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To set up an accurate budget of where your money is going, start by gathering information on both your fixed and variable expenses.
Fixed expenses
Items such as rent, mortgage, car payment, and other regular installment payments that stay the same each month are called fixed expenses. Understanding fixed expenses is easy because most of them come in as bills or regular payments out of your checking account. To figure out your fixed expenses, look at:
- your checkbook
- mortgage statements or rent receipts
- monthly statements for credit cards or other loans
Variable expenses
Expenses that aren't the same from month to month—such as food, clothing, or utilities—are called variable expenses. You have a bit more control over some of these items. For example, you don't need new clothes every month. Some expenses fluctuate, for example, you generally pay more for heat in the winter and for cooling your house in the summer, but you can still get a sense of about how much you spend on them each month. One way to do this is to keep track of your expenditures for a month or longer, and tally them in various categories—utilities, gas, groceries.
Some people take a small pad of paper with them everywhere they go and jot down every penny they spend. This can be a lot of work, but little expenses are easy to forget, but they add up over a month.
You can also determine about what you can expect to spend on variable expenses by looking at
- your checkbook
- electric, gas, telephone, and utility bills
- receipts from previous months
Where Does the Money Go?
Finding the time to sit down and track your expenses may not seem like a high priority, but keeping track of your spending is the only way to making your budget work. Making a thorough accounting of your expenditures each month will help you stay on top of your spending habits and create the budget that will help you meet your financial goals.
Review your budget once a month. If any of your fixed expenses change, update it in the budget. Make sure that the amounts you set for yourself for variable expenses still seem realistic. If your long- or short-term goals change, adjust your budget. Don't forget to update your salary raises and bonuses, too.
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