A fixed income. A tight budget. Whatever you call it, trying to live within your means isn't always an easy task, especially if your income is small. But there are ways to make it easier.
Creating a budget plan can help you know exactly how much money you have, how much more you need, or how to cut back on non-necessary expenses. You can use a budget to see where you may be unnecessarily spending money, or where you could be saving money by cutting out extra fees and charges for some items. There are lots of helpful budget sheets on the Web. The first step in using any of them is to determine your income. Then you have to list your expenses.
Managing a budget can be even more crucial for those who are self-employed and do not have a fixed amount of money coming in each month. If your income varies, determine the least amount of money you expect to make in a month. Build your budget around that amount; you can put windfalls from better months into savings, or use them to get ahead on bills.
There are two types of expenses: fixed expenses and non-fixed expenses. In this article, we'll explore fixed expenses. We'll find ways to save money even when you have a lot of fixed expenses to work around.
If you live on a fixed income, it's extremely important to know exactly what expenses you can expect to come out of monthly or weekly paychecks. Fixed expenses are those that you can predict to pay every week, every two weeks, or every month. For example, you know that every month you have to mail a check for your mortgage payment. Mortgage payments, rent and car payments are fixed expenses because you know you'll have to pay them every month, and you know how much they'll cost each time.
Read on to find out how to identify the fixed expenses in your budget.
Identifying Fixed Expenses
So, you've started your budget sheet. You know how much money you make every month. Now it's time to outline your expenses. In the area for fixed expenses, you'll need to list all expenses you have that are the same every month. For example, if your car payment is $350, you can list that amount as a fixed expense. Here are some other fixed expenses:
Of course, remember that some expenses that qualify as fixed for most people may be non-fixed, or variable, for you. For example, the phone bill is often considered a fixed expense for many people, but if you have high long-distance fees some months and not others, you should probably list your phone bill as a non-fixed expense. Cell phone expenses work the same way; some people always pay the same amount, and can list it as a fixed expense. Others go way over their allotted minutes, and cannot be sure what the bill will be from one month to the next.
You may have a long string of fixed expenses, or you may have only a few. Either way, if you're on a fixed budget, you need to keep track of all your fixed expenses.
One mistake many people make is to set bills on automatic withdrawal, and then forget to write them down in their checkbooks. This can lead to overdraft charges on your checking account, not to mention the headaches and paperwork involved in correcting such mistakes. If you include that payment in your budget plan, you'll be more likely to remember it, and you'll be controlling your spending with that payment in mind. That's why having a managed budget helps keep your checkbook in the black, and your mind at ease.
To make sure your budget stays on track, update it regularly, and use your checkbook register to help you list all of your expenses. Looking back through your register can help you find fixed expenses you might otherwise overlook, such as the child care or cable bill.
For other tips on how to make it easier to manage fixed expenses, even with a tight budget, read the next page.
Managing Fixed Expenses
Once you've listed all your expenses, and you know which ones are fixed, it's time to work on managing your fixed expenses. There are several ways to do this:
Necessary vs. Unnecessary: One of the best ways you can manage your fixed expenses is to eliminate the ones you don't really need. Of course, you probably can't get rid of your mortgage payment overnight, but you can cut out some luxury expenses: Take the movie package off your cable bill, and save $12 a month. Or, change Internet providers for a better deal, and save another $10 a month. Listen to local stations and save that $15 monthly for satellite radio.
Pay Yourself First: Schedule savings into your budget plan. Look at how much money you have left after expenses, and choose an amount to set aside each month. Put that amount aside as soon as you get your paycheck. Better yet, have it automatically deposited into your savings account.
Downsize: If you have a family of five and you live in a spacious, four-bedroom house, you may want to consider moving into a smaller, three-bedroom home to save on mortgage payments, insurance, and taxes. Of course, it probably isn't feasible for a large family to move into a small apartment. Find a home that is large enough -- but no larger.
Likewise, a cattle farmer probably could not trade a large diesel pickup for a tiny sedan, but he could get a model with fewer luxury features. Downsizing is a great option for those who have more luxuries than they really need.
One by One: Study your budget to see which fixed expense you might be able to get rid of. Choose one monthly bill, such as your car payment, that you will eventually pay off. Set aside as much as you can to pay it off early. Even if you only make one extra payment a year, you can really make a difference. Remember, anytime you can cut out an expense, you now have that extra amount to save or put toward other expenses.
However, be aware that some loans, such as mortgages, carry prepayment penalties. Make sure what you're saving in interest will outweigh any fee you might have to pay.
Share the Load: It may be helpful to take in a roommate. Splitting rent and utilities can help tremendously in lowering your fixed expenses. But if you have a family, or if you're married and just starting a family, a roommate probably isn't an option. Instead, you may want to opt for other tactics, like trading services with neighbors to save on lawn mowing, house cleaning, and other expenses.
No matter how tight your budget is, you can learn to manage. Starting with your fixed expenses is a good way to save more of your paycheck. Use your budget planning sheet to outline all of the expenses you expect every month, and work to get them under control. It's not always easy, but it will definitely pay off down the road.
The resources and budget planning sheets on the next page can give you even more help.
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More Great Links
- Brewer, Philip. "Manage your fixed expenses." www.wisebread.com/manage-your-fixed-expenses 2/17/08 (5/05/08)
- "How to Budget & Save." Federal Reserve Bank of Chicago, www.chicagofed.org/consumer_information/budgeting_and_saving.cfm#2 (5/5/08)
- "Money 101, Lesson 2: Making a Budget." http://money.cnn.com/magazines/moneymag/money101/lesson2/index.htm. (5/5/08)
- Weston, Liz Pulliam. "7 Roads to Financial Ruin." http://articles.moneycentral.msn.com/SavingandDebt/LearnToBudget/7WaysToCommitFinancialSuicide.aspx 9/7/07 (5/5/08)