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If you’re interested in investing in a new vehicle, it’s not always easy to know what’s in your price range. Understanding your options and learning how to calculate your budget can determine what you can afford.
Discover how auto loans can enhance your ability to afford a range of vehicles, from brand-new cars to those with some mileage.
How to Calculate How Much Car You Can Afford
Calculating how much you can afford for your new car is a helpful step in saving money when you’re ready to make the purchase. Follow the next steps to calculate your budget effectively.
1. Calculate Your Car Payment Budget
There are two main expenses to consider when calculating your car payment budget: your down payment and your monthly payment.
Above is an example of how to calculate your monthly payment calculation. Let’s say you have a net monthly income of $4,500. Multiply your income by 0.10, or take 10% of your income. This number will be your estimated monthly payment. In this example, it would be $450.
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Monthly payment: We recommend spending no more than 10% of your monthly net (take-home) income on your monthly car payment. This doesn’t include other expenses like gas and maintenance. Round up to 15% to include all vehicle expenses.
Down payment: If you plan on purchasing a car, we recommend putting around 20% of the vehicle’s purchase price toward your down payment. The more you put down, the lower your auto loan will be.
2. Determine Which Auto Loan You Qualify For
You now have a better idea of how much you can potentially borrow based on your budget.
Several determining factors affect how much you can borrow, including:
Credit score: This will influence the annual percentage rate (APR) of the loan. Higher FICO® credit scores between 661 and 850 can lower your auto loan interest rate.
New vs. used: Auto loans for new cars typically come with reduced APRs.
Loan term: This is how long you’ll be repaying your auto loan. The average car loan term ranges between five and six years.
If you already have an auto loan, you can refinance and customize your loan with Credit.com. Try out our Auto Loan Calculator to simulate your current payment and find out what savings you can earn today.
3. Estimate Auto Insurance Cost
You should also factor in car insurance when considering purchasing a new vehicle. Factors like the make and model of the car, your driving history, and where you live can impact your insurance costs. Reach out to several insurance companies for quotes and get a clearer picture of what you’ll likely need to budget for insurance.
4. Calculate Your Purchase Price
It’s important to note your auto loan isn’t the total price you’re going to pay for your vehicle. There are other hidden costs you should be aware of beyond the number on the price sticker. Take note of these common additional costs:
Sales tax: This can be around 5% to 10% and may include local, county, and state taxes. However, not all states have sales tax, such as Montana and Oregon.
Documentation fees: These can range from $100 to $400, depending on your state.
Registration fees: These can range from $8 to $225, depending on the state.
What Car Options Do You Have?
You never want to put yourself in a financially vulnerable position if you can avoid it. That’s why it’s important to consider all of your purchasing options. Keep reading to understand how buying versus leasing can help you afford a car.
New Vehicle
Everyone wants a shiny new car, but it’s not always affordable. If there’s a particular type of vehicle you want, do some research to determine the vehicle’s current market value. That way, you’ll know exactly how much that car is worth and avoid purchasing a vehicle with an inflated price tag.
Used Vehicle
Purchasing a used vehicle can be the best route for those with a lower budget. Used vehicles tend to have considerably reduced prices compared to brand-new cars, leading to more affordable monthly payments. Additionally, used cars typically have lower car insurance costs.
Leased Vehicle
Leasing a car can be a great option for those who want a brand-new car, but would prefer lower monthly payments. There are drawbacks to this option, however, as the payments that go toward the vehicle don’t provide value and there are mileage limits. But if you don’t mind those drawbacks and like to try out different cars every couple of years, leasing is worth considering.
FAQ
Here are answers to some frequently asked questions about car affordability and monthly payments.
How Much Car Can I Afford Based on My Salary?
Determining your car affordability based on your net income is one way of estimating how much car you can afford. You should put 10% or less of your monthly income toward your car payments.
Annual Income
Monthly Car Payment Maximum
$30,000
$250
$40,000
$334
$50,000
$416
$60,000
$500
$70,000
$584
$80,000
$667
$90,000
$750
$100,000
$833
However, this doesn’t include costs such as fuel, parking, and maintenance. You can plan on dedicating about 15% of your monthly income to total vehicle expenses.
How Much Should My Monthly Car Payment Be?
Your monthly car payment will depend on a few factors, such as your auto loan interest rate, loan term, and how much you put toward your down payment. Your choice of vehicle and where you purchase it can also affect interest rates.
However, your monthly car payment should be around 10% or less of your monthly take-home pay. You can always choose to pay more every month to pay your auto loan quicker and save money on interest.
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Take your first step toward vehicle ownership by learning more about credit scores with Credit.com. Get your free credit report card today.
If you’ve just gotten your first $1,000 that’s free to invest, you might be freaking out a little bit. What are you going to do with that money? And how will you keep it growing so that you can continue to invest more for your future?
Well, $1,000 is a great start, but it’s not a ton of money. That means you can’t spread it out into too many different options. But you can prioritize the best ways to invest that thousand bucks. Here are some of the best ways to invest your first $1,000.
Overview: How and Where to Invest $1000
Investment Type
Best For
Paying off debt
Those with high-interest debt
High-yield savings account
Emergency fund
Tax-advantaged account
Beginner investing
Stocks
Having control over where your money goes
Real estate
Alternative investment
Art
Alternative, long-term investment
Peer-to-peer lending
High-risk/high-reward
CD
Those who don’t need the money right away
Treasury security
Safe investment to balance risk
Use a Micro-Savings app to both save and invest
Those who want to invest while shopping
1. Pay Off Debt
First, if you have high-interest debt, you’re likely best off putting your money towards that. If you’re paying 15% or more interest, you won’t likely be able to put your money towards an investment that out-earns that. So it’s best to pay off that debt.
The general rule of thumb here is that you first put enough money into an employer-sponsored account to get any matching option. Then, you put your money towards high-interest debt until that’s paid off. Once that’s done, you can move on to these other options.
2. Use a High-Yield Savings Account
If you don’t have any money saved for an emergency, put your $1,000 into a high-yield savings account for emergencies. This keeps you from going into more debt if an emergency does arise, so it’s a good idea. Look for a savings account with little to no ongoing fees and as high an APY as possible.
