Now that you know where your money is coming from and where it is going, the next step in this budget creation process is going to be for you to break all of your expenses up into two different categories, separating your fixed expenses from your variable expenses.
Fixed Expenses - These are the expenses that tend to stay the same, or at least relatively the same, from one month to the next, and they are most likely required parts of your life or lifestyle. These expenses are going to include your rent or your mortgage, your car payments, your cable or internet service, your utilities, your credit card payments, your trash pickup service and so on and so forth. These are the expenses that are essential to your life, and not likely to be changing in your budget anytime in the near future.
Variable Expenses - These are the expenses that are going to change from one month to the next, and then the next, and so on and so forth. These include expenses such as gifts, eating out, entertainment, clothing, gasoline, groceries and so on. This category is going to be the important expense category when it comes to making budget adjustments in the future.
Now what you are going to want to do is to total up your monthly income and then total up your monthly expenses. If your end result is showing that you are making more income than what you are spending, then you are definitely off to a good start but there is always room for improvement. What this means, though, is that you can prioritize the excess income to saving for retirement or emergencies. If you are showing that you are spending more money than you are taking in, then you need to make some swift changes to your budget in order to ensure that you do not spend beyond your means.
Now is the time for you to make the adjustments to your expenses. If you are accurately identifying and listing all of your expenses, then the ultimate goal here is going to be to make sure that your income and your expense columns match up equally. What this means that all of your income will be accounted for and budgeted into a specific expense, even if it is simply your savings account.
Follow Up: Make sure that you are reviewing your budget on a monthly basis. It is vitally important that you review your budget over and over again regularly to make sure that you are still on track and doing the right things with your money. Compare your expenses to what you designated in the budget and see what changes need to be made so that your financial plan can evolve as you do.
Photo Credits: FLEECIRCUS
Originally posted 2009-09-16 03:20:49. Republished by Blog Post Promoter
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2 comments ↓
Great advice here, most people dont do the follow up part and just loose track. Thanks for this
Good solid advice. I would add that on the fixed expense side you can make some savings by trying to find better deals on things like insurance, utilities and TV etc.
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