Expenses and Budgeting

Expenses

Think about your bills every month, the money you spend on housing, food, clothes, transportation, entertainment, etc. Do you know where it all goes? Are you able to save any money after you've paid for those things?

Everyone has expenses, that's part of life. Some of them you can control, like entertainment or food spending. Some costs like healthcare can be unavoidable. But if at all possible, it's important to try to save something. You may have saving goals so that you can afford a down payment on a house, buy a car, or take a vacation. But it is also important to save so that you can afford things you need even if you lose your job. Or to plan for a future where you want to take time off or work a lower paying job that you enjoy more. And of course, so someday you can retire, and be able to maintain your lifestyle in retirement.

Budgets

A budget is just a plan for how you will spend and use your money that you earn. If you want to try to lower how much you spend, and make sure you have enough left over to save, budgeting can help.

Here's an example monthly budget (for a hypothetical single person):

  • Monthly Income: $2,200 (after taxes)
  • Groceries: $200
  • Restaurants: $100
  • Transportation: $50
  • Housing: $1,000
  • Cell Phone: $50
  • Minimum Payments on Debts: $300
  • Left Over Money: $500

After writing out your budget, the biggest things to think about are:

  1. How can you reduce the amount you spend? - Can you get a cheaper cell phone package, cook at home more instead of going out to restaurants, rent a cheaper apartment, or refinance your mortgage? There are many ways to reduce what you spend, if you look carefully.
  2. Can you increase your income? - Could you negotiate a pay raise at your current job, switch jobs to something that pays more, start a side hustle, or study to gain additional skills to make more money?
  3. What will you do with the rest of the money that is left over, if there is any? - How can you use that savings to pay down your debts as fast as you can, and invest so your money grows over time?

#3 is what much of this site is designed to help you answer. If you budget carefully and use the money left over wisely, it can make a huge difference in your wealth over time.

Useful Budget Trackers

Budgets can be planned as simply as writing it down on paper or using a spreadsheet in Microsoft Excel or Google Sheets. You can write out the different categories you want to spend money on and how much you intend to spend. Then it's up to you to track your progress over the month.

However, other tools exist that can make this even easier! One such tool is mint.com, which can automatically monitor your credit cards and bank withdrawals and deposits to show you your income, debt, what categories you spend money on (restaurants, gas, groceries, etc), and even your overall net worth! This website is an amazing tool that can really help you track your finances in real time with very little effort.

Side note: we have no affiliation with Mint, we just really like it.

There are also other alternatives to Mint that automatically track your spending and income, but we haven't used them, so can't recommend them. Here's a list of alternatives that seem like they could be good.

DefinitionsProgressive Income Tax