Struggling with a budget

Struggling with a budget? Here is how to simplify it.

Budgeting and sticking to it can seem like a high-flying number. If you are looking to get your monthly budget in control, start by dividing your monthly expenses into three categories:

Fixed Expenses

These are the expenses that come every month and usually are the same amount each month such as car payments, rent or mortgage, loan payments and insurance.

Variable expenses

These are expenses that do occur every month, but the amounts vary, such as utilities, gas, groceries, and entertainment. These are the expenses that can blow your budget if you do not keep a tab on them.

Emergency expenses

Emergency expenses such as unexpected repairs, dental emergencies, veterinarian fees, etc. can really put a ding in your finances.

Once you have divided the expenses, open a bank account for each. This eases the monthly management of the budget as well as the payment of debts and expenses.

Account 1: Fixed Expenses

You know exactly what comes out of this account and when. The schedule is predictable, as is the amount. By transferring money from each paycheck to cover this fixed amount, you cut the risk of error. You can deposit the money and forget about it. However, for this to work, you must follow a strict rule: no personal withdrawals.

Account 2: Variable expenses

Use this account for purchases and cash payments. The only rule of thumb for this account is that once the amount set for the month has been spent, you cannot access it again until the next paycheck is deposited.

Account 3: Emergency expenses

The purpose of this account is to save money for emergency expenses. This account can take a while to build up and can be emptied quickly when an unexpected expense such as an auto repair bill arrives. A good tip is to deposit any additional income such as a bonus or a tax refund directly into this third account.

It is important to remember that your fixed expenses are those that you must pay without fail. If you miss a car or loan payment, your credit score will be affected. In addition, it is easy to exceed the amount in  variable expenses. So be sure to set up a monthly budget.