A budget doesn’t have to be depressing and restrictive– it can be exciting and freeing! We actually love our budget!
It was exhilarating when we settled on our current process and knew we had something that would really help us manage our finances intentionally, instead of watching them as they went by. We still look forward with excitementto ourend-of-the-month budgeting date.
However, putting together a budget all at once can be intimidating, so we’ll do this one step a time. Today we’ll start with setting up budget categories. Budget categories need to be personalized to fit your family’s unique financial situation.
If you put some thought into tracking your expenses like we talked about last week, then you’ve probably already nailed down some good categories for your variable expenses. Today we will build on those variable expenses and add fixed expenses and periodic expenses.
Variable Expenses
Variable expenses are the expenses that change from month-to-month. Most of them don’t go away completely, but the amount we spend is never the same each month. We are focusing on variable expenses in our expense tracking report to get a real picture of how we spend our money.
You can use as much or as little detail as you like. The more detail you have, the clearer the picture of where your money is going, but the more work you’ll have splitting up those receipts from Target and Wal-mart. For example, splitting your grocery purchases up by food group is probably overkill for general budgeting purposes. On the other hand, lumping all of your online purchases into a “shopping” category isn’t going to give you enough information to make meaningful changes. You’ll find a happy medium that works for you.
Here are some typical categories that you can adapt to your own situation. Make your own rules about what expenses belong in what category. If a new expense comes up that doesn’t fit well in your established categories you can add a new category (if it’s an expense that will likely recur) or make it fit into an established category (if it was an odd one-time expense). Avoid catch-all categories like “shopping” and “miscellaneous” or use them very sparingly.
Groceries
Restaurants
Gas
Household
Baby/Kid Expenses
Entertainment
Gifts
Utilities (gas, electric)
Cell Phone (if plan varies by usage)
Fixed Monthly Expenses
Fixed expenses are the expenses that don’t change from month to month. You know exactly how much those costs will be. You also know the dates that these expenses will be due or will be automatically taken out of your checking account.
Here are some examples of fixed monthly expenses. Some may not apply to you (or they may be periodic or variable rather than fixed monthly expenses) and there are likely other fixed monthly expenses that are not on this list.
Since we are creating a monthly budget, periodic expenses are ones that come less often than monthly. They could be expenses that come up annually or at some other interval. Periodic expenses sometimes sneak up on us because they occur so infrequently that we don’t have them on our radar.
Once again, this isn’t an exhaustive list of possible periodic expenses. Some of these expenses may be fixed monthly or variable expenses in your individual case. Think hard to come up with all of your periodic expenses.
Define categories for your budget. To help with organization, divide your categories into categories, either like I did above (variable expenses, fixed monthly expenses, and periodic expenses) or in a different way, depending on your personal situation.
There is a spot in your workbook (get your workbook when you sign up for the challenge) where you can list the categories that you’ll be using in your budget. We will use these categories tomorrow when we continue on with setting up a fresh budget!
What are some of your budget categories that I didn’t mention?
What are some of the periodic categories that get forgotten until they come up?
Fixed expenses generally cost the same amount each month (such as rent, mortgage payments, or car payments), while variable expenses change from month to month (dining out, medical expenses, groceries, or anything you buy from a store).
A periodic budget, as the name suggests, involves dividing the annual budget into smaller periods. It is more useful to refer to pay periods since money coming in and out centres around them. To establish a periodic budget, you have to know the available amount of your cash assets when creating the budget.
Periodic expenses are irregular yet predictable expenses. Unlike fixed expenses, they don't occur on a monthly basis. For example, tuition payments would be a periodic expense. Tuition can be paid quarterly, but isn't paid on a consistent, monthly basis.
What Are Fixed Expenses? Typical fixed expenses include car payments, mortgage or rent payments, insurance premiums and real estate taxes. Typically, these expenses can't be easily changed. On the plus side, they're easy to budget for because they generally stay the same and are paid on a regular basis.
50% of your net income should go towards living expenses and essentials (Needs), 20% of your net income should go towards debt reduction and savings (Debt Reduction and Savings), and 30% of your net income should go towards discretionary spending (Wants).
We recommend the popular 50/30/20 budget to maximize your money. In it, you spend roughly 50% of your after-tax dollars on necessities, including debt minimum payments. No more than 30% goes to wants, and at least 20% goes to savings and additional debt payments beyond minimums. We like the simplicity of this plan.
Fixed monthly expenses are costs that remain constant from month to month. Examples include rent or mortgage payments, insurance premiums and subscription services. These expenses are predictable, making it easier to budget for them since you know the exact amount you'll need to set aside each month.
A budgeting report is a report managers use that lists the previously estimated budget projections over a certain period. It's typically used to compare the budget estimations with the actual results the company achieved during the designated time period.
Expenses can be divided into three categories. Fixed Expenses that do not change from month to month.Variable Expenses that change from month to month.Periodic Expenses that do not occur every month.
The next step in setting up a budget is to list your monthly expenses. There are three major types of expenses we all pay: fixed, variable, and periodic.
Variable costs are costs that change as the volume changes. Examples of variable costs are raw materials, piece-rate labor, production supplies, commissions, delivery costs, packaging supplies, and credit card fees. In some accounting statements, the Variable costs of production are called the “Cost of Goods Sold.”
“A fixed cost will not change, regardless of the amount of goods produced or services provided, while a variable cost will change if the company sells more or fewer goods or services,” explains Fisher. Semi-variable costs, on the other hand, may or may not change with the amount of goods produced or services provided.
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Introduction: My name is Jerrold Considine, I am a combative, cheerful, encouraging, happy, enthusiastic, funny, kind person who loves writing and wants to share my knowledge and understanding with you.
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