Estimated reading time: 10 minutes
When creating a budget, you must consider the types of expenses that will impact your overall spending habits.
What I like to call ‘fender benders‘ can impact your debt reduction plan, investment strategies, and overall net worth growth.
Types Of People Who Budget
There are four types of people when it pertains to budgeting;
- Budgeting is a waste of time, or I don’t have time
- Saver and a Spender
What I find interesting is that the person who thinks budgeting is a waste of time often suffers the most.
Whether you use a budgeting app, excel spreadsheet budget, basic budget, or a budget provided by your bank, they are all great options.
Related: Get all your budget binder printables FREE from Canadian Budget Binder.
Budgeting Data Is King
As long as you budget your income and expenses, you get data.
Without any data, your business is going to fail. Probably yes.
One of the most extraordinary things about a budget is that you get to be the boss of your company.
That’s right. Your budget is a business in that you are the Chief Executive Officer and in charge of balancing the input and output of money.
Today, I want to touch on the four expenses you must include within a budget.
Failing to include such expenses, you’ll run into the problem of running out of money at the end of the month.
If you’re starting to get budget sweats, don’t let the anxiety of numbers overwhelm you.
Budgeting can be as straightforward or complex as you want it to be based on what you want to track versus what you need to follow.
How Long Does A Budget Take To Work?
Well, there are a few things to consider once you’ve created your budget, and that’s tracking numbers.
Typically, let a budget run its course for two to three months and review it.
However, not every budget is one-size-fits-all. You might find it’s not the correct type of budget for you.
There are many options available to test a few to find which budget will help give you the data needed.
Doing so gives you experience using your budget and allows you to see areas you need to improve or include that you haven’t thought of.
Years ago, I put together a fantastic Ultimate Guide To Budgeting for beginners, which I often send to people who need help.
Once you understand the basics of budgeting and the debt-to-income ratio, your brain will start thinking about expenses in vs. expenses out.
Think of it as two apples you picked from the orchard tree you paid for and the other you hid behind a tree to eat.
The orchard has a policy that states if you pick it, you must buy it; however, you realize you didn’t have enough money.
Instead of paying for the apple, you ate it to hide the fact that you couldn’t afford to buy two.
These are expenses that were not planned, which means you can’t pay for two.
Now, what do you do?
I don’t suggest stealing and eating the apple, but debt guilt is natural for many people.
People who fall into a debt trap know the scenario all too well, especially with credit cards.
Credit Cards Aren’t The Answer To Your Debt
Does this scenario sound familiar?
I don’t have the money now, but I’ll get it, put it on my credit card, and pay for it later.
Paying for something later on credit means you’ll pay for it later, or you’ll pay for it later.
One means you pay your credit card in full each month, and the other represents the original cost of the apple costing far more than you dreamed.
That means that your $1.00 apple plus the interest rate on your credit card or loan will magically turn that apple into gold.
Essentially, the credit card wins, and whoever eats the apple and puts it on credit loses.
The moral of this is don’t buy something you can’t afford until you’ve saved enough money.
Balancing Your Budget Includes Four Expenses
These are the four types of expenses that will make your engine run. However, if you skip something, you’ll have to find a mechanic for help.
In all of the years that we’ve been using a budget, there are four expenses you must consider before anything else.
If you haven’t heard of them, now is an excellent time to take notes to implement them when creating your budget.
These four expenses are fixed, variable, projected, and non-essential expenses.
Indeed, I had no idea about projected expenses, and it’s the number one missed piece of the budget for many users.
What are fixed expenses?
A fixed expense will always be there, and you can’t change it,
On the other hand, it’s wise to know that these fixed expenses can increase and decrease based on how much you use them.
Nonetheless, they are needed, and when you document them in your budget, you can add them or separate them as we do.
We need to see the yearly data of how much electricity we used for budgeting for the following year.
Fixed = What you need, and the cost is relatively the same each month
What are variable expenses?
Variable expenses go up and down all around and are not predictive.
These variable expenses include gas, groceries, and utilities (some are fixed on a plan and others are variable).
Also, health and beauty, household supplies, clothing, medication, child care, mobile phone, and vehicle expenses.
Those are just a few variable expenses, but many more based on your situation.