Here are a few of our favorite high-yield savings accounts:
Featured Savings Accounts
Bank/Credit Union
Min. Deposit
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3. Put It Into a Tax-Advantaged Account
If you don’t have an employer-sponsored retirement plan, or if you can’t put this $1,000 in there, you should consider making your investment through an IRA. Tax-advantaged investment accounts can boost that amount and grow your money over time. Luckily, some of the options below, including some robo advisors, allow you to invest through an IRA, so you can get both good returns on your investment and tax advantages.
4. Try Your Hand At Investing In Stocks
You don’t want to invest your whole portfolio over time in stocks. But if you’re interested in trying your hand at stock investing, try it through a solid platform like E*TRADE, TD Ameritrade, or Ally Invest. These platforms let you make trades on your own, so you can see what it’s like to build your custom investment portfolio. You can also opt for a semi-robo advisor like M1. This one is free to use and lets you put together your portfolio of ETFs, which tend to be more stable than individual stocks but still give you the feel for putting together your investments.
But if you don’t know what you’re doing or just don’t want to deal with the time and energy it takes to pick good stocks, fear not. One of the best ways to have your money managed for you is by working with a Certified Financial Planner. The problem is, they’re hard to find (good ones, at least).
5. Start a Robo Advisor Account
If you want more handholding or to be hands-off with this starter investment, consider using a robo advisor like Betterment. With a dollar amount on the small side like this, Betterment is probably your best bet. It’ll let you set your investment preferences and forget about managing your account daily.
6. Use a CD For Mid-Term Savings
What if you want to put that $1,000 towards the start of some larger savings goal for the medium-term? Like buying a house or a car? In this case, you might consider putting it into a CD. If you know you won’t need it to be liquid for a set period of time, a CD can get you a good return on your investment without risking your capital as you will with many investing opportunities.
Read more: Best CD Rates
7. Buy a Treasury Security
If you have a higher income tax rate, you might get a better deal from a Treasury security versus a CD. They do tend to have slightly lower rates, but their earnings are exempt from state and local taxes. Before you decide to lock your money up in either option, be sure you do the math to get the best bang for your buck.
8. Put it in your kid’s 529 account
What if you’re already maxing out your retirement accounts or saving as much as you feel like you should? In this case, consider adding that $1,000 to a 529 college savings account for your kid. These accounts act as an IRA for education spending, so they’re a valuable way to save up now for those hefty college expenses you’ll see in the future.
9. Use a Micro-Savings App to Both Save and Invest
Did you know that you don’t even need to wait to accumulate $1,000 to begin investing? Naturally, there’s more you can do with your portfolio if you have that kind of money. But if you have been having difficulty accumulating it, or you have at least $1,000 and want an automated system to increase it, Stash Invest needs to be on your radar.
Stash Invest provides you with a debit card. You can set the card to use round-ups to make regular contributions to your investment account. For example, if you make a purchase for $9.15, your account will be charged the full $10, with $.85 going into your investment account. Multiply that by dozens of transactions per month, and you can easily see $20, $30, $40, or even $50 going into your investment account each month.
Stash Invest even makes investment recommendations for you. You’ll have the option to choose from more than 400 individual stocks and exchange-traded funds. They provide a portfolio model based on your risk tolerance, time horizon, and investment goals. They won’t manage the portfolio for you but will guide you toward creating one that works for you. As much as anything else, Stash Invest is an excellent introduction to self-directed investing, both helping you to accumulate funds for investment and then gradually helping you get your feet wet with managing your portfolio.
Read our full review on Stash Invest.
Start Keeping Track
Whatever you decide to do with that $1,000, be sure you keep the cycle going by keeping track of both your budget and your investments. One way to do this is with Empower, a platform that lets you pull all of your investing and spending data together into a single place. With it, you can watch your original investment grow, but you can also manage your budget to live on less than you earn and invest the rest.
FAQ
How much interest will I earn on $1k?
To determine the interest you’ll earn on $1k, multiply 1,000 by the rate of return you expect. So, for example, if you expect a 6% rate of return, you’d earn $60 in interest by the end of the year (1,000 x .06 = 60).
How should I invest $1k to make 100k?
To turn $1k into $100k, you expect to 100x your investment. The best way to do this is to start with $1k and continue to invest at regular intervals over time. For example, if you started with $1,000 and invested $200 per month, every month, for 20 years and earned a modest rate of return of 6.5% (compounded monthly), you’d end up with just over $100k.
How can I invest $1k wisely?
To invest $1k wisely, you should open an account with a robo advisor and let them do the work for you. $1k isn’t enough to invest in most mutual funds or even some index funds, but it is enough to start investing with a robo advisor. This way, your investment will be broadly diversified and actively managed on your behalf.
What’s the best way to invest $1k short term?
The best way to invest $1k in the short term is to put it into an ETF or index fund that captures a wide scope of the total stock market (like VTI, for instance). Most brokers will allow you to open an account with $1k, but you might have to search for a fund that will let you buy in for $1k (many require a minimum investment of $2,500, for example). Alternatively, you can put the $1k in a robo-advisor account and let them manage it.
Bottom Line
Having $1k to invest is more than many people have. Most Americans don’t have $1,000 to cover an emergency without going into debt. So consider yourself lucky in that sense. That’s why you want to make sure it lasts, and it’s invested wisely.
Related: Savings by Age: How Much to Save in Your 20s, 30s, 40s, and Beyond
Review our advice above, choose a safe, short-term investment, and keep a close eye on it. Your $1,000 investment isn’t going to get you to retirement by itself, but it can serve as a wonderful safety fund and a foundation for a larger portfolio.
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Abby is a freelance journalist who writes on everything from personal finance to health and wellness. She spends her spare time bargain hunting and meal planning for her family of three. She has a B.A. in English Literature from Indiana University Purdue University Indianapolis, and lives with her husband and children in Indianapolis.
Mortgage originators will pay more to access consumer credit reports in 2024, reigniting complaints from mortgage lenders and trade associations.
In 2024, Fair Isaac Corp. (FICO), the company that retains the rights to the market’s adopted methodology to measure consumer credit risk, will charge one price – higher than the current price – to all mortgage lenders, independent of their volumes. The change represents a departure from the tier-based pricing structure it implemented in early 2023.
FICO will also collect the same per score price for soft pulls and hard pulls next year, an initiative that started in 2023 despite significant differences in these products.
“FICO will collect approximately $10 total for all three scores out of a $50 (or more) tri-merge report and score bundle, which continues to constitute a low percentage (approximately 20% or less) of the overall cost of a tri-merge report,” a spokesperson for FICO wrote in a statement to HousingWire.
