K-12 education in the United States lasts for up to 12 years and yet a vital component of living a responsible lifestyle is lacking from the mandatory education curriculum. Due to the lack of basic financial education, it is left to each of us to learn the principles of budgeting and financial management — often the hard way.

The good news is that the basics of budgeting are simple to grasp. Spend less than you earn and either save or invest the difference. Easy, right? The picture gets more complicated, however, as we are required to make lifestyle choices that match our budgets else. When this happens, we find ourselves beginning to slip into debt.

To avoid the pitfalls of debt, let’s first have a look at some of the basics — the distinctions between the major types of expenses you will undoubtedly incur at some point in your life. Then we’ll explore tips on setting up savings and your own budget spreadsheet.

Types of Expenses

There are two broad categories of expenses to become familiar with – fixed and variable expenses. 

Fixed Expenses

Fixed expenses have a recurring cost over some period of time. Typical examples of fixed expenses include rent, mortgage payments, utilities, health insurance premiums, or any other line of credit with a monthly or annual basis that remain the same amount. Fixed expenses will more often than not account for the largest chunk of your budget and, given their built-in consistency, are the easiest expenses to plan for. 

With that said, if you run up against budgeting issues and seem to spend too large a percentage of what you take in every pay period, it’s worthwhile to take a hard look at your fixed expenses. Under closer inspection,  you may find opportunities for cheaper alternatives. For instance, changing insurance providers, cutting back on gas and electricity or taking out a new mortgage at lower interest rates may be possibilities depending on your situation.

Variable Expenses

Variable expenses account for anything that aren’t fixed expenses. As such, your variable costs will fluctuate over time according to your discretionary spending habits. Examples of variable expenses are nearly limitless, but may include your morning coffee, weekly groceries, eating out at a fancy steak restaurant, buying a 4K TV, and so on. These expenses are sometimes more and sometimes less and why they are considered “variable.” Variable expenses are generally regarded as easier to trim than fixed expenses and this is certainly true to an extent. While this does require discipline and willpower to cutback on the more enjoyable options in life, in the end, it can help you live a more fruitful life.  

Savings & Investments

Now that expenses are out of the way, let’s turn to what you can do with the money left over after expenses; such as: savings and investments.

Money allocated for savings is kept in an account designed to earn modest interest but remains relatively safe and easily accessible. Such savings accounts are usually held at major banks. In fact, chances are high that you already have such an account of your own.

Investments, meanwhile, are made to earn a more substantial return but are subject to greater risk of loss and can’t be turned into usable cash immediately. Basic financial economic theory states that the potential returns of an investment are related to its risk. The higher the risk, the higher the potential returns (as well as the potential losses).

“Pay Yourself First”

The phrase “pay yourself first” refers to the practice of automatically sending a certain amount of money from your paycheck directly to savings. In this way, you are effectively paying yourself before taking care of any outstanding expenses.

Some example destinations of a “pay yourself first” program include savings accounts, retirement plans, emergency funds, and savings for major purchases like a car or home. Instituting a policy of “pay yourself first” is an excellent way to automate a major savings decision in advance and relieve some stress along the way.

Take a look at your last paycheck. You earned a certain amount, but your final take-home pay was less due to the listed tax deductions on your paystub. Do you miss that money? Well, of course! But you learned to live and adapt without it. “Pay Yourself First” functions in a very similar way.

Now that we’ve explored the basics, let’s take this learned knowledge and use it to start budgeting our lives better. Here are some tips to help you gather information and one of our certified Client Success Specialists can help you put your budget spreadsheet together.

Tips for Setting up a Budget

In order to budget effectively, there are a handful of steps that virtually anyone can benefit from following:

  1. Write down all fixed expenses and track variable expenses over an extended period of time to notice excessive spending habits that you were unaware of
  2. Brainstorm ways to cut fixed and variable expenses while maintaining what you believe is an acceptable standard of living
  3. Decide upon the savings rate right for you and set up a “pay yourself first” system, automatically routing a certain percentage of your income into your savings vehicle of choice. 
  4. Take a look at the investment opportunities available to you, but always maintain your financial discipline. 
  5. Gaining additional knowledge on personal finance and creating a step-by-step plan to review your account automation regularly. 



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