For example, your grocery budget can go up and down based on your purchase.
We struggle with this one expense, but we continue to do better each month.
What fixed expense do you struggle with the most? Comment below.
One more thing to consider is that you can use coupons, rewards points, and discount codes to reduce the cost of variable expenses.
One of the hottest mobile apps is Flashfood, where you can order reduced products at participating Loblaws stores.
There are also a few coupon sites for Canadians where you don’t need coupons, such as Checkout51, where you input or scan the product’s barcode.
Years ago, Save.ca was a popular coupon savings website, and it’s still going strong.
Making Coupons Work To Lower Your Expenses
Another example would be coupon clipping to reduce the cost of a product already on sale.
Greenworks cleaning solution had a hangtag coupon that read buy 3 save $5.
It happened that Greenworks went on sale for $1.99 a bottle. That meant we would get three bottles for $1.00 plus taxes.
$5.97 (plus tax) $6.74 – Coupon Buy 3 save $5.00 = $1.64 for three bottles of Greenworks cleaning solutions.
As crazy cool as that sounds, every bottle of Greenworks had a hangtag.
Ten years later, we still have many bottles of Greenworks to use.
If you’re unfamiliar with projected expenses, I urge you to understand how they can ruin your budget.
Projected expenses we failed to explore when we started to budget but can’t live without now.
We think ahead about projected expenses and build a portion of that expense into our budget.
For example, In September, your renewal costs of $90 for your driver’s license and stickers are due.
In January or when you start your budget, you must save $10 each month.
You have already saved money when you pay for the sticker and license.
Using this savings system eliminates stress as the money will already be saved.
It would be best if you had $90 saved when September arrives to pay the bill.
90/9=$10 a month to save, or 90 divided by nine months equals $10.
You would do this for any expenses you know are coming up once or twice a year.
What are non-essential expenses?
The non-essential expenses are also discretionary expenses and probably the bad boy of the bunch.
Do you remember that apple you had to hide and eat so you weren’t charged for it?
Yes, that’s theft that I don’t suggest, but that’s what people do, hide behind credit.
He shouldn’t have picked two apples if he didn’t bring enough money to buy two apples.
Stop Spending Money You Haven’t Yet Earned
Non-essential expenses are those you want more than you need and likely can’t afford.
With our budget, we work hard to try and control the urge to buy stuff when we don’t budget for it.
An example is people who plan a holiday to flee the snowy Canadian winter but have not saved for it.
The entire expense of the trip comes from thin air, and when you get back, you’ll have to deal with it.
Going on holiday is a non-essential expense if you did NOT save for it in advance.
What’s even more disturbing is when people don’t factor the expense in and take time away from work with no pay.
You decided to spend money you didn’t have to enjoy a week in the sun. Think about that.
I would move the trip to the projected expenses category, which makes far more sense.
Learn With KOHO Pre-Paid Visa Card
KOHO is a reloadable prepaid Visa card attached to a budgeting app that assists users in their budget and manages money while earning cashback on their purchases.
Many of my Facebook readers have expressed delight in using their KOHO card, as it’s helped them better save and budget.
Koho is another option to help those new to using a budget gain experience with a budget.
We use KOHO, and I recommend how they help users learn to save money.
This is what one CBB reader said about using KOHO.
Tanja Liebigt-Aldred We each have had a KOHO for the last four years. I love having it!
Kayte Janet Marie has had KOHO for about a year and enjoys the program.
Once you understand budgeting KOHO is a great starting place if you want a mobile app.
Understanding Budget Expenses
I know you must think there are far too many things to remember when beginning a budget, and there are.
As I said, a budget is your business, and you need to make sure you don’t go into default.
Eliminating expenses you shouldn’t have to pay to save money goes a long way if you plan your budget.
Remember that your budget expenses will change, which means you need to change.
Let me assure you that if you use a budget, you will increase your confidence when your money is under control.
Don’t be someone who doesn’t have time or care about budgeting and documenting expenses.
Your business is more important than what anyone else thinks.
Discussion: Do you factor in the four expenses when creating your budget? Has anyone thought you were crazy because you use a budget? Why?
Please share your comments below, as I’m interested to hear about your experiences.