For 2023, FICO said it would collect approximately $2 to $8 for all three score tiers out of a $40 to $50 (or more) tri-merge report and score bundle and out of an average $3,800 in closing costs. Compared to 2022, mortgage lenders in 2023 saw a price increase between 10% and 400%, mortgage trade groups and other stakeholders said.
For 2024, two mortgage executives who spoke on the condition of anonymity for fear of retaliation, told HousingWire that they expect prices to increase by more than double in some cases. Ultimately, the sources added that lenders will charge more to their borrowers, who are already facing affordability challenges.
“It seems like only yesterday you could pull a single borrower tri-merge for $15 and a joint for $30,” Greg Sher, Managing Director of NFM Lending, wrote in a LinkedIn post that went viral in the mortgage industry. “Now those prices will be in the neighborhood of $50 and $100 respectively — one well-known, widely used credit reporting agency plans on charging $75/$150. For clarification purposes, every IMB uses 3rd party vendors (also known as credit reporting agencies).”
Scott Olson, executive director at the Community Home Lenders of America (CHLA), said that increasing prices in this difficult economic environment will “only make it difficult for borrowers to participate in the American dream.”
Soft and hard pulls
Another change for 2024 is related to the pricing structure of soft pulls, which are performed to provide pre-approval letters, only visible to the borrower and without impacts on credit scores. Its prices will come closer to those applied to hard pulls, which are recorded on the borrower’s credit report, visible to anyone and can trigger leads.
“Last year, we implemented a tier-based pricing structure for mortgage originations, and FICO collected the same per score wholesale price for most soft pulls as hard pulls, but some lenders qualified for a lower price in certain cases for some soft pulls,” the spokesperson for FICO told HousingWire.
Brendan McKay, president of advocacy at the mortgage broker group Association of Independent Mortgage Experts (AIME), complained FICO doubled the cost of hard pulls at the beginning of 2023.
“Now they are charging the same amount for a soft credit pull, an inherently inferior product that provides less actionable information than a hard credit pull. There has been no justification given for the increased expense.”
According to McKay, the cost burden will be passed directly onto consumers, and those from underserved communities will feel it most.
“Despite being a private institution, FICO is currently a critical component in the mortgage process. As an industry, we owe it to future homeowners to bring attention to the misuse of power,” McKay said.
Fannie Mae and Freddie Mac are moving away from the current Classic FICO credit score model, requiring lenders to use two credit scores generated by the FICO Score 10 T and the VantageScore 4.0 models, which are considered more inclusive than their predecessor.
Price to originators
A FICO representative said the company does not set the retail price for end users.
Ultimately, “Anything above these wholesale prices, charged as part of a tri-merge score and report bundle, is collected and retained by others who sell and distribute the scores,” the spokesperson said.
Credit bureaus, which work with the FICO model, may pass the FICO price increases to their clients.
TransUnion and Experian did not reply to a request for comments.
Meanwhile, a spokesperson for Equifax wrote to HousingWire that beginning in January 2024, it will have a price adjustment to “reflect cost increases from third-party providers of credit reports and credit scores.”
However, the spokesperson added, “Equifax is sensitive to the impact these third-party cost increases may have on customers, especially given current market conditions. With this in mind, Equifax is not increasing the costs related to the Equifax credit file component of the tri-merge credit report for 2024.”
The Mortgage Bankers Association (MBA) president and CEO Bob Broeksmit said that, “In light of these media reports about another round of unexplained sharp price increases, we reiterate our concerns about the lack of transparency into the factors that are driving these pricing changes.”
“Given the unique market structure and limited options for obtaining credit reports and credit scores, MBA urges policymakers to examine the drivers of these cost increases to ensure transparency and to protect consumers from paying higher costs in connection with their home mortgages,” Broeksmit said.
Editor’s note: This story was updated after publication to include comments from the Mortgage Bankers Association.
AI’s impact on the job market and society is a topic of much debate. However, its potential to assist businesses in making informed decisions is undeniable. Artificial intelligence (AI) has permeated various aspects of our lives, sparking discussions about its possibilities and challenges. Will we witness the realization of AI’s capabilities in the upcoming year? SAS, a frontrunner in AI and analytics, has enlisted the insights of executives and experts from across the organization to forecast trends and pivotal developments in AI for 2024. Here are some of the forecasts they have put forward.
Generative AI will augment (not replace) a comprehensive AI strategy
SAS, with a recent commitment of $1 billion to AI-powered industry solutions, emphasizes the growing significance of generative AI in organizational strategies. In 2024, organizations will shift towards integrating this technology to complement industry-specific AI strategies.
In banking, simulated data for stress testing and scenario analysis will help predict risks and prevent losses. In health care, that means the generation of individualized treatment plans. In manufacturing, generative AI can simulate production to identify improvements in quality, reliability, maintenance, energy efficiency and yield.
Bryan Harris, Chief Technology Officer, SAS
AI will create jobs
Although introducing new AI technologies in 2024 and beyond may lead to temporary disruptions in the job market, it will also ignite the creation of numerous new jobs and roles, thereby contributing to economic expansion.
In 2023, there was a lot of worry about the jobs that AI might eliminate. The conversation in 2024 will focus instead on the jobs AI will create. An obvious example is prompt engineering, which links a model’s potential with its real-world application. AI helps workers at all skill levels and roles to be more effective and efficient.
Udo Sglavo, Vice President of Advanced Analytics SAS
AI will enhance responsible marketing
While AI holds the potential for optimizing marketing and advertising initiatives, it is essential to recognize that biased data and models can yield skewed outcomes.
As marketers, we must consciously practice responsible marketing. Facets of this are awareness of the fallibility of AI and alertness to possible bias creeping in. In SAS Marketing, we are implementing model cards that are like an ingredient list, but for AI. Whether you create or apply AI, you are responsible for its impact. That’s why all marketers, regardless of technical know-how, can review the model cards, validate that their algorithms are effective and fair, and adjust as needed.
Jennifer Chase, Chief Marketing Officer, SAS
Financial firms will embrace AI amid a Dark Age of Fraud
Even as consumers show increased vigilance against fraud, fraudsters use generative AI and deepfake technology to refine their multitrillion-dollar trade. Phishing messages are becoming more sophisticated, and imitation websites appear remarkably authentic. With simple online tools, a criminal can replicate a voice after just a few seconds of audio.
