Embracing your True Expenses
In the last post, we took a look at what was coming in, vs what was going out. You may have seen expenses you didn't realize or think about. You might have seen unexpected emergencies such as a vet visit, or new tires for the car. In this post we'll take a detailed look at what our true expenses are, and how to incorporate them into a plan to make our money work for us, rather than the other way around.
When we looked at our monthly expenditures, we knew pretty quickly what we needed to survive. Our rent/mortgage, utilities, food, transportation. But we also realized there are other monthly expenses such as gym memberships, subscription services, association fees, entertainment expenses, clothing, pet costs, insurance etc. We not only need to allocate money towards what we need to survive, bur also what we need to fund our lifestyle.
On top of all that, we know there are going to be larger, more infrequent expenses. Annual car registration, occasional Dr or Vet visits, care repair, home maintenance, an upcoming vacation, holiday gifts... it might seem endless - but if you think back to the past year or so, or even better, look at your bank statements, you can get a pretty decent idea of what these annual, semi-annual, or infrequent expenses might be. Even if you're not exact, and let's say you've only saved up $50 for a $250 dollar unexpected vet bill, at least you've got $50 towards it - that's much better than $0.
Let's take a look at some examples of True expenses:
Amazon prime $140
Annual Car registration $120
Quarterly Trash bill $90
Home Maint $40
Vacation $50
Clothing $25
Self Care/Dental $30
Gifts $30
How do we save up for these? Simple - for an annual or semi annual expense, just divide by the # of months we need to save up for.
Example - We just paid our Amazon Prime membership for the year. $140. We didn't expect it, so we'll be eating Ramen for 2 weeks, but next year, we'll be prepared. Assuming the price remains the same, we know we'll need $140 in 12 months. We need to start saving $12 a month for that future expense. $140 / 12 = $11.67, but I like to round up or down whenever possible. So we'll do that for all our True expenses:
Amazon prime $12
Annual Car registration $10
Quarterly Trash bill $30
Home Maint $40
Vacation $50
Clothing $25
Self Care/Dental $30
Gifts $30
The Quarterly Trash bill is paid every 3 months, and is $90, so we will save $30 for that expense. The other categories are just monthly allocations for a ballpark future expense. If we spend more, or less in the future, that's ok. Once we can escape the paycheck-to-paycheck cycle, we'll be better able to "roll with the punches", which we'll cover in a future post.
One thing I will suggest for Utilities, is that you either look at the previous year's total, and divide that by 12, to get a reasonable estimate of what your average monthly spending should be. Some utilities will actually do this for you - it might be called "Easy Pay" or "Standard Pay" - but the Utility Company will compute an average payment for you, and that's what you pay every month. Your actual utility usage might be more, or it might be less, but by paying that average consistent payment allows you to plan, and not worry about a fluctuating payment. The Utility company will adjust this payment up or down based on your usage, either annually or semi-annually, but usually only by a few dollars. And because you'll be so good at budgeting, you'll be able to handle it without much effort. I have Electricity, Gas, and Water all on "Easy-Pay", and it's extremely convenient.
Ok, let's take a look at our budget now - (going forward I'm going to be using a Google spreadsheet for examples, but it's just for clarity - you can keep track on paper, in a spreadsheet, an app on your phone, whatever.)
For my own preferences, I group things by Necessities (the "4 walls"), true expenses, debt, and etc (we'll get into debt and etc in another post):
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