A lot of people talk about budgeting, but not many will tell you what exactly to budget for. The thing is, everyone has a different life so everyone’s budget will look slightly different. However, I believe there are certain aspects of a person’s financial life that should be set aside.
Planning to spend a specific amount of money on certain items each month can really help when it comes to knowing how to spend your paycheck.
For instance, imagine a friend calls you up last minute to go on a weekend trip to Las Vegas. You are probably really tempted to say yes right away.
You have to think about your budget. If you know you wouldn’t be able to afford the hotel, rental car, and entertaining shows, you may have to pass on the offer.
After looking at your monthly budget though, and you know you can afford it, then absolutely go!
Budgeting is all about being realistic with your finances and knowing how much you will have to use. The best way that I’ve found to do that is to separate your spending habits into different categories.
From there, you can control how much you realistically need or can spend throughout the month. Let’s take a closer look at what you should budget for.
1. Fixed Expenses
This part of your budget is likely to be the biggest. Fixed expenses are anything that has the same price every month. This can include:
- Monthly Rent/Mortgage
- Renters/Homeowners Insurance
- Auto Insurance
- Subscription Services (Netflix, Hulu, etc)
As you can see, your fixed expenses can add up throughout the month. That’s why it’s important to know how much you will spend on them ahead of time and set that money aside so you know you won’t be tempted to use it.
Whether you hand write your budget or use an online program, enter in those items as if they are due before your next paycheck. That way they are already accounted for.
Here’s how your budget should look:
Notice that I said “food” and not just “groceries.” Food includes groceries for the month as well as any time you eat out at a restaurant or buy that “little” pick-me-up treat.
Jordan Page, from Fun Cheap or Free, recommends allocating $100 per person in your family on groceries for the month. If you have 4 people in your family, that adds up to $400 for the month. Then, if you buy groceries each week, you would only spend $100 each time you get groceries.
Remember, that $100 a week should cover groceries and any other food you consume.
I have waited to buy certain products like milk until the next week because I am that frugal. Our cereal addiction could wait 🙂
Believe it or not, you can budget how much you spend on gas! Most people drive to the same places (work, school, grocery store, etc) so figure out how much it costs to fill up your tank, then determine how many times you have to fill up your tank per month.
Pro Tip: Look at your bank account spending for the past 2-3 months. Divide your spending into categories (food, gas, etc) and add up how much you spent in each category for each month. That will give you a good idea of how much to make your budget.
Another great way to save money on gas is to use GasBuddy. It’s a free app that shows you the gas prices at all the stations in your area so you can see which one is cheapest.
Plus, if you sign up for their free membership card, you save 5 cents per gallon every time you get gas!
It’s free to use and only saves you money! Why wouldn’t you get it?
For my family, I allocate $100 a month for gas. My husband and I share a car and now that he works from home, we hardly ever get close to hitting our budget. It’s just more savings for us!
Many people aren’t aware you can budget for things that fluctuate, like utilities. However, I believe that if you are consistently mindful of where your money goes, you can budget for most things.
Utilities, such as electricity and gas, can change each month. Fortunately, if you look at the past several months of your bank account, you should be able to find an average for what your utility bills normally come to. I would then add about $20-$50 extra to your Utilities Budget as a buffer.
Of course, your bills can increase or decrease depending on the season, but that is something you can also be proactive about and prepare for.
There are also ways to decrease your utility bills by conserving water, turning off unnecessary lights, and turning down your air conditioning. Plus, you will feel good about yourself for helping to save the planet!
Yes, you can and should budget for how much to put into your savings account every month.
A lot of people I know either don’t have a savings account or they don’t actively add to it. That can cause a false sense of security when you look at your bank account and see more money you should spend.
Don’t be that person!
I highly suggest having a bank account and adding to it every month. The amount you add can vary depending on how much you make and how fast you want to save, but many financial advisors say to save 20% of your income.
My husband and I actually have an automatic transfer set up where $600 each month goes from our checking account to our savings. It’s not exactly 20% of our income, but it’s how much we feel comfortable with.
The best part is seeing our savings account grow quickly!
*After reviewing your previous months and creating your budget, make sure your income is still higher than you are planning for. If the math isn’t adding up, you may need to cut some things out of your life that you’re used to, like going on spontaneous weekend trips or eating out with friends.
Other financial gurus might tell you to also budget for an emergency fund, retirement, and other things like that. However, if you are just starting to budget, this is as simple as it gets.
Of course, we at Our Money Mentality recommend paying off any debts you have first. That can be included in your Fixed Expenses or Savings categories. Once you are debt-free you can definitely save a lot more and we hope you do!