• Wednesday, February 21, 2024
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BusinessDay

What is critical in your expense budget?

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One important reasons home budgets fail is because individual users fail to take their time to determine critical parts of the budget. This step is critical in developing a practical budget, and when ignored, can ruin your financial planning.

I will discuss how to assess your expenses and prioritize them so you can ensure you are never spending more money than you are bringing in and are spending that money on what matters. Always determine what your expenses are. There are several different types of expenses, as listed below.

The Unexpected-Bills relating to medical issues, prescriptions, home repair, and car maintenance are all examples of unexpected expenses. These expenses occur when you least expect them, and are often costly and devastating to your budget if you are not prepared for them.

Annual and Semi-Annual Expenses- There are certain expenses you have to pay every single year, or sometimes two or three times per year, that must be calculated into your budget. These expenses can include your home, life, health, and auto insurance, land used charge, homeowner’s association fees and license renewals

Monthly Expenses- The payments you make each month are generally the easiest to plan for, because you expect them and paying them becomes habitual after a while. Just in case you aren’t aware, however, these payments include mortgage payments, rent, telephone, internet, credit card payments, child support, car payments, and utilities.

Weekly Expenses- Groceries, child care, personal care, and transportation expenses all occur on a weekly basis and are essential parts to any budget.

Discretionary Expenses- Discretionary expenses are those items or services you typically buy each day or every week that you could really live without. However, living without them is something that probably won’t happen, so they must be included in your budget as well to ensure they do not corrupt your budget and take the place of more important financial priorities.

The Essentials Come First-When you look at the many different types of expenses listed above, it can be overwhelming to think about which ones should come first in your budget and which ones should wait at the back of the line. I have made it easy for you, however, with a few simple suggestions.

Your top priorities should always be expenses that relate to food and shelter. This can include your groceries, rent or mortgage payment, taxes, and home owner’s association fees.

Second on the list should always be your utilities, like electricity, heat, and water. These most important items are essential to a healthy life.

If you use a vehicle to get to work, making your car payment and car insurance payment each month should be next on your most important item budget list. Remember, if you can’t get to work, you can’t earn a paycheck.

Your next priority should be other insurances, like life, home, and medical. Your child care payments should also be a part of this category, as they are essential to your child’s safety and well-being when you are not around.

Finally, your credit card payments, unsecured loans, and discretionary expenses should be listed last on your budget. These should be provided for, but other expenses take priority.

TIAMIYU ADIO ISMAIL