This month was dedicated to different types of debt that we take on during our life. After we talked about student loans, wedding expenses and mortgages, we will talk about how to plan our monthly budget so we can make sure we pay off all these debts and reach financial serenity.
I know that "budget" is a tough word in Americans' vocabulary. I will endeavor to make it easier for you, my reader, by telling you that by budgeting your money you are not giving up all opportunity for fun and things you desire. You are only planning all your desired purchases and you are also making sure that all your necessities are taken care of.
I have to agree with the financial experts who tell you to track all your expenses, to the last penny. It is the best way to understand your expenses over a 30-60 day period and to be able to control them afterwards. However, I also have to agree that most of the people (including myself) don't have the patience or the discipline to track every penny spent and to plan where each penny goes. So I have devised a simpler system that has also been sustainable. And I will go over the 3 categories of expenses that I use in my own budgeting:
1. Fixed expenses
This category includes all the payments that are due every month and that have set amounts that cannot be changed, such as: mortgage/rent, insurance payments (all policies: homeowners, car, life, etc), retirement contributions (once you determined how much you contribute), car payment (only after you negotiate the best interest rate available to you), student loan payments, credit card payments (once you negotiate the monthly payments). This is what you must cover every month from your income. You will include all those payments that are a must, and once you have listed them all, you make sure your income goes to them first, before taking care of the next two categories.
2. Flexible expenses
This category includes all the payments necessary every month, that can be negotiated with the companies you have to pay, such as: utility payments (you can control how much electricity, gas or water you use), gas for your car or common transportation (whichever way you need to get around, most of all for work or your business), groceries and any food you eat out (if you have to go out for business meetings), any dues to professional organizations, any other activities that you need to pay for (like children's music and sport activities).
3. Discretionary expenses
This category is for all the fun spending, such as purses and shoes, or clothes, or any other items you want to collect, as well as vacation money, and money for any other fun family activities. These expenses should not happen before any of the other two categories. I'm not saying to give up all the fun, I'm only saying that these cannot be a priority over the fixed and flexible expenses that you have to take care of every month.
Hope these ideas help you, as you build a better relationship with your money.