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Brett and Kate McKay
variable expenses. Variable expenses are those that fluctuate from
month-to-month. You have a degree of control over variable expenses.
These are the areas where you can cut back the most and start getting
ahead in your finances. Variable expenses include items like groceries,
gasoline, eating out, and entertainment. Set a reasonable spending
goal for each variable expense.
The two most important variable expenses, and the ones that you
should budget for before you budget any others, are a retirement and
emergency fund. Let’s face it, when it comes to retirement, we can no
longer depend on our jobs or the government to fund it. So it’s up to
us to do it. Read AoM’s guide to retirement accounts.
In addition to saving for retirement, budget some money each
month for an emergency fund. This money is to be used only in, well,
emergencies, like unexpected unemployment or car repairs. Even if
you can only sock away $25 a month in the beginning, it’s better than
nothing. Most financial experts agree that you should save enough
for three to six months of living expenses. If you’re looking for a good
place to stash your emergency fund, check out CapitalOne 360. It’s an
online bank and they have decent interest rates. It’s what I use.
In addition to a retirement account and an emergency fund, you
may also want to budget for what I call a “freedom account.” I put a
monthly sum into the account to pay for expenses that come up regularly
during the year. This includes a yearly vacation, oil changes, weddings
gifts, Christmas presents, dentist and doctor appointments, etc.
5. Subtract your total expenses (fixed and variable) from your monthly
income. The goal is for your expenses to be less than your income. If
they’re not, you’ll need to tweak it some so that they are. This may
mean cutting back or cutting out things like going out to eat or cable
television. If you have any surplus, put it into your emergency fund or
towards your retirement.
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