When you are making a budget there are 4 types of items you must include.
1. Monthly bills: Everyone starts their budget here so no big surprise that you need to include all your monthly bills. These are bills that are due once per month. They are either paid, or not paid. Things like rent/ mortgage, debt payments, the electric bill, cell phone bill, cable bill… and so on.
2. Ongoing expenses: This category is for things like groceries, gas, entertainment. You know, money that you know you will be spending but it will be spent here and there. Not in one lump sum like paying rent. It’s very important to track these expenses as you go so that you ensure you stay on track.
3. Annual expenses: This is where you keep track of money you will spend this year, but not necessarily on a monthly basis. Things like Christmas shopping, gifts, auto repairs, non-monthly medical expenses, non-monthly insurance premiums, etc. The easiest way to come up with monthly totals for this category is to think about what you expect to spend per year, and then divide by 12. For example; you might expect to pay $1,200 this year in car repairs… that’s obviously $100 per month.
Tracking this category is a bit trickier than the others. Anything that is left unspent in a category must be rolled over to next month. Using our car repair category from above, if we budgeted $100 for car repairs in January and didn’t spend it we would roll over $100 to February. This would give us a $200 budget in Feb. If in Feb we bought new windshield wipers for $40 we would subtract that amount from the $200 which would leave us $160 to roll over to March. In March we would have $260 budgeted for that category. This would continue all year and hopefully get us through to the end without any major bumps in the road.
4. Long Term Savings: This probably should be up in the “Monthly Bills” section but I gave it it’s own category since it’s so often overlooked. Long term savings would be money that will be spent in more than 5 years. Namely, retirement savings and college funds. They deserve a top spot on your budget! Don’t forget them.
If you include these 4 items in your budget, and you track your spending as you go throughout the month you will be on the road to riches!