We are entering the Dark Age of Fraud, where banks and credit unions will scramble to make up for lost time in AI adoption – incentivized, no doubt, by regulatory shifts forcing financial firms to assume greater liability for soaring APP [authorized push payment] scams and other frauds.
Stu Bradley, Senior Vice President of Risk, Fraud and Compliance Solutions, SAS
Shadow AI will challenge CIOs
CIOs previously faced challenges with ‘shadow IT’ and will now encounter ‘shadow AI’ – solutions utilized by or developed within an organization without official approval or monitoring by IT.
Well-intentioned employees will continue to use generative AI tools to increase productivity. And CIOs will wrestle daily with how much to embrace these generative AI tools and what guardrails should be put in place to safeguard their organizations from associated risks.
Jay Upchurch, Chief Information Officer, SAS
Multimodal AI and AI simulation will reach new frontiers
The next step in generative AI is the combination of text, images, and audio into one model. This is called multimodal AI, which allows for the simultaneous processing of diverse inputs.
An example of this will be the generation of 3D objects, environments and spatial data. This will have applications in augmented reality [AR], virtual reality [VR], and the simulation of complex physical systems such as digital twins.
Marinela Profi, AI/Generative AI Strategy Advisor, SAS
Digital-twin adoption will accelerate
Organizations can refine operations, enhance product quality, boost safety measures, improve reliability, and decrease emissions through digital twins.
Technologies like AI and IoT [Internet of Things] analytics drive important sectors of the economy, including manufacturing, energy and government. Workers on the factory floor and in the executive suite use these technologies to transform huge volumes of data into better, faster decisions. In 2024, the adoption of AI and IoT analytics will accelerate through broader use of digital-twin technologies, which analyze real-time sensor and operational data and create duplicates of complex systems like factories, smart cities and energy grids.
Jason Mann, Vice President of IoT, SAS
Insurers will confront climate risk, aided by AI
After years of waiting, climate change has evolved from a potential threat to a real and urgent danger. The global insurance industry faced more than $130 billion in losses from natural disasters in 2022, putting immense pressure on insurers worldwide. In the United States, insurers face scrutiny for increasing premiums and pulling out of heavily affected states like California and Florida, leaving millions of customers in a difficult position.
To survive this crisis, insurers will increasingly adopt AI to tap the potential of their immense data stores to shore up liquidity and be competitive. Beyond the gains they realize in dynamic premium pricing and risk assessment, AI will help them automate and enhance claims processing, fraud detection, customer service and more.
Troy Haines, Senior Vice President of Risk Research and Quantitative Solutions, SAS
AI importance will grow in government
AI will soon have an impact on government workforces. Governments struggle to attract and keep AI experts because of their high salaries, but they will actively seek out this talent to support regulatory efforts.
And like enterprises, governments will also increasingly turn to AI and analytics to boost productivity, automate menial tasks and mitigate that talent shortage.
Reggie Townsend, Vice President of the SAS Data Ethics Practice
Generative AI will bolster patient care
In 2024, organizations will continue to advance health and enhance patient and member experiences by developing AI-powered tools for personalized medicine. These tools will include patient-specific avatars for clinical trials and the generation of individualized treatment plans.
Additionally, we will see the emergence of generative AI-based systems for clinical decision support, delivering real-time guidance to payers, providers and pharmaceutical organizations.
Steve Kearney, Global Medical Director, SAS
Deliberate AI deployment will make or break insurers
In 2024, a top 100 global insurer will face closure due to prematurely implementing generative AI. Insurers are rapidly introducing autonomous systems without customizing them to their business models. They aim to use AI for expedited claims processing to counteract recent poor business performance. However, following layoffs in 2023, the remaining workforce will need more support to oversee AI’s ethical and widespread implementation.
The myth of AI as a cure-all will trigger tens of thousands of faulty business decisions that will lead to a corporate collapse, which may irreparably damage consumer and regulator trust.
Franklin Manchester, Global Insurance Strategic Advisor, SAS
Public health will get an AI boost from academia
The COVID-19 pandemic has made it evident that safeguarding our population will necessitate exceptional technology and collaboration. Public health embraces technological advancements like never before.
Whether overdoses or flu surveillance, using data to anticipate public health interventions is essential. Forecasting and modeling are rapidly becoming the cornerstone of public health work, but the government needs help. Enter academia. We will see an increase in academic researchers carrying out AI-driven modeling and forecasting on behalf of the government.
Dr. Meghan Schaeffer, National Public Health Advisor and Epidemiologist, SAS
At SAS Innovate, April 16-19, 2024, in Las Vegas, you have the opportunity to discuss with SAS executives, gain insights into their forecasts, and delve into the newest developments in AI and analytics. Secure your spot to receive updates on the conference and take advantage of early-bird pricing.
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Mihaela Lica Butler is senior partner at Pamil Visions PR. She is a widely cited authority on public relations issues, with an experience of over 25 years in online PR, marketing, and SEO.She covers startups, online marketing, social media, SEO, and other topics of interest for Realty Biz News.
Inside: Do you find it difficult to stick to a budget, despite trying your best? If so, you’re not alone. Budgeting can be a tricky task, but by understanding flexible vs variable expenses, you will better manage your money.
Creating a budget is a fundamental step in shaping your financial well-being, and understanding how your expenses fit within this budget is essential.
These are expenses that can be easily modified or eliminated when monetary constraints arise, thus playing a significant role in stabilizing your financial health.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is a flexible expense?
A flexible expense is a budget item you can adjust or modify as per your financial situation. This wiggle room inherent in such costs is not vital for survival, unlike the rigidity of fixed costs such as rent or health insurance.
You can manage these flexible expenses depending on your financial goals or constraints, making them an important part of budget planning.
Fixed Expenses
Variable Expenses
Flexible Expenses
A fixed expense is a cost that remains constant and is paid at regular intervals, such as mortgage payments, car insurance, or cell phone bills, making it predictable and crucial for budgeting purposes.
A variable expense is a cost that changes over time, fluctuating based on individual decisions and circumstances, encompassing both essential spending like groceries and discretionary purchases like movie tickets.
A flexible expense is a non-essential cost in your budget that you can adjust, reduce, or eliminate to save money, encompassing diverse categories like vacation spending, beauty treatments, electronics, dining out, and entertainment services.
What is an example of a flexible expense?
There are countless opportunities for flexible spending, some of which we might not even realize. Common examples include:
Vacations: A sunny beach holiday might be highly appealing, but not always financially feasible. There are alternative, less expensive options such as a staycation.
