Family Budget Expense Types

When creating a family budget, three factors determine the structure of the document: income, expenses, and savings. After the budget is completed, the next step is to make an effort to improve the budget, particularly by increasing the savings. However, the money for more savings must come from somewhere, either increased income or decreased expenses. If you choose to decrease expenses to improve your savings, you need to understand the different types of expenses. Stable Expenses Some bills are the same, or roughly the same, every month. Car payments, gym memberships, and internet service are usually the same every month; electric bills and water bills are also roughly the same, with some small amount of variation from month to month. Decreasing these expenses is likely to be difficult, even if the expense is not a fixed expense. In many cases, the only way to reduce a stable expense is to eliminate it, either partially or completely; for example, you cannot reduce your car payment, but you can pay the loan off completely. Stable expenses are stable for a reason. They represent some constant aspect of your lifestyle which is very likely resistant to change. These are not bills you need to monitor month after month once the budget is established. Volatile Expenses Some categories of expenses are going to change every month, sometimes dramatically. Food bills, gasoline spending, and entertainment costs are some examples of this type of expense. When creating a budget for these expenses, one of the better approaches is to set a certain amount aside for this expense, and when it is gone stop spending in this category. Monitoring your cashflow in these categories can be very helpful. Initially, volatile expenses are a good candidate for reducing your spending. We can do many things to save some money of this type, from changing our buying habits to changing our relaxation habits. This is an area where you can make small but significant steps every month. While these expenses cannot be eliminated, they can be controlled. Frivolous Expenses These expenses are those that we do not need. For example, David Bach is famous for his “Latte Factor”, namely the four dollar cup of coffee you buy on your way to work. Other frivolous expenses are possibly vending machine purchases, movie rentals, and some of the snacks you buy in convenience stores. Frivolous expenditures are certainly enjoyable, but we are not threatened in any way if they were to disappear. But they are fun. And that is the problem. We ENJOY those things; without them, life would be very, very boring. This fact is a major reason why people cannot simply stop these purchases immediately. If you want to reduce this type of spending, you need to go slowly; eliminate one at time, gauging the impact. If you find you are fine without it, great; if not, put it back. In either case, move on to the next. Adding Up Little changes can add up to big results. Do not think you have to fix your budget in a single month. Getting a family budget right takes time, a little work, and a willingness to try things differently. But the payoff is fantastic.