Budgeting 101.2 – Look Closer at Expenses

Writing in a journal is a good way to track expenses
Track expenses to know exactly where your money is going.

Budgeting is one of the smartest financial planning moves anybody can make. So, we’re breaking down the budget process–to show that you CAN start and stick to one. In part one of this series, we covered tracking your income and expenses–or how much money you have going in and out each month. In this part, we’ll see if your net income is positive or negative, and break your budget down into categories.

The Third Budgeting Step – where do you stand?

This step is easy! You simply add up your monthly expenses, and add up your monthly income; then, you subtract your expenses from your income.

  • A positive amount =  you’re bringing in more money than you’re spending
  • A zero amount = you’re spending exactly what you’re earning
  • A negative amount = you’re spending more than you’re earning

This isn’t a good thing, but, after you’ve set up a budget, you should at least be able to recognize why this is happening and probably address and correct the situation.

The Fourth Budgeting Step – examine your expenses

The fourth step to making a budget involves only your expenses. Here, you’ll be sorting your expenses into two (or more) categories. The first category involves necessary expenses, or things you have to pay.

Fixed necessary expenses:

  • Rent or mortgage payments
  • loan payments, like student, car or credit card debt
  • insurance payments, such as renters, health and automobile
  • retirement plan payments
  • cell phone and internet bills

Varying necessary expenses:

  • Groceries 
  • Pet costs, such as food, supplies and vet visits
  • transportation costs, such as gas or transit passes
  • clothing
  • utility bills, such as trash, electricity and water
  • medical expenses

After you’ve got your necessary expenses figured out, it’s time to look at your other expenses. These are generally the more fun things you spend money on, and we’re going to call them your secondary expenses.

Secondary expenses:

  • Live entertainment, such as movies, concerts and plays
  • Cable or streaming subscriptions
  • trips
  • meals or drinks out
  • memberships
  • charitable donations
  • gifts
  • clothing

OK! Now you’ve got your expenses sorted into two categories. If your budget was negative before, it’s time to look at your secondary expenses and see what spending habits you can reduce or get rid of. This doesn’t mean, however, removing all the fun from your life; if your Netflix subscription gives you immense joy, maybe eat in one or two times a month more instead.

If you budget was positive before, it’s time to look at your debt. You can probably afford to pay more each month to your retirement savings, your student, auto and home loans, or even your credit cards.

In the next installment, we’ll be looking at slicing your budget down into even smaller components, and setting budgetary goals.


Published by

Tom S.

Tom is a 2006 graduate of UW Madison, currently residing in Verona with his wife and 2 girls. He has been passionate about writing ever since he was 15 years old, and displays that same enthusiasm in his work today. When he’s not sharing insightful financial wisdom, you can find Tom chilling on the Union Terrace, enjoying craft beer at the Great Dane, or hiking at Governor Nelson State Park. In the Fall he loves to take his family to Badger Football games!