Regardless of your income, everyone has the same fixed expense categories. Identifying the sum of your fixed expenses is same process if you make $30,000 a year or $300,000 a year.
Living and thriving on a shoestring salary is difficult because everyone has the same essential needs. When the majority of your salary goes to fixed and variable costs, your money is already spoken for before it hits your bank account.
However, by breaking down your spending, you can find areas where you can cut costs. There are many ways to approach budgeting. The next three posts will explain how to budget by isolating fixed, variable and discretionary costs. Let’s start by looking at your fixed expenses.
Simply put, fixed expenses are the bills you pay every month and the amount owed is usually the same, such as rent and health insurance. To all of my super organized, type-A sisters out there, I know you love having a clear picture of where your money goes. This will warm your heart and be a very satisfying task.
For those already feeling sick to their stomach at the thought of approaching this exercise, take a deep breath and stick with me. Budgeting is an empowering process. It’s the first step toward organizing and being in control of your money. Remember: these are fixed, essential costs. We’ll look at discretionary spending in step three.
These are the categories I suggest including in your fixed expense budget.
- Housing (rent, mortgage)
- Condo/HOA Dues
- Utilities (electricity, water, gas, trash/recycling, internet, security monitoring)
- Cell Phone
- Transportation (car payment, public transportation, gas)
- Food (groceries)
- Health (insurance premiums, prescriptions)
- Toiletries (toothpaste, deodorant, shampoo)
- Tithe (charitable giving)
- I make a regular tithe payment to my church that is the same amount every month.
- Loan Payment (student loan, car loan)
Ummm, hold please! I don’t know how much my average electric bill is.
So glad you stopped me! You can find this information two different ways. You can log into your account on your electricity provider’s website and use your payment history to calculate your monthly average. If you don’t have an account, now is as a good a time as any to create one.
Additionally, you can log into your bank account and find the data by searching in your transaction history. Many banks also have free budgeting and expense tracking software built into your online profile. My bank automatically groups and calculates what I spend on categories of items. I can see that data monthly, quarterly or yearly.
To the right is my monthly fixed expense budget for 2020. Like I suggested, I used a year’s worth of bills to come up with the average monthly cost for my utilities, gas, and food costs.
Where do I put Toiletries, Haircuts and clothing?
Since it’s not a set amount every month, toiletries are a variable cost. The same logic applies to hair care and clothing costs.
Are you starting to pick up what I’m putting down?
Budgeting is definitely an objective process. Some of the items on this list could easily be included in the variable expense budget and vise versa. But, it’s useful to start with a baseline. As you get more comfortable, you can figure out what budgeting process works best for you.
OK friends, grab some paper or open a spreadsheet and start crunching numbers!
If you prefer a digital expense calculator, try this one.
| Bill | Monthly Cost |
|---|---|
| Mortgage | $613 |
| HOA Dues | $170 |
| Electric | $35 |
| Natural Gas | $20 |
| Water | $22 |
| Internet & TV | $48 |
| ADT Security | $34 |
| Gasoline | $50 |
| Food | $170 |
| Tithe | $140 |
| Cell Phone | $23 |
| Health Insurance | $55 |
| Prescriptions | $40 |
| FIXED EXPENSES | $1,420/month |
Raise your hand if you’re getting annoyed with this process
There’s a reason why. I’m asking you to categorize your expenses and you may start to see spending trends you don’t like. Have the following thoughts ever crossed your mind? “Getting my nails done makes me feel good and it’s not really that expensive, so it’s essential to my well-being” or “buying coffee on my way to work saves me time in the morning and it’s only an $12 per week.” You can justify practically any expense if you try hard enough. Coffee is essential; fancy coffee is not. Taking care of your body is essential; paying someone to cut and paint your nails is not.
A Moment of Therapy
If you have debt or want to save for a financial goal, you must be willing to make yourself uncomfortable. I’m talking about emotional discomfort. Have you been approaching life a certain way for a long time? Maybe this is the first time you’ve ever broken down your expenses. Either way, changing your behavior can cause emotional distress.
Humans are creatures of habit; we don’t like to change or be told what to do. The “ick” feeling you’re experiencing is inner pushback against the possibility of change. If you find you’re on the verge of canning the exercise, walk away from the process for a few minutes. Think about and recognize your feelings. Ask yourself a few questions and answer them honestly.
- What emotions am I feeling?
- Why am I having such a strong reaction to this process?
- Am I truly ready to make financial changes and commit to them?
If you can’t get out of it, get into it!
One of my favorite therapists told me: if you can’t get out of it, get into it. I know you’re ready to overhaul your spending. Why else would you be reading this post all the way to the end if it wasn’t on your mind?
Reaching your personal and financial goals requires a level of sacrifice. You are capable of making sacrifices now so you can reach your goals in the future. Commit and get into the process! You are capable and worthy of change.