Over the holidays, I decided it was time to look over my budget and spending for 2016. There are a number of ways that I would rather spend my days off, but I feel it’s important that I practice what I preach so I blocked off some time with my wife and we dove into Wealth360. It was a bit eye opening when I first saw the total annual spending figure. My first thought was “how did we spend this much money?!” After a few deep breaths, we regrouped and started breaking it down.
There are many ways to create a personal budget, but I thought I’d use this post to share what worked well for us. If you prefer using another strategy and are having success with it, by all means keep it up! Like an investment plan, the best strategy is one you will actually stick with. The first thing we did was take our total annual spending and divide it by 12 months to get the monthly average. The number seemed high but it included everything from one-time home renovation expenses, to Subway sandwiches. Considering “one-time” expenses tend to pop up each year, we felt that is was a good idea to include these into our monthly average as well.
Next we looked at our larger expenses such as our mortgage, insurance, utilities and household services, car payments, and food. Some of these expenses are consistent (mortgage) while others vary (utilities, food). We lumped these categories together, added up the total, and calculated the monthly average. We called this our “core” monthly expense.
We found it helpful knowing how these larger expenses compared to the overall monthly spending average. The “core” expenses serve as our baseline spending each month. The difference between that and the monthly average shed light on the smaller expenses, what we call our “flex” spending. Like the “core” expenses, some of these costs are consistent each month, whereas others fluctuate. We’re not going to track every single purchase we make from month to month; we find it more realistic to keep track of the “flex” spending range and reign it in if necessary. If you feel like you’re spending too much, the “flex” spending is where you can make more impacting changes, as the “core” expense are more locked in.
It’s empowering when you get a grip on the “big picture” numbers because you can see where you stand at any point during the month. It is unlikely that we will spend the same amount in any given month, or year. However, knowing your average, core, and flex spending amounts can make you be more mindful of your spending and find opportunities to save on even the small amounts.
Everyone’s situation is unique. If you’re struggling to find a way to budget that works for you, give this approach a try. It’s not rocket science but it may help give you peace of mind when it comes to spending and saving your hard earned money.