To stay within your budget, you must know your monthly expenses. Keeping track of your expenses is crucial. Tracking your monthly expenses can help you make a better budget.
To make sense of your budget, you must first identify your expenses. Expenses that break your budget are the biggest threat to your financial dreams. Four types of expenses make budgeting difficult. I will show you how to fight them so your budget keeps you on track toward your financial goals.
Budget Your Money With These 4 Types of Expenses
Once you understand your expenses, it is easier to set a workable budget to achieve financial success. Getting your budgeting right is not an easy job. You need to take different types of expenses into account. Neglecting a tiny expense can lead to a mismanaged budget for you.
If you track your expenses, you might be surprised at how much you are spending on different expenses that can be reduced without effort.
When managing your money correctly, the three main categories of fixed or recurring expenses, variable expenses, and periodic or flexible expenses make up a budget. Knowing how to implement your budget plan when you’ve decided to stick to it is vital.
Recurring Expenses And Fixed Expenses
A fixed expense or a recurring expense does not change within your budget. While they may change occasionally, this should not happen that often. A fixed expense is paid in a predetermined amount at regular intervals.
These are routine or recurring expenses that occur on a particular day each month, for a certain amount, and on a specific date. They are easy to monitor because you always know when and how much to pay. Their amount usually remains the same.
As part of your personal budget, you should forecast fixed expenses since they do not vary from month to month or from time to time.
Some examples of fixed expenses are insurance premiums, property tax, mortgage or rent payments, car payments, childcare costs, tuition fees, gym memberships, cell phone, utility bills, internet and cable bills, and other loan payments.
Phone and utility bills can vary slightly but usually remain in the same range. Hence, it falls under the fixed expenses category of personal budgeting.
List of Common Recurring and Fixed Expenses
- Rent/Mortgage payment: This is typically your largest fixed expense, as it remains the same every month.
- Insurance Premiums: This includes auto insurance, health insurance, life insurance, and homeowners or renters insurance.
- Utilities: Although they vary slightly, essential utilities like electricity, water, and gas are generally fixed expenses.
- Internet and Cable: These services usually have a fixed monthly cost unless you exceed your plan limits.
- Cell Phone Bill: If you’re on a monthly plan, your cell phone bill is a fixed expense.
- Debt Repayment: Student loans, car loans, and credit cards, regular payments are usually fixed expenses.
- Gym Membership: If you belong to a gym, your membership fee is a recurring expense.
- Subscription Services: This includes services like Netflix, Amazon Prime, Spotify, and other subscription-based services.
- Public Transportation Costs or Gas: These costs can be considered recurring expenses if you commute to work or school.
- Childcare: If you have children, childcare or school tuition fees are fixed expenses.
Remember, these are just some common examples. Your fixed expense list may vary depending on your lifestyle and financial situation.
Flexible Expenses And Periodic Expenses
Occasionally, but regularly, we all encounter expenses that can be surprising. Flexible, periodic, or irregular payments are different than fixed ones. In contrast to monthly expenses, periodic expenses occur irregularly and can be a harder budget item than regular monthly payments.
You know they will come, but not as regularly as monthly expenses. You may have some bills to be paid every quarter or every year; sometimes, I may forget these expenses as they are not regularly added to my monthly payments.
But, we can’t forget these expenses as they are not the tiny ones. These expenses are huge for sure, paying quarterly, half-yearly, or annual. Some examples of flexible or periodic expenses are car registration, car insurance, health insurance, birthday party expenses, holiday expenses, vacation, kids’ summer camp, back-to-school supplies, etc.
It is natural to forget these expenses; sometimes, we are unprepared for these expected surprise expenses. Instead of worrying about the last-minute management of periodic costs, you can plan them in advance. It will make your monthly and annual budgeting easier.
List of Common Flexible and Periodic Expenses
- Car Registration and Maintenance: These costs occur annually or biennially and can sometimes catch you off-guard if not budgeted for.
- Insurance Premiums: Some insurance premiums, like car or life insurance, may be paid semi-annually or annually.
- Seasonal Expenses: These include costs associated with holidays, vacations, or seasonal activities like summer camps for kids or winter heating costs.
- Educational Expenses: Costs like tuition fees for courses or back-to-school supplies that are not paid monthly.
- Healthcare Costs: Expenses for doctor visits, prescriptions, and medical procedures not covered by insurance can fall into this category.
- Home Maintenance and Repairs: These expenses can be unpredictable and vary based on the age and condition of your home.
- Gifts and Celebrations: Costs associated with birthdays, anniversaries, weddings, or other special occasions.
- Travel Expenses: Costs for vacations or family visits, including flights, hotels, and meals.
- Professional Fees: This could include annual fees for professional licenses or dues for union or professional memberships.
- Tax Payments: You might have quarterly tax payments if you’re self-employed.
Budgeting for periodic expenses – how to include them?
Periodic expenses are less frequent than monthly fixed and variable expenses, which come up every month. Periodic expenses might fall due once or twice a year. Or, possibly, they might not have a regular schedule. Hence, it becomes the most important part of your budget, be it monthly or annual.
- Analyze your periodic expenses for last year.
