Creating a budget can be a great tool to better organize and maintain your personal finances. I’ve been using a budget since I was in college, and it’s helped me better control and understand my spending in a variety of ways. However, over the years, I’ve also realized that looking for particular spending patterns also helps make our family budget more efficient. And with a more efficient budget, I’m able to stretch our family’s dollars and make more informed decisions regarding our spending.
Finding fixed costs
Breaking fixed costs out from all other expenses can make it easier to find the places where cuts can be made. Things like a mortgage, rent, insurance, taxes, association fees, and similar costs are typically relatively fixed costs or at least more stable over longer periods of time.
With little control over reducing such costs, more focus can be placed on discretionary spending where it can be easier to slice off some of the fat so to speak. However, by continuing to gauge these costs, changes in pricing over time can be evaluated, which can help to develop a personal inflation rate for these fixed costs. This can help with budgeting, forecasting future increases in these areas, and assisting with retirement planning.
Patterns in discretionary spending
According to Bundle.com, “The average monthly cost of living (excluding mortgage and rent) for people in U.S. is $3867. Households in U.S. spend an average of $669 on Food & Drink, $674 on Getting Around, $643 on House & Home, $782 on Shopping, $822 on Health & Family, and $277 on Travel & Leisure per month.”
Looking for patterns in discretionary spending could offer up some of the best options for cost-cutting. From dining out, to the food we cook at home, and from home repairs, utilities, and lawn maintenance, to clothing, vacation, and commute costs, there’s a litany of areas to look for cost-cutting measures in these spending areas.
For many, such costs could easily be cut by 5-10 percent and they’d hardly notice the change. And this is why looking for patterns in our spending can help us make simple changes first and then drill down into our spending to make tougher cost-cutting measures.
Holiday and seasonal spending
There are all sorts of holiday and seasonal spending that can occur in our lives. Finding the patterns to such spending can be critical in better forecasting and budgeting for such expenses.
According to USA Today, “In 2012, consumers spent an average of $786 on holiday gifts, but if the latest poll from Gallup is correct they’ll be sitting on the wallets this year. Americans say they plan to spend an average of just $704 on holiday giving in 2013.”
But it’s more than just the holiday season in which spending patterns can increase. From summer yard work to winter snow clearing, Valentine’s day, spring break, winter doldrums, and summer vacation, any number of seasonal aspects can come into play in which our spending habits and patterns change.
Being aware of such changes through regular expense tracking means that you can be better prepared to save when costs drop and be on the lookout for ways to cut back when they go up.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.