Beauty treatments: Items like haircuts, manicures, and massages fall into this category.
Electronics: The urge to upgrade to the latest smartphone or tablet model is understandable, but if your current device works fine, that’s an expense you can postpone.
Food and dining: While we all need to eat, the amount spent on eating out, or grabbing a latte on the go can be adjusted.
Entertainment: Expenses here include streaming services, cable television, concerts, or movie outings. There are plenty of free things to do that don’t cost money.
Remember, the trick lies in distinguishing between what you need and what you want.
Distinguishing fixed expenses from flexible expenses
The main difference between fixed and flexible expenses lies in their ability to change.
Fixed expenses, like your rent, or more specific elements such as a lease payment, represent costs that you’re obligated to cover regularly. They’re usually consistent in amount and include items such as utilities, phone bills, insurance premiums, and car payments. Handling these sensibly is crucial as postponing or canceling these could lead to severe consequences.
On the flip side, flexible expenses vary and can be adjusted or cut out entirely depending on your financial situation. These can range from dining out and entertainment costs to clothing purchases and vacation expenses. By taking control of your flexible expenses, you can ensure financial stability, even when incomes fluctuate.
Flexible Expense List Questions to Ask
Are you incurring this expense out of necessity or is it more of a luxury or desire?
Do I have control over the total amount spent on this expense or is it a constant obligatory payment?
Can this expense be eliminated or reduced without drastically affecting your lifestyle or basic needs?
Does this expense vary from month to month or can it be controlled based on your financial situation?
If you were to face financial constraints, could this expense be readily cut back or postponed?
If you answered yes to these questions, then you have a flexible expense.
To further guide your financial decisions, sign up for our informative newsletter.
Which budgeting method works best for flexible expenses?
Choosing the best budgeting method varies greatly depending on your financial habits, goals, and discipline.
Regardless of the budgeting method you choose, remember that flexible expenses are the last thing that you prioritize in your budget.
Option #1 – Envelope System
The “Cash Envelope System” works well for many, where you allocate a specific amount of money for each flexible expense category in separate envelopes. You only spend what’s set aside in each envelope, assisting in keeping variable and flexible costs in check.
The envelope system allows you to save in advance for flexible expenses you want like a vacation or new car or even new clothing.
Option #2 – Pay Yourself First
Alternatively, the “Pay Yourself First” budget prioritizes savings. Something we like to do around here at Money Bliss.
Right after receiving your paycheck, you immediately transfer a designated amount into your savings or investments. The remaining money is then divided among your fixed, variable, and flexible costs.
Option #3 – Zero Based Budget
Lastly, the “Zero-Based Budget” is a method where every dollar you earn is allocated to a particular expense category, leaving you with a zero balance at the end of the month.
This 3 layer system starts with your fixed expenses, then moves to variable expenses. If you have money left over, then you can work on including those fun money flexible items or a deposit into savings account.
In essence, the best budgeting technique is one that fits your needs and aids in achieving your financial goals.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
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YNAB vs Mint
How do you budget for flexible expenses?
Budgeting flexible expenses may seem daunting initially, but with a systematic approach, it becomes manageable.
Here are the steps to follow:
Calculate Your Income: Identify your total monthly income after taxes, this is your starting point.
Identify Your Monthly Expenses: Take your bank and credit card statements; evaluate your spending habits to identify your expenses. Start with your fixed expenses as those are priority. Then move to variable and flexible expenses as your budget allows.
Set a Budget: Employ the 50/30/20 rule (or any other method that works best for you) to divide your income between essentials, flexible expenses, and savings.
Track Spending: Regularly monitor your spending against the budget set.
Adjust and Control: After monitoring, make necessary adjustments to control your expenditures.
Consistency: Continually follow these steps for a few months, change gets easier over time, and so will managing flexible costs.
Budgeting, especially flexible budgeting, allows for financial adaptability, enabling companies to seize unexpected opportunities or navigate emergencies without severe monetary strain.
How tracking your spending can help
Learning to recognize your overspending by diligently tracking can offer an enlightening picture of your financial habits. It aids in understanding where your money is being utilized and exposes any neglected ‘financial leaks’. A no spend challenge can help you pinpoint these issues.
Planning and then tracking your spending is crucial in forming an effective budgeting strategy. This is where a calendar can come in handy.
Tracking can be achieved manually via saving receipts, noting down amounts, or through digital means such as online budgeting tools or apps like YNAB or Tiller Money. With regular tracking, you can regulate your spending. Thus, ensuring you stick to your set budget, and make informed future financial decisions.
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Tips and tricks for handling flexible expenses in your budget
Optimizing your budget while dealing with flexible expenses need not be a daunting task. Here are some tips to help:
Prioritize Savings: Always try to prioritize savings. One of our money saving challenges can help you.
Use Sinking Funds: This is money set aside to be used at a future time for a specific purchase.
Control Impulsive Spending: Limit frequent shopping trips, reduce eating out, and avoid buying unnecessary gadgets.
Substitute Luxuries with Alternatives: Option for budget-friendly alternatives like watching movies at home instead of the cinema, or cooking at home instead of dining out.
Utilize Budgeting Tools: Make use of budgeting apps or financial management tools that can track spending and help maintain your flexible expenses.
Practice Mindful Spending: Stay aware of your financial goals and make purchasing decisions that align with those goals.
Utilize Discounts: Seek opportunities for discounts that can contribute to these savings. For instance, some car insurance companies provide a discount for annual payments rather than monthly.
Remember, the goal isn’t to eliminate flexible spending entirely. But to strike a healthy balance that aligns with your long-term financial health.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
I have used this platform for over 20 years now.
Pros:
Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
Track investments with it’s features like portfolio analytics, retirement goals, and market comparison.
Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
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FAQ
By tracking and managing these expenses, you can have more control and insight into your finances as this is where most unmindful spending happens.
It enables you to understand better where your money goes each month and helps avoid unnecessary spending. When you curtail these expenses, you free up money that can be used to pay off debts, save for future goals, or invest.
Therefore, skillful handling of flexible expenses allows you to maintain a well-rounded and healthy financial state.
Rent generally falls under the category of fixed expenses rather than flexible ones as it is typically a set amount due regularly.
Ready to Solidify Your Budget with these Examples of Flexible Expenses
Conclusively, budgeting with flexible expenses is an essential skill for effective financial management and becoming financially stable.
