October 21 Category: Playbook
I get asked every week from a client, How can we separate our expenses and learn how to create a budget. My answer is usually the best way to attack a problem is to start with the problem. Ourselves? Our budget is not the problem, the money we make is not the problem it’s our choices. Slow down, take your time… Give yourself plenty of wiggle room. To establish an accurate budget of where you’re hard earned money is going we must all start by gathering our own intelligence. Think of it as a battle that you will never win but you can learn to live with. Making money and spending money will never stop but you must be able to contain your spending habits if you/yours are going to be financially stable. What and where are my expenses allotted from? The only two choices are simply called Fixed expenses and Variable expenses?
What are fixed expenses?
Expenses that stay the same each month are called fixed expenses. Understanding fixed expenses is easy because most of them come in as bills or regular payments. To figure out your fixed expenses, look at:
- your checkbook
- mortgage statements or rent receipts
- monthly statements for credit cards or other loans
What are my variable expenses?
Expenses that aren’t the same from month to month—such as food, clothing, or utilities—are called variable expenses. You have a bit more control over some of these items. For example, you don’t need new clothes every month. Some expenses fluctuate, for example, you generally pay more for heat in the winter and for cooling your house in the summer, but you can still get a sense of about how much you spend on them each month. One way to do this is to keep track of your expenditures for a month or longer, and tally them in various categories—utilities, gas, groceries.
Some people take a small pad of paper with them everywhere they go and jot down every penny they spend. This can be a lot of work, but little expenses are easy to forget, but they add up over a month. Try it, you never know until you have given yourself an opportunity to be successful.
You can also determine about what you can expect to spend on variable expenses by looking at
- your checkbook
- electric, gas, telephone, and utility bills
- receipts from previous months
Where does all the Money I earn go each week, month and year?
Finding the time to sit down and track your expenses may not seem like a high priority, but keeping track of your spending is the only way to make your budget work and allow yourself to be truly successful. Making a thorough accounting of your expenditures each month will help you stay on top of your spending habits and create the budget that will help you meet your financial goals.
Review your budget once a month. If any of your fixed expenses change, update it in the budget. Make sure that the amounts you set for yourself for variable expenses still seem realistic. If your long- or short-term goals change, adjust your budget. Don’t forget to update your salary raises and bonuses, too. A few more quick and important messages are that do not jump the gun from one bad choice to another just because it sounds good until more money can be raised. Usually working your way out of the problem one day, one week, one month and yes maybe even one year at a time is the best way to learn how to spend your money wisely.