Budgeting 101 – Part III

Here we come to the end of budgeting. Sad, isn’t it? I can almost see the tears. It’s almost over, I promise.

First, we figured out our monthly income. Then we calculated our committed expenses. When you subtract your committed expenses from your monthly income, you get the amount remaining to pay your discretionary expenses. How much do you have left? More than you thought? Less? It’s the discretionary expenses where most people lose control of their cash.

Here is a list of the most common discretionary expenses:

  • Groceries
  • Gasoline and car maintenance – here you should be budgeting for oil changes, new tires and other maintenance for you vehicle.
  • Medical
  • Entertainment and eating out – yes, you should actually budget for this.
  • Savings
  • Additional payments on debt
  • Gifts – here is where you get your holiday budget
  • Vacations
  • Activities – the gym, martial arts, dance, sports, etc. This could be combined with entertainment and eating out.
  • Charity
  • Miscellaneous – things like health and beauty, pets (don’t forget to budget for vaccinations), etc. If you spend at least $50 per month on these things, you may want to consider each a separate expense.

I know this seems like a lot but you need to allocate money for each of these things. Even if you just do it in your head. For example, each time you get paid, you can transfer money for gifts and vacations to your savings account with the rest of your savings allotment. Before you start, jot down an estimate for each category. Now, look back through your bank statements (if you use your debit card all the time) or track your expenses for a month (if you use cash). How far off are your estimates? Are you spending a lot more than you thought? If you are charging on your credit cards each month, down forget to add those charges to your expenses.

Now that you’ve looked at your actual expenses, do you have any money left at the end of the month? Are you in the red? Are you charging on your credit cards to make up the difference? Where are your actual expenses a lot higher than you thought? When we first did this exercise, our entertainment and dining out was way out of control. We curbed our spending and got back on track. You can too. Let me know where your budget is higher than you’d like. We’ll address those areas first.

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