money jar

Budgeting involves at least two areas: fixed budget and variable budget. It’s easy to see what your fixed expenses are but how do you know what the right amount of money is for your variable spending budget?  First, you need to sit down and determine which of your expenses can fit into that budget.

What is a variable expense?

If the amount of money you spend on something varies from month to month, this is an amount of money that you have control over spending. Examples would be:  food, clothing, entertainment, and gifts. Fixed expenses might be things like your car insurance, your rent or mortgage, your car payment.

A good way to analyse this spending is to look over the past six months of your bank statements and see what you’ve been spending. Creating a spreadsheet and looking at these numbers can be a sobering experience. This is going to be fairly easy if you spend a lot of your money with debit cards and credit cards. If you’re spending money with cash, you may need to track your spending over the next few months to help you analyse those figures.

By analyzing what you spend now and how that’s impacting your debt load, you can sit down and determine how to trim that budget.

Here are some variable budget trimming examples:

• Last month you spent $100 at Starbucks. That means you’re spending about $5 per weekday. Why not tweak the budget and only allow yourself $40 a month at Starbucks (or your favourite coffee shop). That’ll mean you only go twice a week. That $60 could top up a credit card payment and pay off that high interest credit card faster.
• Two months ago you spent over $200 on clothing. You need a clothing budget for each month but perhaps you can set that at $100 each month. In that case your weekly money jars or envelopes would have a $25 clothing fund. If you’ve been living in overdraft, that extra $100 could prevent that from happening.
• Your family ate out at restaurants 7 times last month and this totalled about $200.00. For this month, you’ll only eat out twice and allocate $70 (one $20 fast food meal and one $50 slightly nicer meal). What will you do with the extra $130?

Carefully looking at your spending is the best way to begin saving money and paying down your debts. You can still treat yourself to things you like and enjoy but by making decisions about the money you spend, you’ll have much more control over your finances and your financial future!