New to budgeting? Here are six categories for fixed expenses to get #organzied with money.
This is the method to budgeting expenses I teach in Best Money Class Ever, my signature 4-week personal finance class.
This is part four of the series: Create Your Annual Budget with Me.
You can create your entire annual budget! Catchup on the series here:
- 1: Five Reasons Why you NEED to Budget One-Year in Advance
- 2: How to Create a Back of the Napkin Annual Budget in Minutes
- 3: Budgeting 101: Understand Your Income
Stay tuned to learn next how to budget your flex or variable expenses.
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Why categorize your expenses?
Seeing where your money’s going helps you create a plan to reach your money goals like debt pay off, early retirement, buying a home, traveling, etc.
To experience growth with money you need to first admit there’s a problem. Like any recovery programs (like Alcohol Anonymous), there’s power in acknowledging your powerlessness. If you have no idea where your money’s going, then you’re stuck in denial.
Money can feel totally unpredictable and completely out of control, but it shouldn’t be that way. When you view your expenses in categories you take your power back. Most of what you spend is entirely known, literally fixed, and in your control.
You can see areas you’re overspending, then you cut expenses. Also you can check to see if your spending is in sync with your values. Are you spending money on what’s important to you?
Related post: Value-Based Spending 101: Where’s My Money Going?
Overview of categories fixed vs flex expenses
There are only two main categories for expenses: fixed and flex. Fixed expenses are the same each month and flex expenses vary from month to month.
Viewing expenses as fixed and flex takes the guess work out of budgeting expenses. It isn’t a shocker how much your car payment is each month, you signed up for that!
The Six Categories for Fixed Expenses:
- Saving
- Charity
- Housing
- Insurance
- Services
- Debt
Let’s dive into what’s included in each fixed expense category.
1. Saving
The first expenses each month is YOU! View saving and investing as a fixed, non-negotiable monthly expense! Setup to automatically save a percentage of your income before you have the chance to spend. In the personal finance world this is known as paying yourself first.
Most people know saving money’s a good idea, but they pay their rent, utilities, cable, internet, groceries, have a few happy hours with friends, buy a new thingy mer-bob or so, and then comes the end of the month. There’s nothing left to save.
Make savings and your future come first.
If you’re curious how much to save or invest each month, then start my free 7-day series: How to Manage your Money.
2. Charity
The next category for fixed expenses is charity (donations or giving). Most people view giving as an afterthought or something to do every once in a while. Make giving a priority by allocating a set amount to give each month.
In the church circles this practice of giving before you spend is called tithing. The word tithe means literally to take from the top.
3. Housing
The third category for fixed expenses is housing. This is your mortgage payment if you’re a homeowner or your rent.
If you have a mortgage, you’ll budget to pay what’s called PITI short for Principal, Interest, property Taxes, and homeowner’s Insurance). Most people pay property taxes with their mortgage. If you pay your property taxes annually (versus monthly), take the annual total amount you’ll pay for property tax and divide it by twelve to save in advance.
Utilities like electricity, water, gas, and trash aren’t exactly the same each month, but get an average of the last three months to use for your housing budget.
A rule of thumb: keep your rent or mortgage 25% or less of your take-home pay.
4. Insurance
The next category for fixed expenses is insurances like renters, car, health, life, and disability insurance monthly premiums. Some of your insurance costs are deducted already from your paycheck.
Annually try to get quotes to bundle and save on your insurance.
5. Services
The service category is for anything you have a contract, subscription, or monthly membership for like:
- Cell phone
- Cable
- Internet
- Streaming for shows or music
- Apps, magazine, or news
- Security system
- Gym membership or personal trainer
- Childcare
- Pest control, lawn care, or pool service
Services are an area people typically overspend. Maybe you have five streaming services and don’t even use three of them. Or worse something’s set on autopay (when you forgot about it!)
If you want to pay off debt, try cutting your services to the bare bones to free up cash to pay extra to debt.
6. Debt payments
The last category for fixed expenses is monthly minimum payments on your debt (excluding a mortgage) like your:
- Car
- Student loans
- Credit cards/store cards
- Personal loan
- Medical debt
One hack to pay off debt is to pay a set extra $300 or more to your highest interest debt every month. I called this your extra Spartan amount.
Sparta was an ancient Greek city-state focused on discipline, structure, and endurance. The 300 Spartans were known for fighting the much larger Persian army.
You don’t get in debt overnight and you won’t get out of debt without a good fight.
With The Spartan Method to get out of debt pay ALL your monthly minimums plus an Extra Spartan amount of $300 or more to your highest interest debt each month.
Three hundred extra to debt is small enough pretty much anyone can do by cutting a few expenses and bringing in an extra income. It’s big enough to make traction to be debt-free.
Those are the six categories for your fixed expenses. Up next in the series, “Create Your Annual Budget with Me,” you’ll learn the categories for your flex (variable) expenses.
P.S. Ready to win with money? Best Money Class Ever, my signature live 4-week personal finance class starts April 19th. Get the details and enroll now here.
