Do you find yourself living paycheck to paycheck? Do you ever get halfway through the pay period and wonder where all your money went… Why do you think that this happens to people?
My theory is that they don’t actually know where their money is going. We used to be guilty of that every month. We would spend the money we had, not thinking twice about where it was going. This went on for a while until we decided to see how much money we spent in a month.
Then we realized we spent more than we had actually made that month.
A quick and easy way to find yourself in a lot of debt is to spend more than you make. Because we were spending so much we knew it was time to start budgeting. In order to get that budget ball rolling, we had to figure out our expenses.
We were able to figure it out and now we want to help you understand what your expenses are so you can do the same.
Understanding Expenses
An essential step of successfully budgeting is being able to calculate your monthly expenses.
At the beginning of your new budgeting lifestyle, this step won’t be easy. It might seem like a daunting task or too much work. Eventually, with a little practice, calculating your expenses will be a quick and painless process but your budget won’t work if you don’t do it.
There are two basic types of expenses, fixed and variable.
Your household fixed expenses include mortgage, phone, internet, insurance premiums, car payments (check out 5 Tips to Pay Off Your Car to drop this bill) and anything that doesn’t change month to month. Fixed expenses are fairly easy to calculate and are generally not the ones you can easily cut back on to save more money each month.
Calculating variable expenses is where things get tricky. These are your bills that change from month to month. Variable expenses don’t have to ruin all that hard work you put into budgeting, you just have to plan for them. One month you might be getting work done on your car, maybe you have a tropical vacation planned, or the holidays are around the corner.
You have to make sure you work those expenses into your budget so they don’t break the bank. A great way to protect against unexpected variable expenses is to set up an emergency fund.
Check out our post about tips for starting your emergency fund.
My Method for Tracking Expenses
There are some really nice spreadsheets online that you can print off and use to keep track of your expenses. Another common way people do this is with an Excel spreadsheet. Excel is really easy to use and with a little effort up front, you can set it up to do all the math for you.
Me, well, I’m super old school and hand write everything out on a blank piece of paper. I have had months where I only have a few minutes of downtime and I’ll grab an old grocery list out of my purse and write what I owe for the month. I find that writing out where I am spending my money each month really helps me focus on controlling where it is going.
Once you have your expenses written out you’ll have the groundwork for figuring out your budget.
If you are new to budgeting you might be asking yourself, well how do I figure out what my own expenses are? My answer to that is 1) most people pay for things using a check card or automatic payments and 2) those payments get recorded via an electronic bank statement.
Log into your bank account and look at the previous month’s statement to find your fixed expenses. I look at all our fixed expenses and write them down first. Next, look at your variable expenses for the month to give yourself an estimate.
Examples of our variable expenses are:
- Dining out
- Household products
- Clothes
- Activities
- Vacation
- Date nights
- Home Improvement
- DIY
Final Thoughts
Knowing where your money is going each month is essential for you to control your money. If you don’t know what you are spending your money on then you are letting your money control you. You need to know what your expenses are each month because it’s a crucial part of budgeting. If you need some help with budgeting check out our Ultimate Guide to Budgeting.
Once you have some practice with calculating monthly expenses it will become a breeze. If you have any questions about calculating your own monthly expenses or budgeting please don’t hesitate to ask. We would also love to hear how you go through this process.
[disclosure]
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