Budgeting – how I divide my expenses

Understanding Your ExpensesI break expenses into three categories – essential, important and wants.

Essential expenses are those things you need to survive, and would include food, clothing, transportation, shelter and utilities. I would also include giving in here as I find it essential to financial success. The writer of Proverbs teaches us that we need to, “Honour the Lord with thy substance, and with the firstfruits of all thine increase.” For me giving 10% is the top line of the budget.

Important expenses would include insurance, savings, debt payment and revolving (we’ll cover revolving in a moment).

Wants includes everything else – from Netflix and vacations to eating out and entertainment.

There’s a number of other expenses that could fit in either important or wants. A cell phone and internet are important for most people. A bigger vehicle may be important if you are having a baby and your family won’t all fit in your current one. If you want a nicer car just for fun that would be a want.

Go through your budget and break them into one of the three categories – essential, important or wants.

How do you handle things that only happen once a year such as Christmas or car registration? It’s simple – you just make a calendar with all your known, but irregular expenses with a dollar amount attached, divide by 12 and save that much per month. I call this my Revolving Savings account. For more information see this post: http://blog.ryanhlaw.com/revolving-savings/

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Comments Icon2 comments found on “Budgeting – how I divide my expenses

  1. Thank you so very much! I have been looking, researching, downloading and trying different budgeting software apps–with a lot of frustration! I will try YNAB since you did the comparison between Mint, EveryDollar, and YNAB. I am also so glad you mentioned and explained how you consider how to cover annual expenses into the budget.
    My motivation has been ignited! hahaha!
    Thanks again,

  2. Mara,

    I’m so happy to hear that the post was helpful! YNAB is a different philosophy and way of thinking, so after you sign up I highly recommend that you sign up for a few of the beginner classes. The classes are included with your subscription, and they offer them numerous times throughout the day.

    I think you will enjoy it!



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