Have you ever stopped to think how much it costs you to be you for a month? I mean “YOU” just don’t happen…there’s a lot of work that goes into maintaining you. Your budget is pretty much a summary of what it costs you to live your life. As a savvy budget-ista, getting a handle on your monthly bottom line is the best tool you have to making the most of your money and positioning yourself to increase your wealth.
Prepare Yourself To Scrub Your Monthly Expenses
Before you start scrubbing your monthly expenses, make sure you know exactly how much money you have to work with each month. Read How Much Money Do You Really Make to help you get a handle on you monthly income.
Grab three consecutive months of banking and credit card statements, a highlighter, a pencil, a calculator, and a notepad. Oh, y paciencia y café. Take your notepad and write the name of one month at the top of each page. You’ll also need to group your expenses by category. You can use the categories included in our fabuloso budget worksheet you can download or print to make this exercise even easier!
As you work though your expenses, resist the temptation to fudge your numbers. Don’t start trimming numbers now! You need to see them as they are…you need to see the truth behind your spending. You’ll have plenty of time to reflect on how to cut back later.
Let’s get started!
4 Steps To Determine Your Monthly Expenses
1. Identify Your Monthly Fixed Expenses
Fixed Expenses stay the same every month. Examples: Rent/Mortgage, cell phone and cable bills, insurance premium payments, tithing/charity, child care expenses, gym/club memberships…
Take your highlighter and your banking/credit card statements, and start highlighting fixed expenses for each month’s statement.
Write down the total for each month in your notepad on the corresponding month’s page. Make sure you identify the expense and it’s total amount.
If you find that expenses you believed to be fixed are actually fluctuating from month to month, oh like your cell phone bill, I strongly encourage you to figure out what’s causing what ought to be a predictable bill to change from month to month. Pull your statements and pour over them. If necessary, pick up the phone and call your service provider to find out more information.
2. Identify Your Monthly Flexible Expenses
Flexible expenses vary month to month. Examples: Gas, groceries, clothing, electricity, assistance to family
Go month by month and identify expenses associated with each expense category, one at a time.
For example, if you’re starting with your Grocery/Food category, go month by month and highlight every expense tied to your grocery/food category to include la compra, meals out, snacks out, coffee shop stops, school lunches for los ninos, et cetera.
Then, log those expenses in your notebook, total up all the expenses for that category, and write it down.
Do the same thing with each category for each month.
3. Identify Periodic Expenses
Periodic expenses, for some reason, catch many of us off guard. These are the expense we ought to save for through the year, but not enough of us actually do it because we haven’t bothered figuring out how much we’d need to save each month to make it happen. Periodic expenses are things like holiday expenses, tires for the car, and vacations.
If you absorbed periodic expenses during the three months of statements you’re currently using to put together your budget snapshot, take a fourth page in your notebook and jot them there. You don’t have to include them in your monthly expense averages.
The best way to plan for periodic expenses is to figure out how much ALL of your periodic expenses are for the year, divide by 12, and set aside that amount into a savings account to ensure that you have CASH on hand to cover these expenses whenever they occur.
4. Calculate Your Average Monthly Expenses
For each category, add the total amounts for month 1, month 2, and month 3 and divide by three to determine your three-month average. And then, enter the average amount into your budget worksheet (download or print) for each category.
What To Do With Expenses You Can’t Identify
It’s inevitable. You’re going to find some expenses that you just can’t identify. Or you’re going to find, what I like to call a black hole. A couple of years back, we had a black hole in our budget that seemed to point towards a store that sells groceries, home goods, and electronics, and clothing. I just couldn’t figure out how we spent nearly $500 one month there.
That’s a bold face lie.
I know exactly how we spent that money. We used that store as our personal park. We’d go “walking” there, or I’d send my hubby there to pick up milk and he’d mysteriously show up with a couple of DVDs, a box of cereal, and a can of tennis balls, too.
For now, if you come across expenses you can’t identify, just mark them as unknown and throw them into your budget under “Unknown.” If it’s cash you pulled out from the ATM, put that down as “cash.” Your goal is to put an end to unplanned and untrackable spending. Unplanned and unconscious spending is what gets you into debt and keeps you from saving.
If you can, you will quickly find that the greatest rate of return you will earn is on your own personal spending. Being a smart shopper is the first step to getting rich. Mark Cuban
What are your budget’s black holes? Does your income cover your monthly expenses? Share it below!