The key lies in balancing your needs and wants, recognizing and eliminating unnecessary spending while prioritizing necessities. Making use of budgeting tools, like the 50/30/20 rule, can also be advantageous and strategic.
Remember, it’s crucial to be aware not only of your income but also of where your money is spent, as gaining control over your flexible expenses can help avoid financial strain and achieve your financial goals. Always strive to adapt your spending habits to best fit your financial situation.
Now, learn how to handle unplanned expenses.
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Top 10 builder now offering model home tours at Maggy’s Ridge Estates, selling from the mid $200s
LAFAYETTE, La., Nov. 30, 2023 /PRNewswire/ — Century Communities, Inc.—a top 10 national homebuilder, industry leader in online home sales, and the highest-ranked homebuilder on Newsweek’s list of America’s Most Trustworthy Companies 2023—is excited to announce the debut of Century Complete’s new model home at Maggy’s Ridge Estates in Sulphur, showcasing the community’s single-story Douglas floor plan. Maggy’s Ridge Estates boasts a prime location with convenient proximity to cultural hotspots and business hubs in the Lake Charles area—with quick access to McNeese State University, outdoor recreation and more. The location also comes with a desirable Flood Zone X rating, meaning a lower risk of flooding and thus lower insurance rates compared to higher-risk zones.
Available through Century Complete’s streamlined online homebuying process, the community is now selling an inspired lineup of single-story floor plans on wide homesites from the mid $200s—with each plan offering a versatile open-concept layout with exceptional included features, such as brick exteriors, stainless-steel appliances, granite countertops, and white cabinets. Buyers will also appreciate an inviting covered patio on each plan for a seamless flow between outdoor and indoor living spaces.
Learn more & view available homes at www.CenturyCommunities.com/MaggysRidgeEstates.
“We’re excited for area homebuyers and real estate agents to come tour our beautiful new Douglas model at Maggy’s Ridge Estates,” said Greg Huff, president of Century Complete. “Offering generous homesites, this community provides the opportunity to be the first to live in a quality-built new home at an affordable price, which is why we anticipate these homes to sell quickly.”
Wednesday, December 6: Homebuyer Webinar With Dinner at Maggy’s Ridge Estates
Homebuyers are invited to attend a special event at the community’s model home to enjoy complimentary dinner and watch a webinar livestream with information about home financing options with affiliate lender, Inspire Home Loans®!
MORE ABOUT MAGGY’S RIDGE ESTATES Now selling from the mid $200s
Conveniently situated near I-10 W/US-90 in Calcasieu Parish, Maggy’s Ridge Estates boasts a desirable location with easy access to restaurants, shopping, entertainment, museums and year-round community events. Exuding small-town charm, Sulphur offers a slower pace of life and an abundance of recreational opportunities, including recreation at nearby Lake Charles, the Creole Nature Trail, and more.
Three single-story floor plans
Three-sided brick exteriors
Up to 4 bedrooms, up to 3 bathrooms, 2-bay garages
Covered patios (per floor plan)
1,684 to 2,020 square feet
Model Home Address: 4987 Carlyss Drive Sulphur, LA 70665 337.210.2050
OTHER AREA COMMUNITIES
Maggy’s Ridge | Sulphur Now selling from the low $200s
Adjacent to Maggy’s Ridge Estates
2 single-story floor plans
4 bedrooms, 2 bathrooms, 2-bay garages
1,684 to 1,773 square feet
Learn more & view available homes at www.CenturyCommunities.com/MaggysRidge.
Mills Terrace | Scott Now selling from the low $200s
2 single-story floor plans
4 bedrooms, 2 bathrooms, 2-bay garages
1,684 to 1,773 square feet
Learn more and view available homes at www.CenturyCommunities.com/MillsTerrace.
Timberstone Estates | New Iberia Now selling from the low $200s
3 single-story floor plans
Up 4 bedrooms, 2 bathrooms, 2-bay garages
1,416 to 1773 square feet
Learn more and view available homes at www.CenturyCommunities.com/TimberstoneEstates.
Copper Oaks | Baton Rouge Now selling from the mid $200s
2 single-story plans, 2 two-story plans
4 bedrooms, up to 3 bathrooms, 2-bay garages
1,684 to 2,014 square feet
Learn more and view available homes at www.CenturyCommunities.com/CopperOaks.
VISIT OUR LOUISIANA SALES STUDIO IN BROUSSARD! While our industry-leading online homebuying process allows you to buy on your terms—24 hours a day, 7 days a week, 365 days a year—we also offer in-person assistance from local experts at our sales studio.
481 Albertson Parkway, Suite 2 Broussard, LA 70518 337.210.2050
DISCOVER THE FREEDOM OF ONLINE HOMEBUYING: Century Complete is proud to feature its industry-first online homebuying experience on all available homes in Louisiana.
How it works:
Shop homes at CenturyCommunities.com
Click “Buy Now” on any available home
Fill out a quick Buy Online form
Electronically submit an initial earnest money deposit
Electronically sign a purchase contract via DocuSign®
Learn more about the Buy Online experience at www.CenturyCommunities.com/online-homebuying.
About Century Communities Century Communities, Inc. (NYSE: CCS) is one of the nation’s largest homebuilders, an industry leader in online home sales, and the highest-ranked homebuilder on Newsweek’s list of America’s Most Trustworthy Companies 2023. Through its Century Communities and Century Complete brands, Century’s mission is to build attractive, high-quality homes at affordable prices to provide its valued customers with A HOME FOR EVERY DREAM®. Century is engaged in all aspects of homebuilding — including the acquisition, entitlement and development of land, along with the construction, innovative marketing and sale of quality homes designed to appeal to a wide range of homebuyers. The Company operates in 18 states and over 45 markets across the U.S., and also offers title, insurance and lending services in select markets through its Parkway Title, IHL Home Insurance Agency, and Inspire Home Loans subsidiaries. To learn more about Century Communities, please visit www.centurycommunities.com.
View original content to download multimedia:https://www.prnewswire.com/news-releases/online-homebuying-leader-century-complete-unveils-new-model-home-near-lake-charles-la-302002687.html
When applying for a mortgage, it’s essential to understand the credit scores that mortgage lenders use to assess your creditworthiness. By familiarizing yourself with these models, you can better prepare for the mortgage application process and increase your chances of obtaining favorable loan terms.
