How to Manage Your Expenses
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How to Manage Your Expenses so You Can Get Ahead, Plan Ahead and Be Good with Your Money

Manage Your Expenses

To get control of your money, it’s so much more than just making a list of your expenses (all that a typical budgeting worksheet really is). You want to actually manage each of your expense categories in a very specific way.

If you haven’t organized your expenses according to your three categories yet, check out this post.

Here’s a quick reminder of your three categories:

  • Your first category are your fixed and recurring expenses. Think of these as your bills. They happen monthly, typically on a certain day or date and for a certain amount.
  • Your second category are your day-to-day expenses. The easiest way to think about these expenses is that they happen monthly, but when they occur during the month and their amount aren’t as predictable as your fixed and recurring expenses.
  • Your third category are your non-recurring or random expenses (we call these your whammies). The easiest way to think about these expenses is that they don’t happen every month and when they happen, they tend to happen big.

Once you know your expenses, you can put a system in place to manage them. Here’s how!

Category 1: Fixed and Recurring Expenses

Step 1: Get them out of your head.

Make a list of all these bills but make sure this list is in due date order.

Step 2: Streamline bill-paying and money management.

By organizing your bills in due date, your trigger becomes payday. Sit down and pay all the bills due for that pay period on the day you’re paid.

If your bills are set up on autopay, you can still see exactly what’s coming out for this pay period.

“Okay, my paycheck is $2,700 and I have X, Y and Z bills coming out totaling $1,600 this paycheck.” 

Imagine having the clarity and the peace of mind that at least for those two weeks (or however long your pay period is), you know your bills are paid and what you have left to work with.

Step 3: Stop being reactionary, start being proactive.

One of my biggest frustrations with most budgeting methods and apps is that they encourage you to track where you’ve already spent your money. I would much rather you focus your time and energy on thinking about how you want to spend your money in the future.

By listing these expenses in due date order, you’re able to see the timing of when these bills fall during the month and precisely which paycheck they will be getting paid.

Once you have your bills listed in due date order, don’t just look at the current paycheck, but begin looking 2, 3 and then 4 pay periods into the future.

Planning ahead is our superpower here at Fiscal Fitness and it starts with one category of your expenses and one paycheck at a time. Then we can expand your perspective and abilities from there until you see yourself achieving the goal you have for your money and your life.

Watch out for this trap

Most people do the above step in their head naturally. If you were to think about it, chances are you probably know when your paycheck comes in, about how much and which bills are coming due soon, and how much you have left out of your paycheck or in your checking account until you get paid again.

Like I said, that is a step that most people naturally do already.

But here’s the trap – we have only considered one category of your expenses (out of three) which means we don’t have a complete picture of your money just yet.

This next step most people take tends to be disastrous.

They think “After my bills are paid, I have $1,500 left and I probably need about $500 for spending and gas, that means I have $1,000 I can throw to my credit card balance, or put in savings, or spend on other things.”

If you find yourself doing that, only to need to pull from savings later, or put expenses on a credit card next pay period or next month, we’re going to solve that now. Keep reading.

Category 2: Day-to-Day Expenses

Step 1: Determine your per paycheck amount

Take a look at the expenses you have listed for this category. Try to come up with an estimate of how much you need for a pay period for all of these expenses combined. (If you get paid bi-weekly or twice each month, take your monthly amount and divide by 2.)

Step 2: Don’t let perfectionism stop you. It’s OK to guess.

Do not worry about whether or not this estimate is accurate or perfect. The truth? It probably isn’t. But you have to start somewhere and you will adjust this over the coming few pay periods until you feel confident that it’s right.

Step 3: Make this more predictable.

Instead of the ping-ping-ping on your debit or credit card for this category of your expenses, we need a better system for managing and staying on top of these expenses so you can make better real-time decisions. You have two options:

  • Old school: Each pay period take out cash for all of this category and spend it. So long as you’re not taking out more, you’re good. This approach certainly works for some people.
  • Modern world: With online shopping (Amazon), grocery pickup and using your card at the pump for gas, most people (myself included) find cash inconvenient and not conducive to the way we’re living our lives. If this sounds like you, open a separate checking account at the same bank as your main checking account and title it “Spending Account.”
    • On payday, transfer this set amount into this checking account and use this for all expenses in this category – groceries, eating out, gas, toiletries, etc.

Tip: It doesn’t matter where this money goes. I want to release you from this idea that you need to know exactly how much you spent on eating out vs groceries. That is not worth tracking for the majority of people. The amount of time and effort tracking takes exceeds the benefit we gain from doing it, which means it’s not a worthwhile activity. As long as you only spend what goes into your spending account, it doesn’t matter what you spent it on.

Using a separate account by transferring money on a set date and for a set amount accomplishes four things:

  • It gets the money out of your main checking account. When your bank says “Your available balance is ____” it doesn’t know that you have a bill clearing three days from now or that you need to put gas in your tank.
  • It’s easier to hold yourself accountable. You can simply glance at your spending account balance to see how you’re doing that pay period and either pace yourself or splurge a bit.
  • It makes spending tangible and concrete – you can see a set dollar amount and watch it decrease over time, so your real-time decisions are easier and better. You are making these decisions literally everyday right now but without the clarity or awareness.
  • It takes the ping-ping-ping of this category of expenses and makes it resemble a fixed and recurring expense. It now acts like a bill – the same amount clears every pay period like clockwork making it much easier to plan.

