It's a good idea to have a budget, even if it's an informal one. Most of us do pretty well with the fixed-cost part of the budget. Fixed costs are those costs that stay the same each month...rent, cable, gym membership, cell bill, car payment, the monthly EHarmony bill you signed up for and can't get out of, etc. You know that you are going to have to pay that amount each month, so you plan for it and cough it up regularly.
Your variable costs are harder to nail down, and those are the ones that can really blow your budget. A big month of eating out, buying a wedding present, replacing a muffler, or paying property tax, and your variable $$ are gone .. .and then some.
How can you create and follow a budget that is useful with regard to variable costs?
Bang for the Buck
You’re pretty much committed to your rent, but you’ve got leeway in what you do with other funds in a month. If you really enjoy that Starbucks every morning, it’s probably ok to get it. The first sip, and the 30 sips after that one, make you feel good – and feeling good is one of the key reasons we earn and spend money. However, other things you choose to spend on may be born more out of habit than of pleasure. You might actually prefer bringing your lunch from home rather than eating yet another dejected hamburger from the work cafeteria, thereby reducing a variable expense. Evaluate purchases and make sure they give you pleasure commensurate with what you’re spending.
Putting on Your Thinking Cap
One of the secrets to staying slim is to be mindful about what you eat. You are supposed to ask yourself if you really want that bag of M&Ms or if an apple would be just as satisfying. (Yes, I do; no, it wouldn’t.) You can try to whittle your expenses the same way. Before you buy something, think about whether you really want or need it. Sometimes the act of pausing to think is enough to keep you from swiping your credit card.
Timing is Everything
It can help to look ahead farther than a month says Kimberly Palmer, USNews staff writer. She suggests looking at the year ahead rather than just the month. Some expenses only hit every quarter (Sirius radio) or twice a year (dental cleaning co-pay). Other months offer the promise of reduced variable expenses (a week with generous in-laws at their lake house) or increased costs (because everyone in your family HAD to be born in February). Acknowledging and accounting for the natural and regular seasonal variation in your variable expenses will help you better prepare for and subsequently reduce them.
Another Day Another Dollar
Geoff Williams of USNews offers this guidance: think about what you really want in terms of how much you actually make. In our family, we say “I like this sweater, but not $40 worth.” If your hourly rate after taxes is $18/hour, you can evaluate a dinner out or other expense based on the hours you’d work to pay for it. That dinner charge of $80 means about 4-and-a-half hours on the job for you.
Nose to the Grindstone
Part of the problem with variable expenses is tracking them accurately. You know how much the rent is, but you may not be aware of how much you’re really spending on food, toiletries, gas, travel, gifts, and the many other expenses that crop up. The helpful advocacy site America Saves recommends keeping a record of expenses. You can use the simple, old-fashioned method of writing down your variable expenses in a notebook for a month or two, or you can go higher tech and use “Notes” on your phone or a mobile budgeting app like Mint or one of the many others Arielle O’Shea of Nerdwallet reviewed.
Slow and Steady Wins the Race
In the end, to be successful you’ll need to pay attention to what you spend each day to reduce your variable expenses; ultimately, that exercise is tedious. It’s tiresome to have to watch, count, and restrict yourself every day. However, over time your carefulness will become easier and you’ll be more aware of the habits that increase your variable spending and how to change them.
Kathryn Hauer, a Certified Financial Planner ™, adjunct professor at Aiken Technical College, and financial literacy educator wrote Financial Advice for Blue Collar America. Her book covers basic concepts of money including insurance and taxes, financial traps to avoid, how to pay for college and tech school, and the bright future ahead for blue collar careers.