Types of expenses4/9/2023 Create a BudgetĬreating a budget is the best way to not feel blindsided by money leaving your bank account. We learn a lot about our spending habits and variable expenses when we track our activity for just a few weeks. The best way to find the answer to this is to track your expenses for a few months. Budgeting for Variable expenses requires gaining a good understanding of where your money goes after you have paid your fixed and periodic expenses. The challenge to budgeting these expenses is that they are rarely exactly the same every month and they do not typically occur on the same day of each month. Variable expenses are the money you spend on food, clothing, and entertainment. These are the expenses that we can influence with our behaviors. While they can be challenging to budget for, this is my favorite category because this is where we have all the control. These are also known as discretionary expenses. The third type of expense is Variable expenses. Third Type of Expenses: Variable Expenses The best way to ensure there is money in your bank account for these types of expenses is to plan a portion of them into each month of your budget. The bill amount has not changed in three years but I still sometimes forget to put it in my budget. For example, my trash gets picked up every Thursday morning but it isn’t until the quarterly statement arrives in the mail that I remember we have to pay for trash pick-up. These are the bills that we have to pay that come in quarterly or semi-annually that we totally forget about. It sounds like an oxy-moron to have an “expected surprise” but I am sure you have all been there. Similar to fixed expenses, we have little control over periodic expenses but where fixed expenses typically recur on the same date every month, periodic ones are what I call “expected surprise” expenses. Periodic expenses are a little more challenging to budget for. Second Type of Expenses: Periodic Expenses I like fixed expenses because they are easy to predict and while covering them can be a financial challenge, they are never a surprise and are easy entries in my budget spreadsheet. These expenses occur at predictable intervals, typically monthly. You might also have a car loan or other type of secured loan. First Type of Expenses: Fixed Expensesįixed expenses are payments we have very little control over as they represent a legal obligation to pay, such as your rent or mortgage. What finally helped me overcome my budgeting struggle was when I gained an understanding of the three types of expenses: fixed, periodic and variable. The idea of planning for my expenses, at least beyond my rent payment, was far outside my comfort zone. I had a very general idea of what my expenses were but inevitably I would spend way more than I thought I would. When bills came due I never really knew if I had the money to pay them. How did I know how much money I was going to need in September when January had barely started?įor years I had been living paycheck to paycheck just hoping my money would last until the next check came in. The holiday season had just ended and the next one seemed forever away. It was a daunting task to think about what my expenses would be for the next twelve months. When I first started budgeting, I set up an excel spreadsheet for the year. There are three major types of expenses we all pay: fixed, variable, and periodic. The next step in setting up a budget is to list your monthly expenses.
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