Expense Logging Breakdown, Part One: Secondary Categories

As you learned in Expense Logging Introduction, an expense log is vital to living well on a budget. You need to know where your dollars are going and what you are spending them on, but this alone is not enough. The next step is to use the information you acquire in order to better how you spend money. By planning your expenditures and having the discipline to stick with a plan you can vastly increase your personal financial health.

First we will start by looking at the tertiary categories you are spending money on, or your financial breakdown. Let’s take a look at your expense log. If you read the introduction, (as I recommend you do!) you know your log should be broken up by month and by tertiary category and have at least two months worth of your finances before you take a definitive look at it. This is where the diligence and commitment pays off and you start to reap the benefits!

First, take a look at your tertiary categories. Do they make sense, or have you discovered other areas or expenses that don’t really seem to fit into the ones you had set up? If you need to and haven’t yet done so, add or remove tertiary categories as needed until they fit your personal expense profile.

Now examine these tertiary categories one more time. You’ll find that they can probably be broken into several types of secondary categories:

• Regular, Fixed Expenses – These expenses are unchanging from month to month. Fixed expenses include rent or mortgage payments, loan payments, and similar regular costs.

• Variable and Discretionary Expenses – Variable expenses are fairly unpredictable from month to month. They include the costs of food, entertainment, clothing, and so on. It is generally from within your variable and discretionary expenses that the most can be trimmed from your monthly expenditures.

• Semi-Variable Expenses – These expenses are for items you have to pay and cannot do without, but which fluctuate somewhat predictably from month to month. Examples include utility payments.

• Annual Expenses – Regular and predictable expenses which are not paid every month, but rather once or twice a year, are considered annual expenses. This can include car insurance, property taxes, and taxes.

• Strategic Expenses – These expenses are planned out ahead of time and are larger than your usual discretionary expenses. Home improvements, vehicle and furniture purchases, and vacation and travel expenses fall into this category.

• Emergency Expenses – Unforeseen costs which you are unable to avoid are considered ‘emergency.’ This can be car repairs, excessive health care, etc. and should be prepared for with an emergency fund.

There are others, and you will have to make your own decisions on which ones apply to you.  You will undoubtedly have some expenses that don’t seem to fit clearly into one or another of these secondary categories. Use your discretion – which one does it fit into best? You may also need to refine your tertiary categories more. Are your food expenses being split up by eating out vs. buying groceries? Are your utilities split up by service?

The next step will be to take a MUCH closer look at the secondary and tertiary categories. You will soon find that categorizing your expenses makes it easier to find areas where it would be relatively easy to cut out excess spending.

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