts
+++ b/src/scripts/migrate.ts
@@ -80,6 +80,7 @@ async function main() {
           amount: Math.round(expenseRow.amount * 100),
           groupId: groupRow.id,
           title: expenseRow.description,
+          categoryId: 1,
           expenseDate: new Date(expenseRow.created_at.toDateString()),
           createdAt: expenseRow.created_at,
           isReimbursement: expenseRow.is_reimbursement === true,