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3 Steps to Make Budgeting Less Daunting

Have you ever tried to make a budget but got overwhelmed by the long list of expenses to include?

When you organize your expenses into basic categories, it simplifies managing your money and makes it easier to see where your priorities lie or which spending areas may need improvement.

It may seem daunting to keep track of every expense you incur throughout the year, but you can separate your expenses into three basic categories to help you prioritize your spending and get a better overview of your financial health.

Take the first step in creating your budget with these 3 simple categories.

1.      Debt

 This includes all of your monthly bills in which you need to pay off a creditor or pay back an individual. It also includes the IRS if you have a tax lien, which is a debt you owe to the IRS. It is crucial to stay on top of this expense and should be a primary priority.

If you were to lose or quit your job, the debt collectors still require payment. The reality is that creditors do not care about your personal situation nor do they have any sympathy.

You may be able to call your student loan lender and ask for a deferment, or schedule your credit card payments for a lower amount to bide some time. However, you are still obligated to make some sort of payment if you are in debt.

Even if your debt payments are lowered, the interest is still eating up the value of any money you may own in your checking or savings accounts. In other words, the amount of interest on your debt is much greater than the interest that you are earning in your checking and savings accounts. Therefore, if you continue to make minimum payments, you will perpetually be making less than what you owe.

The two most common types of debt that people forget about are hospital bills and taxes due from previous years’ tax returns. These types of debts also carry interest, so make sure it’s included in your expense budget.

Lastly, if you want to make a major purchase in the future, such as a new car or home, it is extremely important to make timely and adequate debt payments monthly to help build your credit score.

2.      Needs

This expense category is a grey one, as many times expenses that should not be under this category are added. To put it simply, a “need” expense is one that is necessary to keep a roof over your head, an aid in case of an emergency, and keeps you healthy and alive. The expenses in this category should generally include rent or mortgage, electricity, gas, water, trash, health insurance, prescription medications, internet, cell phone bill, and auto fuel/car maintenance, or public transit costs.

You may argue that groceries need to be included as a need because you have to eat. The grocery bill can vary greatly depending on where you choose to shop, the types of groceries you buy, and how much food you consume. At any given time, your grocery bill can be significantly reduced should you choose to change any of those three factors.

The most important expense in this category is your monthly savings. Why, you ask? Your savings is used for future expenses and/or just-in-case situations. This is also popularly known as your “emergency fund.”

3.      Wants 

This category includes every expense that does not fall under the “Debt” or “Need” expense categories. “Want” expenses typically include entertainment, dining out, pet care, subscriptions, travel, groceries, shopping, etc.

If you question whether it is a need or a want, ask yourself this question: If I were to lose my job or be in deep financial trouble, would I need this in my life to maintain my basic living or can I temporarily live without it? If the answer is the latter, then categorize it under “Want.”

By filing all of your expenses into these three categories, you will have a stronger understanding of where your money is going and can adjust your spending accordingly. This will allow you to structure your budget more efficiently and provide a tangible way for you reach your financial goals.


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This data is for informational purposes only and Capital Benchmark Partners, LLC ("CBP") is not affiliated with any of the businesses mentioned nor endorses them. CBP is not endorsed by any third party entities for their inclusion in this article. Past performance is not a guarantee of future results. The information contained herein has been obtained from sources believed to be reliable but the accuracy of the information cannot be guaranteed.

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