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Tuesday, April 16, 2013

Why do I always have expenses that don’t fit into my budget?

Budgeting has negative connotations, but it can do wonders for your overall financial picture and it takes very little effort to create and maintain a budget. Think of a budget as simply a tool for organizing cash flows. You are, in essence, a CEO on a smaller scale who is taking steps to ensure your company's (or family's) cash flow is monitored each month. In this article, we'll cover five of the most commonly asked questions with regards to budgeting, and show you how it really is possible to save money, pay off debt and still enjoy life.

One reason why some people stop using a budget is because there are many expenses that don't seem to have a place in their budget. This is partly to be expected, and is easy to fix. Any good budget will have a "miscellaneous" category for all disparate expenses that come up in a given month or year. A target budget for miscellaneous expenses can be made by simply looking over purchases made over a few months time and calculating a simple average. What came up that had to be fixed, bought or borrowed? Would you be able to include those surprises in any of your other categories? If not, then add these miscellaneous costs to your budget to cover for the rest of the year.

The point is to decide which costs are fixed (not negotiable and must be paid each month) versus variable (which fluctuate depending on the month or your mood). Your rent, for example is fixed. Your gym membership, however fixed the rate is, can still be cut if you choose to quit, and is therefore variable. Once you figure out if the cost is fixed or variable, you've won half the battle to budgeting.

Sometimes the answer is a simple as re-evaluating your original budget for any missing categories or places where you might have underestimated how much should be budgeted. Gifts and travel should have their place in your budget, and entertainment expenses should include eating out and small impulse buys like magazines and snacks. Otherwise you'll always find yourself with expenses that don't have a home in your budget, and this could discourage you from sticking with the process. Over time you'll find that your budget more closely reflects your spending patterns, so long as you are honest with yourself about where the money goes.

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