There are essentially 5 types of expenses that you will need to allow for when you are setting up your budget.
Fixed Monthly expenses
Variable Monthly Expenses
Fixed Annual expenses
Variable Annual Expenses
Variable irregular expenses
1) Fixed Monthly Expenses
These are the easiest expenses to account for and include bills such as electric, phone, car finance, mortgage etc. You know in advance, exactly how much the expense will be every single month.
2) Variable Monthly Expenses
This category will include things like groceries, entertainment, kids extra curricular activities, hair cut’s, beauty treatments, etc.. It will be something that you have to pay for but how much you will have to pay can vary from month to month.
3) Fixed Annual expenses
In this category, you would include things like car insurance, property Tax, home insurance and life insurance and any other annual bill that is pretty much a fixed price item.
4) Variable Annual Expenses
This category would cover events like, Christmas, birthday’s, family occasions or celebrations of any sort. You know they are coming, they happen every year but you are not exactly sure how much they will cost.
5) Variable irregular expenses
This can be the trickiest category to grasp. These are things that you have to pay for, but you do not know when or how much. This can include car repairs, tires, clothing, medical bills.
Once you have a complete list of all your expenses, you start by listing all your fixed monthly expenses. Next you list all your variable monthly expenses for the upcoming month. You should have a good idea of how much you will be spending this close to the event. You will then enter an item called “Fixed Annual Expenses” and the amount of this will be the total of all your fixed annual expenses, divided by 12 months. You will then need to estimate the cost of your variable annual expenses and again create a budget item with this name and the amount is the total estimate divided by 12 months. The next category is for your Variable irregular expenses and again you will need to create an estimate of these costs. this can be done best by going through receipts from previous years, but if these are not available, you must put your best guess beside each one and again divide the total by 12.
It should be noted that when dividing these categories by 12, we are ignoring the fact that some will be due sooner that others. I have found that calculating on this basis works just fine for most people. If it does not work for you, you will need to divide each individual annual expense by the amount of months due until that expense must be paid and then total those results up.
I personally have just one single category in my main monthly budget for all annual and irregular expenses and every month I transfer this amount to a separate account, which I use to pay for these expenses. In addition to this, I have a separate sheet detailing each annual an irregular expense. It is this total that goes back into the main budget sheet.
I hope this gives you some ideas for setting up the most accurate budget that you possibly can.
If you would like to know more about budgeting or getting out of debt, Please check out the free bonus guide “How to get out of debt and stay out” at http://www.escapethatdebt.com/FreeGuide.
If you have any comments or questions about budgeting or you need help with your budget, I would love to hear from you. You can contact me at eoin@escapethatdebt.com or visit the website at http://www.escapethatdebt.com/_home
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