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 excitementto ourend-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
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.
Groceries
Restaurants
Gas
Household
Baby/Kid Expenses
Entertainment
Gifts
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.
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.
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.
There is a spot in your workbook (get your workbook when you sign up for the challenge) where you can list the categories that you’ll be using in your budget. 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?
Fixed expenses generally cost the same amount each month (such as rent, mortgage payments, or car payments), while variable expenses change from month to month (dining out, medical expenses, groceries, or anything you buy from a store).
Periodic expenses include things like annual vehicle registration, major car repairs, and holiday gift giving. For things you know are going to come up at least once a year, set aside a little bit each month to cover the cost.
Typical fixed expenses include car payments, mortgage or rent payments, insurance premiums and real estate taxes. Typically, these expenses can't be easily changed. On the plus side, they're easy to budget for because they generally stay the same and are paid on a regular basis.
Fixed monthly expenses are costs that remain constant from month to month. Examples include rent or mortgage payments, insurance premiums and subscription services. These expenses are predictable, making it easier to budget for them since you know the exact amount you'll need to set aside each month.
One popular strategy is the 50/30/20 rule is a budgeting method that breaks down your after-tax income into three spending categories: needs, wants and savings. This is a good jumping-off point if you're new to budgeting or less likely to track every bill or purchase.
Essentially, you can either have your three big categories — or 30, 50, or 100 categories. It really depends on how much granularity you'd like. Pro tip: The Monarch Money app can help you set up and adjust your budget items while making it easy to track fixed expenses separately from daily spending.
If the company prepares a fixed budget and it is projecting sales of $1 million, the budget for sales commissions will be fixed at $50,000. If the actual sales end up being only $900,000 the budget for sales commissions will remain unchanged at the fixed amount of $50,000.
Variable costs are costs that change as the volume changes. Examples of variable costs are raw materials, piece-rate labor, production supplies, commissions, delivery costs, packaging supplies, and credit card fees. In some accounting statements, the Variable costs of production are called the “Cost of Goods Sold.”
Fixed expenses, like rent, stay the same month-to-month. Variable expenses, like food and groceries, can vary month-to-month, and generally aren't due on a set date. Periodic expenses include expenses that are billed quarterly or annually, as well as expenses like vehicle maintenance that come up now and then.
Variable costs may include labor, commissions, and raw materials. Fixed costs remain the same regardless of production output. Fixed costs may include lease and rental payments, insurance, and interest payments.
The budget period is a subset of the total Project Period. For example, a project period may be 22-months and consist of two budget periods of 12- and 10-months.
Expenses can be divided into three categories. Fixed Expenses that do not change from month to month.Variable Expenses that change from month to month.Periodic Expenses that do not occur every month.
Variable costs are costs that change as the volume changes. Examples of variable costs are raw materials, piece-rate labor, production supplies, commissions, delivery costs, packaging supplies, and credit card fees. In some accounting statements, the Variable costs of production are called the “Cost of Goods Sold.”
“A fixed cost will not change, regardless of the amount of goods produced or services provided, while a variable cost will change if the company sells more or fewer goods or services,” explains Fisher. Semi-variable costs, on the other hand, may or may not change with the amount of goods produced or services provided.
Introduction: My name is Arline Emard IV, I am a cheerful, gorgeous, colorful, joyous, excited, super, inquisitive person who loves writing and wants to share my knowledge and understanding with you.
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