Although you may see it as a necessary evil, budgeting is an important part of managing finances. If your budget doesn't balance, you can end up sinking into debt, or worse, losing your house or vehicle -- and your credit. Keeping tabs on your budget can prevent these disasters. It can even help you save more money for the things you want.
The first step in developing a budget is to determine your income. You can use any of the many budget worksheets on the web. There are many resources available, but they all work around the same basic principles: List your income and expenses, and determine whether your income is greater than your expenses.
Once you've listed your income, you need to determine your expenses. There are two types of expenses: fixed expenses and non-fixed expenses. Fixed expenses are those that you can be sure of every month, such as your mortgage or car payment. You can read more about fixed expenses in How Fixed Expenses Work.
Non-fixed expenses are variable expenses that can fluctuate from month-to-month. In this article, we will explore the various types of non-fixed expenses, and how to keep variable spending from breaking your budget. These expenses can be hard to manage because they include both your needs and your wants. Lattes, fast food and new CDs all fall into this category. It can be very frustrating to work hard all week and then feel guilty for stopping to pick up burgers on the way home. But budgeting doesn't mean always denying yourself.
Read on to find out ways to control your non-fixed expenses without giving up all the fun things in your life.
Identifying Non-Fixed Expenses
Once you've started listing your non-fixed expenses, you may be surprised at all the places you've been spending money. We often don't realize exactly how much goes through our hands until we start to carefully monitor our spending. Here are some of the most common non-fixed expenses:
The inability to determine when any of these expenses may pop up, and how much they'll cost you each time, makes it easy to understand why non-fixed expenses are also called variable expenses. For example, a Friday night trip to the movies for a family of four can cost upward of $50, but it may cost hundreds to fix the car bumper from the fender-bender in the theater parking lot. Both are non-fixed expenses, and neither is an amount that you can predict for every month. You just have to know that there'll be expenses each month, and work with your budget so that you are prepared for them.
The best way to determine how much money you usually spend on non-fixed expenses is to keep a diary of your spending for a month. See where you put your money, and decide what you could do without. Some expenses are one-time events: A friend gets married and wants your daughter to be the flower girl, so you're out $85 for a dress she'll wear once. But there are also expenses that you'll regularly see in the diary, such as the scratch-off lottery tickets or the daily smoothies. Monitoring your spending this way helps alert you to the expenses that add up quickly and really don't significantly improve your life.
Our needs and our wants often get mixed up, and it seems nearly impossible to think of getting by without many of the things we take for granted. But it's possible to live without some of the extras. And it can make a huge difference in your budget.
Not every non-fixed expense is frivolous. You can't just cut out all the bills that show up throughout the month. But if you seriously want to balance or improve your budget, you can analyze your spending and find ways to cut back.
On the next page, we'll learn how to manage these non-fixed expenses and work toward a balanced budget.
Analyzing Non-Fixed Expenses
To make a difference in your budget, you must analyze the expenses you've listed. This can be a daunting task, and it can take a while to accomplish. But properly analyzing and managing your budget will help you sleep better and feel more confident about getting ahead in the future. So, let's walk through analyzing a budget:
Necessary versus Unnecessary: The first step is to determine which expenses are necessary and which are unnecessary. Do you really need it? Think of whether your life change would change without it. If you aren't sure about an expense, just circle it and move on. As you work through your budget, it will become easier to decide what you can live without. Make a plan for cutting out as many of the non-necessary expenses as possible for at least one month, and see how you feel afterward. If you're still okay with it, cut that expense altogether.
Some non-fixed expenses are small, but can add up. Others are larger and unexpected, like the hospital bill after an accident that calls for an overnight stay. To keep from being swamped by these expenses, try to allow at least 10 percent of your budget for savings. Make it a goal to get at least six months’ worth of income into that account, in case of emergencies.
Recurring versus One-Time Expense: Another factor to consider is how frequently an expense shows up in your budget. For example, replacing the blown-out tire on your car, hopefully, is a one-time expense. So is the new shirt you bought after changing the tire, since you were headed to a job interview. You can't very well cut those kinds of expenses from your budget. But buying a new pair of shoes every week is a recurring expense, and one that you could probably pass on without any real soul-searching. Of course, buying new shoes sometimes isn't a problem. It only becomes trouble when it turns into a habit.
Make Decisions: Once you've analyzed your budget, it's time to make decisions. Involve your spouse and everyone in your home in this part of the process. Show them where you've identified unnecessary expenses, and discuss which ones most affect the family budget. If trips to the arcade are becoming expensive, work out a plan for limiting the trips to twice a month. Or, if someone loves golf, determine whether you could save money by joining a golf club rather than paying the fees at the public course every time. Remember that everyone is partial to his or her own indulgences, and try to find a way to keep from cutting out the pleasures of life altogether for any member of the family.
Using these tips, you'll see your budget improve. Although it may be frustrating to see your mistakes on paper, keeping up with your expenses can help you correct those mistakes rather than repeat them. By analyzing your spending habits, you'll learn more about what's really important to you and your family.
Related HowStuffWorks Articles
More Great Links
- "Budget Guide - Variable Expenses." http://maxcredit.net/guides/budget-variable-expenses (5/7/08)
- "How to Bring Balance to Your Budget." http://www.expertsoncredit.com/how-to-bring-balance-to-your-budget.html . 7/21/07 (5/07/08)
- Privratsky, Shaunna. "Balance Your Budget." http://theshoestring.com/index.php?articleID=6137§ionID=146 1/19/06 (5/07/08)
- "The Spending Plan." http://www.mdmproofing.com/iym/spendplan1.html. (5/07/08) http://articles.moneycentral.msn.com/SavingandDebt/LearnToBudget/7WaysToCommitFinancialSuicide.aspx 9/7/07 (5/5/08)