Mortgage Lending FICO Scoring Models
Mortgage lenders typically rely on industry-specific FICO scores from each of the three major credit bureaus—Experian, TransUnion, and Equifax. The commonly used FICO scores for mortgage lending include FICO Score 2 (Experian/Fair Isaac Risk Model v2), FICO Score 5 (Equifax Beacon 5), and FICO Score 4 (TransUnion FICO Risk Score 04).
Lenders often obtain a single report containing credit reports from all three credit bureaus and their associated FICO scores. They may base their decision on your middle credit score or, if you’re applying jointly, the lower middle score.
Understanding the Role of the Major Credit Bureaus
The three credit bureaus—Experian, TransUnion, and Equifax—collect and maintain data in your credit reports, which help determine your credit scores. These reports include information about your payment habits, credit utilization, duration of credit accounts, variety of credit types, and recent inquiries for new credit.
Mortgage lenders rely on your credit reports to evaluate your credit risk and predict your ability to repay a mortgage loan. A good credit score often reflects a positive credit history and indicates that you are a responsible borrower, increasing your chances of securing a mortgage.
Credit Scores and Their Impact on Mortgage Rates
Your credit score affects the mortgage interest rates you’ll be offered. Borrowers with higher credit scores are generally offered lower rates because they are considered less risky. A lower credit score may result in higher rates or even being denied a mortgage.
For example, if you’re applying for an FHA loan, the minimum credit score required is typically 580. However, a higher credit score may qualify you for better interest rates and more favorable terms.
Credit Score Factors that Impact Your Mortgage Application
When mortgage lenders assess your creditworthiness, they consider various factors that make up your FICO credit score. Understanding these components and their impact on your credit score can help you improve your creditworthiness and qualify for better mortgage terms. Here’s a closer look at each factor and how it affects your credit score:
Payment History (35%): Your history of making on-time payments is the most crucial factor in determining your FICO score. Lenders view consistent, timely payments as a sign of financial responsibility, increasing their confidence in your ability to repay a mortgage loan. Focus on making all of your payments on time, as even one late or missed payment can have a significant impact on your FICO score.
Credit Utilization (30%): This factor measures the proportion of your available credit that you’re using. A high credit utilization rate may signal to lenders that you’re overextended and may have difficulty managing your debt. Aim to keep your credit utilization below 30% to show responsible credit management and improve your credit score.
Length of Credit History (15%): The longer your credit history, the more data lenders have to assess your creditworthiness. A lengthy period of responsible credit management signals to lenders your reliability in handling credit. If you’re new to credit, consider becoming an authorized user on a family member’s account or opening a secured credit card to establish a credit.
Types of Credit (10%): A diverse mix of credit types, such as credit cards, a car loan, and a mortgage, can have a positive impact on your FICO score. Lenders like to see that you can manage different types of credit responsibly. However, avoid opening new credit accounts solely to diversify your credit mix, as this could lead to an increase in credit inquiries and a decrease in your credit score.
Recent Credit Inquiries (10%): Each time you apply for credit, a hard inquiry is recorded on your credit report. Multiple hard inquiries within a short period can negatively impact your FICO score, as it may signal to lenders that you’re seeking multiple sources of credit. Limit credit applications, especially in the months before applying for a mortgage.
See also: Does Buying a House Hurt Your Credit?
Different Credit Scoring Models
There are various credit scoring models used by lenders, including FICO credit scores and VantageScore. While FICO scores are the most widely used, especially for mortgage lending, VantageScore is another credit scoring model that is gaining popularity.
FICO and VantageScore have different algorithms, which can result in variations in your credit scores. However, both models consider similar factors when calculating credit scores, such as payment history, credit utilization, length of credit history, types of credit, and recent inquiries.
Debt-to-Income Ratio and Its Impact on Mortgage Approval
The debt-to-income ratio (DTI) is another critical factor that mortgage lenders consider when you apply for a mortgage. Your DTI is calculated by dividing your total monthly debt payments by your gross monthly income. A lower DTI indicates that you have a better balance between debt and income, making you a less risky borrower.
Mortgage lenders typically prefer borrowers with a DTI below 43%, although some may accept higher ratios for borrowers with excellent credit scores or substantial savings. It’s essential to keep your DTI low to increase your chances of mortgage approval and secure better interest rates.
How to Improve Your Credit Score for Mortgage Applications
To maximize your chances of qualifying for a mortgage or getting better rates, take the following steps:
Check your credit score: Obtain your FICO score from your credit card company, bank, or a free credit reporting service. This will give you an idea of your current credit standing and areas that may need improvement.
Review your credit report: Request your free annual credit report from each of the three major bureaus and review them for errors or inaccuracies. Request your free annual credit report from each of the three major bureaus and review them for errors or inaccuracies. Make sure any errors are corrected or removed by disputing them with each credit bureau.
Pay your bills on time: Your payment history is the most significant factor in determining your credit score. Consistently making on-time payments can positively impact all your credit scores.
Pay down credit card balances: High credit card balances can increase your credit utilization ratio, negatively affecting your credit score. Aim to keep your credit utilization below 30% to improve your credit scores.
Avoid applying for new credit: In the months leading up to your application, refrain from applying for credit, as multiple inquiries can temporarily lower your credit score.
Diversify your credit: Having a mix of credit types, such as credit cards, auto loans, and student loans, can positively impact your credit score. However, be cautious not to take on too much debt, as it can increase your DTI and negatively affect the mortgage approval process.
Mortgage Eligibility Beyond FICO Scores
While FICO scores play a crucial role in qualifying for a mortgage, lenders also consider other factors to determine your eligibility for a mortgage. They closely examine the information in your credit reports, as well as your financial records, such as bank statements, investment account statements, tax returns, and pay stubs. This information helps lenders assess your income, debts, and DTI ratio.
Other factors, such as loan amount, home location, down payment, and loan type, can also influence your mortgage approval and terms. It’s essential to shop around and compare different mortgage lenders, as they may have unique assessments and requirements.
Fannie Mae, Freddie Mac, and Credit Scoring Models
Fannie Mae and Freddie Mac are government-sponsored enterprises that buy mortgage loans from lenders. They often use the same credit scoring models as other mortgage lenders. However, they are currently reviewing the possibility of using different scoring models for mortgages, which could open up new opportunities for borrowers in the future.
Bottom Line
To secure favorable mortgage terms, you need to know which credit scores mortgage lenders use and how they impact your application. Improving your credit score, maintaining a low DTI, and managing your finances responsibly can help you become a more attractive borrower to mortgage lenders.
