October 31, 2019 • 3 mins
Whether you're making a budget, setting a financial goal or planning for retirement, it's important to understand what your current expenses are. Before people have an understanding of what their current expenses really are, most think they'll be able to live on substantially less than they actually spend.
Understanding your personal expenses requires being extremely honest with yourself about what expenses you need to maintain – as well as what expenses you really want but don't need. Just because you don't need something doesn't mean you can't spend money it – the important thing is to be honest about whether you need or want something. Being honest as you evaluate your expenses will help you create a budget, financial goal, or retirement plan that’s realistic.
Most experts recommend tracking your spending for at least 30 days to get a clear picture of your spending. There are a few ways to do that:
While the tracking methods above will show you where money goes on a day-to-day basis, your expenses must also factor in irregular costs, such as holidays, birthdays, annual car registration costs and annual subscriptions. Look at your calendar and your financial records from the past year to see what your periodic and irregular expenses were.
Here's some irregular expenses that are part of many people’s typical finances:
If you add up all the expenses above and divide that by 12, you’ll get an idea of how much these expenses are costing you per month.
An even better step for your financial well-being is to save up that amount each month. For example, if your annual irregular costs amount to $2,400, set aside $200 a month in a savings account or money market account. Then withdraw from that account every time one of these expenses comes up. You’ll feel less worried and have greater confidence that you can cover all your expenses.
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