How do you incorporate these expenses into your budget?įirst, determine how much you'll spend on expenses outside your regular monthly expenditures. To keep an accurate budget, your budget worksheet should include a category for annual expenses, such as gifts, car registration renewals, membership renewals, car repairs and other incidentals. But this budget doesn't account for one-time expenses that occur throughout the year. Your figures are within budget and you're able to pay cash for everything. Your breakdown might look like this:Īt first glance, it looks like you're doing pretty well. Let's say you take home $2,500 per month and allocate $650 to other expenses. The amount you spend in these areas will fluctuate depending on how much you have available. Create a category on your budget worksheet for other expenses and assign a reasonable figure for each item in this category. Allocate no more than 25 percent of your income for other expenses. Now, some people mistakenly think of discretionary income as "free to do whatever I want money," and while it feels good to have a financial cushion, the way you handle this cushion says a lot about your money management skills.ĭiscretionary income is what you'll use for other monthly expenses, such as groceries, entertainment, dining out, shopping, vacations and the like. Note: If your expenses total more than your income, you'll need to make adjustments, such as finding a way to earn additional income or lowering your fixed expenses. This is money available for spending after you've paid your fixed monthly bills. Subtract your total expenses from your monthly take-home pay to determine your discretionary income. Figure Out How Much Each Expense CostsĪssign the appropriate figure next to each category and compute the sum total of these expenses. Ideally, this is how much of your income you can safely allocate to these expenses.Ģ. Notice the percentages next to each category. Savings/investments (10%) – emergency fund, 401(k).Debt payments (15%) – credit cards, student loan, other loans.Transportation (15%) – auto loan, insurance.Housing (35%) – mortgage/rent, utilities, insurance.The first step to creating a yearly budget is to write down all your expenses.
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