Identifying common, recurring expenses, like rent or mortgage payments, can help you plan your spending and create a budget.
A budget provides spending guidelines for certain categories of expenses. But before you can make a budget, you must first make a list of individual expenses.
List these monthly expenses
You likely have a slew of monthly expenses:
- Mortgage or rent.
- Health insurance.
- Retirement-account contributions.
- Gym memberships.
- Fun stuff, like dining out.
So how do they fit into a budget? While knowing your expenses is helpful for any budgeting method, we’re fans of the 50/30/20 budget. This rule categorizes expenses into three groups: needs, wants and savings/debt repayment. Click through the three tabs below to see these categories and how much of your income should go toward each one.
These are the expenses you cannot go without; they keep you safe, warm and alive. Using the 50/30/20 budget, these should account for 50% of your spending. See how your current expenditures stack up by adding the following:
|√||Homeowners or renters insurance|
|√||Property tax (if not already included in the mortgage payment)|
|√||Out-of-pocket medical costs|
|√||Electricity and natural gas|
|√||Groceries, toiletries and other essentials|
|√||Basic telephone bill|
|√||Student loan payments|
|√||Other minimum loan payments|
|√||Child support or alimony payments|
|Budget tip: You may be overspending on needs. For example, you may need a car to get back and forth to work each day but might not be able to justify the luxury sedan you’re leasing. If you find your budget is way out of whack, look closely at those items you’ve classified as needs and consider downgrading.|
These expenses can be anything you want them to be — items not included in your needs or savings/debt repayment. The checklist below is meant to get you started, as your “fun money” may go to entirely different items than the next person’s. In the 50/30/20 budget, wants should account for 30% of your spending.
|√||Clothing, jewelry, etc.|
|√||Special meals in (steaks for the grill, etc.)|
|√||Movie, concert and event tickets|
|√||Gym or club memberships|
|√||Travel expenses (airline tickets, hotels, rental cars, etc.)|
|√||Cable or streaming packages|
|√||Wi-Fi (if you work from home, this can go in the needs category)|
|√||Extra telephone features|
|√||Home decor items|
Savings and debt repayment
This is the money you’re putting toward your retirement, emergency fund and other savings, and using to pay down credit card and other “toxic” debt like payday loans. It also includes anything over the minimum payment on your “good debts” such as your student loans and mortgage. In the 50/30/20 budget, this should account for 20% of your income.
|√||Individual retirement account|
|√||Credit card payments (see budget tip below)|
|√||Excess payments on mortgage|
|√||Excess payments on student loans|
|Budget tip: Ideally, you pay off your credit cards in full each month, in which case you’ll classify the expenses according to what you buy — groceries under needs, for example. However, if you maintain a balance and are accruing interest and fees, then payments should be listed under debt repayment.|
Now apply the 50/30/20 budget principles to your current spending
Add up your expenses for each category of needs, wants and savings/debts, then plug in your monthly net income below.
Another way to see see how much you’re allocating where is to divide the total monthly costs of each category by income. (For example, say your monthly net income is $3,400, and your needs add up to $1,700. The cost of those needs divided by $3,400 equals 0.5, or 50%.)
Don’t be discouraged if you’re spending more or less than you should in a certain category; this is your starting point. Use what you’ve learned to make small changes in your patterns over time.
Every few months, revisit your budget to see how you’re progressing. Use a budget app to track your expenditures, saving time as you build momentum with your new budgeting habit.