Surprises are nice but not when it comes to your money. If you’re scrambling to pay the bills each month, you can probably benefit from having a budget. Below are three suggestions to help you organize and manage your monthly expenses. Choose a technique that works best for you.
Fixed and Flex
The first budgeting technique involves grouping your expenses into two categories. They are:
- Fixed - “must-haves” (e.g.,food, utilities and housing).
- Flex - “nice-to-haves” (e.g.,dining out, movies and vacations).
With the “Fixed and Flex” technique:
- Gather six to 12 months’ of bank statements, receipts and other financial records.
- Separate your expenses into “Fixed” and “Flex.”
- Add up your “Fixed” expenses and subtract the total from your monthly income.
- What’s left over is your “Flex” spending money.
Another budgeting technique is the 50/30/20 split. It involves dividing your monthly income in three ways:
- 50% (or less) goes to necessities such as housing, student loans and utilities. These are expenses you have to pay every month.
- 30% (or less) goes to nice-to-haves, such as entertainment, hobbies and travel.
- 20% (or more, if possible) goes toward savings and paying down debt.
This 50/30/20 split is a guide and can be adjusted to suit your short and long-term goals. Be careful about confusing “nice-to-haves” for “necessities.” Dining out multiple times a week and unlimited data plans may be nice to have, but they aren’t essential.
Tracking takes the most time but it provides the greatest insight into your spending habits.
Use a spreadsheet, an online service or, if you prefer to go “low-tech” - a notebook and pen will work just fine.
First, create columns for your spending categories (e.g. groceries, gas, utilities, medical, entertainment, and child care). Add a “miscellaneous/unexpected” and a “savings” category as well.
Next, divide your monthly income among the categories and then pay your bills/save accordingly. It’s important to list all items and subtract the amount you spend in each category so you know where your money is going. When a category has no money left:
- If possible, stop spending in that category, until you get your next paycheck
- Consider making trade-offs by moving money around from other categories
Your money is stretched in many directions. Daily expenses, entertainment, life events and long-term goals - all competing for the same dollar. Budgeting can help ensure you’re covering the necessary monthly expenses and maybe have some extra cash left over for dinner at your favorite restaurant.