It’s time to address the B-word. You knew this was coming sooner or later. If “budget” is a bad word in your vocabulary, it’s time to fix that! 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 excitement to our end-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 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.
- Baby/Kid Expenses
- 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.
- Health Insurance
- Car Insurance
- Home Owners’ or Renter’s Insurance
- Cable or other TV subscription
- Cell Phone
- HOA Fees
- Debt Payments
- Utilities (electric, trash, Internet)
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.
- Life Insurance Premiums
- Car Registration
- Magazine Subscriptions
- Car Insurance
- Property Taxes
- Club or Association Fees
- Domain registration renewals
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. 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?
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