Step 2: Determine Monthly Expenses

The 2nd step of building a spending plan is to determine your monthly expenses.

Expenses can be broken out into three groups:

  • Fixed (mortgage/rent, car payment)
  • Flexible (food, utilities, clothes, gifts)
  • Periodic (insurance, taxes)

What are additional examples of fixed, flexible and period expenses – not listed here- that are part of your budget? Please share in the comments on our Facebook Page.You can also think of expenses in terms of the below four categories:

  • Necessary- basic needs: shelter, food, utilities, insurance, medical, debt payments, taxes
  • Discretionary- not necessary for survival: vacations, entertaining, special clothing
  • Personal-an area that you don’t have to account for every penny
  • Miscellaneous- unplanned expenses; don’t use this as a catch-all category.

The general miscellaneous category in your budget should not be a catch-all, because that would make it difficult to track exactly where your money goes. But if you use the miscellaneous category for unplanned expenses, you also should plan for the unexpected, and build in a reserve for when the refrigerator dies, the car needs repairs, and so on.

If miscellaneous expenses are more than 10% of your income, you may need to do a better job of tracking expenses.

If you don’t use all the money allocated in miscellaneous, use the excess to pay off debt and to build savings.

Methods to track spending

To accurately define what your expenses are and what categories they fall in, you need to set up a tracking system. 

Here are some example methods to use:

  • Receipt method
    • If you don’t get a receipt, make one!
    • If you lose receipts, tape an envelope to the refrigerator.
    • Keep receipts for three months (ideally). Group them by category, add each category, divide by three, and that’s your average monthly expenditure on that category.
  • Envelope method—Use one of two ways:

(1) Write categories on envelopes and place receipts in them.

(2) Allocate cash into each envelope (not as safe).

  • Checkbook & account book-

    • Use your check register if you use one, or account statement
  • Computer program(such as Quicken, Microsoft Money, or a Spreadsheet)—this can be helpful even to get a fast snapshot of where your money is going.  To do this, you simply download your checking history into the money management program and the software will allow you to create a helpful chart to visually see how much of your budget is going to specific categories.
    • If you are savvy with spreadsheets, avoid paying for a computer program and download your history into the spreadsheet.
      • You can define the expense category next to each line and sort and sum the totals pretty quick.
    • To download your Metrum CU account history into an outside program:
      • Login to your account online with the It’sMe247 Online Banking (desktop).
      • Select the My Accounts tab, then Downloads
      • Follow the Instruction provided on the page.
      • To download to a spreadsheet, select the File Format: Comma separated values (.csv)