Fixed and variable expenses are the topic of today’s column.
Fixed expenses are the ones that you cannot adjust the amounts because you are short somewhere else a third party must agree to change the amounts. The amounts will also change if you change your service to cut back. This includes rent/mortgage, car payments, house, auto, life and dental insurance, internet, all utilities and things such as childcare (since it is pretty much the same all year).
Now variable expenses are ones that are always going up and down during the course of a year. Some months they are high (everyone’s birthday seems to fall in the one month) and some months they are low or nothing at all. These expenses are fuel costs, groceries, clothes, entertainment, gifts, clubs, sports, bank fees restaurants, personal, taxis, parking and extra medical and dental costs not covered by insurance. These are the ones you can change the amounts and where you can make the biggest cuts to your budget.
The reasoning behind separating your expenses into fixed and variable expenses is best shown by looking two auto accounts. The one account has your auto payments and insurance. All of those types of costs. You want to protect this money and not spend it elsewhere. A fixed expense. The second auto account has such items as fuel and repairs in it. This is the variable account. Fuel costs rise and fall and so do your needs. Some months you may need more in this account and you will have to reduce in another one. By doing it this way if your car needs repair work done. You can tell with a glance exactly what you have in your account to fix it with. If both of the auto accounts were combined you may end up spending the money you were saving for the insurance bill. That is never a good plan.
We are going to create a worksheet that when filled in is your monthly budget at a glance. You may have to do a little digging to fill in amounts for some of the accounts. Old bills, credit card statements and bank statements may come in handy here.
For utilities bills if you have six months to years’s worth added them all up and divide that total by the number of statements you have. Put down you best estimate if you cannot find anything concrete. As time goes on you will see what the exact amounts are. With this system you can use a copy of this worksheet over and over again if you need to change amounts during the month. Just remember that the total of all the accounts (expenses) cannot be more than your monthly income.
Start off with a heading labelled income. Write down the total of all money you have coming in. Divide this total by two so you have your monthly and biweekly amounts.
Next under the heading expenses write down all the accounts you came up with in column three and what they are made up of. For example your Auto fixed account is made up of your payments/lease, registration and insurance.
All you do now is add up your income and your expenses. Minus your expenses from your income. If you have a positive number you are fine but if you have a negative number you have to go back and start cutting until your total reaches zero or make more money until you get the same result.
Next week we will expand on this basic budget to show what you are budgeting and track what you are really spending.
Since we have been using auto costs as an example this week let me show you an easy way to cut costs. Maintaining a proper weight is not only good for you but also for your car. Get rid of the junk in the truck. The unnecessary cargo and garbage just loads down your car and reduces its fuel efficiency.
Sandra Nolan is a freelance writer from Rocky Mountain House. Her column will appear every other week in LIFE. Contact her at slnolan@xplornet.com.