- Make a list of each and every periodic expense
- Categorize all these expenses
- Write down the exact expenses you have had in each category
- Keep a similar amount ready for each category for the current year
- Use cash envelopes and, categorize each periodic expense, and keep yourself ready for upcoming periodic expenses
- You can prefer having the categorized cash envelopes for the quarterly or annual frequency
- Divide these categorized expenses by twelve months and add the amount to the monthly budget plan. This way, you will not feel overwhelmed with a huge expense at once.
When you plan these flexible expenses with the right budgeting system, you really don’t have to get stressed over sudden surprise expenses at once. Setting aside a fixed monthly amount for annual events like birthdays, holidays, or family vacations is also a good and workable idea.
The idea behind breaking these periodic expenses into the twelve-month plan is to have less burden of significant financial events in your life. If you typically spend $1200 every holiday season, a monthly savings of $100 is much more manageable than coming up with the entire sum in one month’s budget.
Expenses that change over time are variable expenses or variable costs. It is hard to predict how much you will spend because these costs can fluctuate weekly, month to month, or year to year.
The cost of variable expenses fluctuates over time, as opposed to fixed expenses like your mortgage or rent. Variable expenses fluctuate more dramatically over time than fixed expenses.
Here are some common examples of variable expenses:
- Groceries: Food costs can fluctuate based on dietary needs, the number of people in the household, and the food price.
- Utility Bills: Depending on the season, the cost of utilities like electricity, water, and gas can vary.
- Transportation: Whether it’s gas for your car or fares for public transit, these costs can change based on how often and far you travel.
- Dining Out: The cost of meals can significantly fluctuate depending on how often you eat out and the type of restaurants you frequent.
- Entertainment: These costs can vary based on your recreational activities, from movie tickets to concert passes.
- Clothing: Depending on the season and personal preference, the amount spent on clothing can change.
- Pet Expenses: Costs related to pet care, such as food, grooming, and vet visits, can vary.
- Personal Care: Expenses for items like toiletries, cosmetics, or haircuts can fluctuate.
- Medical Expenses: Costs for prescriptions, doctor visits, or any other medical needs can vary.
- Home maintenance: Home maintenance costs can significantly fluctuate depending on what repairs are needed.
How do you budget for variable expenses?
Variable expenses may not always be regular. For instance, you may go for a vacation only once or twice a year, so you are not including that amount in your monthly expenses. What can you do if the costs do not remain the same?
Variable expenses constantly change, so they can be challenging to manage. Budgeting will be easier once you determine what is essential versus what isn’t. Budgeting variable expenses can help you manage them with ease.
- Compile a list of upcoming significant expenses to be paid
- If you spend a specific amount on groceries, note it down
- Similarly, note down all the categories that you spend on variably
- Add the maximum expense amount to each category
- When you go out for grocery shopping or to watch movies, keep the maximum amount in mind and spend accordingly.
- You can skip some of the purchases if they are not really your needs
- Missing on dining out once in a while is healthy for you and your variable budget
- Likewise, you can differentiate between needs and wants and can avoid everything that is not necessary for you
- Putting a maximum spending bar in front of each category of the variable expense will let you make the most out of your budget
Emergency Expenses OR Whammies
None of us wants to have those scary emergency expenses. We just try to avoid the thought of encountering such things. But emergency expenses are real. This is the 4th surprise expense that most of us are not prepared for.
How to Deal with Unplanned Expenses? Building an emergency fund is necessary when you want to be prepared for any unexpected expenses in the near future.
How to budget for emergency expenses?
Why Is Budgeting Important?
The importance of budgeting in personal finance cannot be ignored. Your family’s financial stability can only be ensured by following a budget.
Having a budget allows you to plan how to spend your money to have enough to meet your needs. A budget is imperative to keep track of your expenses, control your spending, and save money.
A budget also ensures you make smarter monetary decisions, have a plan for unforeseen emergencies, and stay on track to reach your long-term financial goals.
Sticking to a budget is one of the ways that most of us believe will help us manage our finances. By creating a realistic budget, you’ll avoid overspending and keep yourself on track for a debt-free life.
Advantages Of Budgeting
Understanding the benefits of budgeting is essential if you want to manage your money like a pro. Here are some of the top advantages of budgeting.
- It helps you have control over your money.
- Budgeting helps in differentiating between needs and wants.
- A budget helps you have an overview of your income vs expenses.
- It sets limits for your expenses.
- It helps you save more than you could ever believe.
- Budgeting helps you set goals and guides you to achieve them with practical measures.
- A good budget frees you from financial stress as you always know how much money you have.
- It helps you live a debt-free life with control over your spending habits regardless of your monthly income.
Final Thoughts On Budget Your Money With These 4 Types of Expenses
You should make a budget and strive to live within it. The fluctuating costs of bills and other expenses can wreck anyone’s budget. The importance of tracking your expenses cannot be overstated. You can make a more accurate budget if you keep track of your expenses.
Don’t let any expenses break your dream plans. Budgeting is the key to achieving all that. These four types of expenses can make budgeting difficult. But when you implement some of the best budgeting strategies, you are sorted.