Great job practicing those spreadsheet skills over the past few lessons, those are going to
come in handy as we start accounting for all your expenses. See bills that are the same each and
every time are easy to predict like rent or your phone bill, but how would you predict expenses
that change every month like going out to eat or bills that don't happen every month like getting
your oil changed every six months? And how do you predict emergencies which are by their very nature
unpredictable? Believe me, money does not grow on trees. I would know, I uh, tried to plant one...
a money tree. Did not get one just, it's got a dirty dollar bill. But there's good news for you,
turns out it's pretty easy to account for all your different expenses,
the key is to consider them as two separate sets; fixed expenses and variable expenses.
First up we have the easier expense to account for: fixed expenses. These are expenses that
are easy to predict both in timing and in cost because they happen regularly
and they cost about the same amount each time. How you'll budget for these
depends on the time period you're budgeting around. See most bills and monthly paychecks
happen on a monthly cycle so most people prefer to set up their budget by the month.
For example, I pay $60 for meal kits to be delivered every week so every month I pay $240 for
delicious fresh food deliveries. Totally worth it. For anything that occurs multiple times a month,
multiply its cost by how many times it occurs. One tricky thing to keep in mind is that most months
have a little more than four weeks of them. Well except for February, that has exactly four weeks
except on leap years but that's only once every four years. Oh, fun fact I have a
friend whose birthday is on February 29th, leap day, so so we have a joke because you
know his birthday date has only ever happened like eight times we joke that he's 8 years old
and he's not he's 34. That'd be weird being friends with an eight-year-old.
What was I talking about? Oh, right. Most months have a little more than four weeks
so one month I might only pay four times and the next month might have five Monday's so
I'd have to be ready for an additional charge for that month. To make it easy, just treat
every month as if it has four and a half weeks. For anything that occurs less often than monthly,
budget for it by splitting the cost between however many months the cycle lasts.
I have my online gaming subscription set to renew every three months for a $120,
so I should take that $120 and split it by three. If I save 40 every month, I'll have what I need to
pay for my subscription when it's time to renew. Your guided notes include some additional practice
calculating monthly costs for fixed expenses. So pause the video and try those out now.
Variable expenses are a little harder to account for. They're called variable because their timing
and cost varies each time you pay for them. So you can't accurately predict when they'll happen
or how much you'll owe. One major example of a variable expense that most people will deal with
is groceries. Most of us don't buy exactly the same things every time you go to the grocery
store, nor do we make sure our groceries will last us the exact same amount of time.
The price of your groceries will fluctuate and you might have to get more groceries sooner
or later than you did the last time. So how do you predict something that changes all the time? One
trick is to take the average from the previous times that you've spent on the expense.
For example, if over the last few months I spent $380, $410, and $320 on groceries,
I could find the average by adding them all up and dividing by the number of months and get $370.
Now if I budget $370 for groceries each month,
then the months that I spend less than that should even out with the months I spend more than that.
Some people like to overestimate the amount on variable expenses to budget just to be safe.
For example, I know I usually pay about $100 on my power bill
but I could choose to budget $150 just to be safe. Now every month
that I pay less than that I get to pocket the extra cash to spend on something else
or put in a savings account. This is a lot like a method of budgeting called envelope budgeting.
We've got a whole lesson on that later in this unit so if you're a little worried and you feel
like you want more control over your budget, pay extra close attention to that lesson.
Last but certainly not least, what about the most varying of variable expenses? Emergencies.
You could go years and years without an emergency and then all of a sudden
a strong storm blows a branch right through your fence. Now you have to pay to get the fence
repaired. A surprise fence repair can cost you a lot of money that you simply didn't budget for.
How are you supposed to know that that storm was coming? That's the problem with emergencies,
there is no way you can plan for the unplannable.
You can't expect the unexpected. You just can't predict the unpredictable. You're not a psychic,
are you? The thing about budgeting is that it's not about trying to spend all your money,
no no, it's about spending the money on the things you know you need to spend it on now
and making sure you have some saved for what you don't know you need to spend it on down
the road like an emergency room visit. No budget is complete without a line for dedicated savings.
Something for the you of today to hide away for the you of tomorrow. here you go tomorrow Justin.
Oh sweet, a $20. Thanks yesterday Justin! Alright, let's recap. For fixed expenses, adjust the amount
you're budgeting if necessary to make sure that you can pay for them at the end of each month.
For variable expenses, you can either take an average of the last few months or intentionally
budget more than is necessary to make sure that you never have to worry about having enough.
And finally, make sure that you have a line for dedicated savings. You need
this if you want to have money for unexpected emergencies like my skiing accident last year.
Alright, I think you're ready to begin working on your budget.
If you don't know where to start, check your guided notes for some helpful tips.
If I don't pay my power bill then I can't make more videos, and then I don't get to teach you
about the 50-30-20 rule, or envelope budgeting so I should probably do that. See you later!