The Ease and Simplicity You’ve Created So Far

I want you to imagine what you have created so far.

Your paycheck comes in.

You know exactly which bills are clearing this pay period, and the next, and the next.

You transfer a set amount to your spending account for the day-to-day expenses you’ll need until next payday.

There are less moving parts to keep track of because there’s very little activity. And the activity that is happening, you’ve planned for. There are fewer unknowns during the pay period. And there’s less guesswork and uncertainty of where you stand and how you’re doing financially.

There’s a lot less “mind drama.”

You might not even realize just how much mind drama you experience daily or throughout the week when it comes to your money. This is not only exhausting but it’s simply not productive.

And we’re not even done yet. It keeps getting better from here.

You’re going to love this next strategy.

Category 3: Non-Recurring or Random Expenses

This category is most likely the biggest source of your financial stress. Just when you think you’re gaining traction or getting ahead, one of these whammies strikes.

These expenses cause the most stress because they create the largest fluctuations from one month to the next and most people are simply not ready for them when they happen. They cause you to scramble because you’ve just got to “figure it out” when they happen.

Luckily, not anymore.

Step 1: Take the list of the expenses you have in this category (again, don’t worry if it’s perfect, it’s probably not but you’ll refine it over time) and determine a monthly average for each one.

Step 2: Open an online savings account for each one of these expenses (I use Ally for mine but there are plenty of other options). Title each account exactly what it’s for.

Personalized for you financial strategies

You might like to have a separate account for each individual expense. For example, you have an account for car registration, another one for car repairs or maintenance and another for your car insurance (if you pay it quarterly, semi-annually or annually).

Or you might like to have one account for all of your car expenses and keep it altogether. So you have a “car” savings account and the amount you use to fund it is for car registration, repairs or maintenance and insurance.

Typically, we recommend more accounts and more compartmentalization when you’re first starting out because the added organization helps you to see what you’ve got, what you’re working with and keep it all straight.

Step 3: Each month, just like it’s a bill, transfer the amount into the proper savings account. List these transfers right along with your bills so you know which pay period they will clear your checking account.

Step 4: When one of these expenses happen, you have two options:

  • Use a credit card but immediately transfer the money out of the savings account so you can pay your credit card. Do not wait for the statement. Do it immediately.
  • Use an online checking account along with your online savings accounts so the transfer from one to the other is immediate. You’ll likely be given a debit card for this checking account so you can simply pay for the expense that way and avoid credit cards altogether.

Note: Credit cards are not evil. They’re simply a tool that work for some people and not others.

Our clients love this strategy because it provides a number of benefits:

    • You are able to remove big fluctuations from your financial life. Instead of scrambling to come up with $500 for new tires or $3,000 for a family vacation, you spread it out evenly over each month. Even if you don’t have quite enough in savings to cover the whammy, chances are it’s better than not having any of it saved.
    • It helps you see your money more clearly.
    • You feel less guilty. If you’ve ever experienced buyers’ remorse or guilt after buying yourself a new outfit, chances are it’s because you’re not sure if you really could afford it or if there was a better use for that money. But imagine if you had a clothing fund that you used when you bought this outfit. The money was set aside for this purpose and it doesn’t affect your ability to pay for a car repair tomorrow. Suddenly spending money feels very different.

Gain Cash Flow Control

These steps are so much more powerful than “just budgeting.” They help you see your money clearly, manage it easily and effectively and put you in control of your cash flow.

Instead of a big cobweb of chaos and moving pieces, where every week and month feels uncertain, overwhelming or confusing, you’ve created a steady routine for yourself.

You have adopted a system that allows you to:

  • Pay your bills on time and without worry
  • Pay for everyday purchases with ease and flexibility but also awareness and accountability
  • Save for upcoming expenses so you’re prepared and no longer needing to scramble to cover them. 
    These steps put you in control of where your money, but not because you tracked where and what you spent money three weeks ago, but because you can see where and what you need to spend three weeks from now. 

It’s not possible to plan for 100% of what will happen in the next year. That’s impossible because life doesn’t work that way. But if you’ve planned for 80%, the remaining 20% becomes far more manageable. You can handle the 20% real-time when it happens because right now, you’re handling 100% of it real-time. 

You deserve for it to be easier.

Once you are in control of your cash flow today, you continue to build on this solid foundation. 

Planning for your future and aggressively throwing money at your goals is the next step. 

A system that grows with you

The expenses you have today are not the expenses you’ll have next year or five years from now. 

Your life will change. You will change. The things you care about and want to spend your money on will change. Expenses may increase or decrease.

The best part of this system is that it’s completely customizable and can be modified as needed. 

Once you remove this chaos from your day-to-day life, your time and mental energy can go toward better (more fun!) parts of your money. You’ll become more intentional and your perspective will shift further into the future. You’ll be able to plan ahead more easily and make adjustments to your categories. 

But it starts with you knowing your expenses and then managing those expenses. 

Doing so gives you control of your cash flow today so you can focus on your future. 

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