Once we have an idea of how much money is flowing in, we will need to move on to how money flows out. In developing this thing we call cash flow management, often referred to as a “budget”, managing our expenses is definitely the part we hate.
For me, I would always think of budgeting as limiting the stuff I could do because, of course, I had limited money. Not only that, I would try to be absolutely perfect in how I categorized all of my expenses down to the smallest categories.
It was the wrong mindset combined with the burden of excessive details.
There will, of course, be some detail involved. There are some expenses, usually our necessities, where we have a great deal of certainty. But for all of the other places we send our money off to, I think there is some room for personal preference about exactly how we start off planning for those expenses.
Let’s get started.
As I said in my last post, when we rounded income down, this time we’ll be rounding our expenses up. We won’t need to do too much rounding here because we’ve already underestimated our income. If you have a bill that’s $138, just round to $140 and you’re probably good. Still, every little bit helps, and doing this has paid off for me in the long run.
For the first set of expenses, we’re looking at our most necessary items:
- In the case of a mortgage, don’t forget to include any taxes and insurance if those are not included. In most cases, those items are included in an escrow payment.
- Car Payment (if applicable)
- Student Loans (if applicable)
- Credit Card Payments (if applicable)
- Electric Bill
- It is very common for power companies to offer some type of “budget billing” option, where your bill is fairly constant over each month. Take advantage of this, if you can; it makes things much simpler.
- This one is probably the most difficult to estimate. The best way is to look at your last several grocery receipts, and average them.
Once we have these amounts set up, it’s time to take a pause and do some evaluation about how our income stands up against these expenses. You’ll either have some money left over to enjoy, be around a break even point, or you’ll already be running a deficit (like I was, once upon a time). Whatever the case, we’ll have ways to move forward.
Until next time…
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