Stay informed about the latest developments in the mortgage industry to enhance your chances of obtaining the best possible mortgage for your needs.
Inside: Are you struggling to keep up with your variable expenses? Whether it’s groceries, gas, or rent, managing these costs can be daunting. This guide will teach you how to budget for variable expenses and reduce the strain they put on your wallet.
Understanding and effectively managing your variable expenses is a crucial aspect of maintaining financial health.
These are expenses that fluctuate on a monthly basis, such as groceries, fuel, and entertainment. Their inconsistency can make budgeting a challenging task.
For many people, this is where they give up on budgeting because variable costs can sway too much for the average budgeter to know what to do.
Around here at Money Bliss, we know those who efficiently manage their variable expenses tend to fare better in achieving their financial goals. Furthermore, it empowers you to anticipate, plan and manage costs better, and avoid unnecessary financial stress.
Our focus here will be on explaining how variable expenses can make notable changes to your personal budget and offer strategies to manage them effectively.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is a Variable Expense?
A variable expense is a cost that changes from month to month.
Unlike fixed costs that are paid at regular intervals and may endure only slight fluctuations, variable expenses undergo a higher degree of fluctuation depending on consumption or quantity used. These expenses can comprise costs such as groceries, entertainment, and fuel for your car.
What primarily distinguishes a variable expense is its potential to vary from one period to the next, making it an important calculation in accounting for a comprehensive monthly budget.
Knowing the intervals of these variable costs can enhance the accuracy of your budgeting, turning this challenging aspect into an opportunity to reduce costs.
What is an Example of a Variable Expense?
Variable expenses typically entail a high degree of personal discretion and vary substantially between individuals. While one person may see dining out as a variable expense, for another, it may be a rare treat. Either way, it is still an example of variable expenses.
Here are a few typical examples:
Groceries: You decide what food to buy, and it depends on your food preference, the number of people at home, and special dietary needs.
Gasoline: This expense is dependent on how much and how far you drive.
Utilities: Electric, water, and gas bills fluctuate based on usage.
Clothing: The cost can vary each month depending on how often and how much you choose to buy, such as seasonal shopping, special occasions, or replacing worn-out items.
Gifts: Costs can fluctuate depending on the occasion, person, and your personal budget for the period, making them unpredictable and potentially impacting your monthly budget plans. Especially for Christmas gifts.
Entertainment: Costs such as movie tickets, concerts, or amusement parks may vary depending on your social life.
Repairs: Costs for home and car repairs are unpredictable and can markedly vary. Essentially, any expense that is not fixed (like rent or car payment) can be considered a variable expense.
Taxes: Yes, even your taxes are variable based on your income.
Don’t forget to use a savings account with one of the popular money saving challenges.
Difference between Fixed and Variable Expenses
Understanding this difference is a significant step toward setting realistic savings goals
Fixed expenses are constant costs that remain the same each month, like rent, insurance premiums, car payments, or childcare. They’re predictable, making them easier to incorporate into your budget without unexpected surprises.
On the contrary, variable expenses fluctuate month-to-month and include items like groceries, utilities, gas for your car, or entertainment. The unpredictability of these costs can cause potential challenges in budgeting and limit the consistency of your financial output.
Nevertheless, variable expenses often present more opportunities for saving.
You have greater control over these costs, giving you a chance to limit expenditure and prioritize savings.
How to Budget for Variable Expenses
Personal budgeting is an essential tool. Despite variable expense’s unpredictability, it is possible to plan for these expenditures by applying practical tactics and strategies.
From using budget apps to examining previous spending patterns, this type of budgeting enables you to maintain control over your finances and make adjustments as necessary.
50/30/20 Budget: An Effective Approach
The 50/30/20 budgeting approach is a simple yet effective method that can help you manage both fixed and variable expenses.
This method suggests you divide your after-tax income into three categories: 50% on necessities, 30% on wants, and 20% on savings or debt repayment.
By categorizing this way, you ensure your most critical outlays (the necessities ) first. You then allocate your income towards discretionary spending (your wants), and finally squirrel away a portion for savings (hopefully 20%) or paying off debts. This budget calculator strategy can serve as a foundation to guide your spending, helping you to stay on top of your finances.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
I have used this platform for over 20 years now.
Pros:
Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
Track investments with it’s features like portfolio analytics, retirement goals, and market comparison.
Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
Zero-Based Budget
A zero-based budget is a technique where you make a budget from scratch or “zero” and allocate every dollar of income towards different categories of expenses until they sum up to zero at the end of the month.
This budgeting strategy, very popular due to the budgeting app, YNAB, can be a rewarding technique that solicits justifying every expense’s worth as you give every dollar a job.
Distributing money toward fixed costs is usually shoo-in, but budgeting for variable costs can be tricky because you won’t know how much you’ll spend on them. The solution is to estimate as closely as possible.
The beauty of a zero-based budget is that it ensures your money is purposefully allocated, leaving no room for unexplained spending especially when used with sinking funds.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
Envelope Budgeting System
The envelope budgeting system is a successful method for managing variable expenses. By dividing your income into envelopes assigned to different categories like entertainment, groceries, or transportation, control over fluctuating costs is established.
With each paycheck, you determine a specific amount for each category and stuff that envelope with cash. By strictly adhering to this limit, you thereby avoid overspending.
This hands-on approach provides an exact idea of available cash and creates a stronger sense of financial accountability. In fact, recent data indicates that the envelope system has successfully helped many people stay within their budget, primarily by making expenditures more tangible and easier to track.1
What is most likely the reason variable expenses should be planned after fixed expenses?
When preparing a budget, it’s typically suggested to plan for fixed expenses first before variable expenses.
The primary reason is that fixed expenses are generally non-negotiable costs that are essential to your daily life and take up much of your budget. These costs are predictable and regular, making them easier to budget for.
Variable expenses, on the other hand, tend to fluctuate and often include discretionary spending like dining out, shopping, or entertainment. This category, despite its variability, carries a certain upside as you possess more control over these expenses than your fixed ones.
By planning for fixed expenses first, you ensure to cover your essential needs before budgeting for lifestyle choices and discretionary spending, which can flex more easily around your remaining income.
Tiller Money
Your financial life in a spreadsheet, automatically updated each day.
Tiller is the fastest, easiest way to manage your money with the unlimited flexibility of a spreadsheet.
Update your finances in one place, so you can take control of spending, optimize cash flow, and confidently plan your financial future.
Pros:
Tiller automatically updates Google Sheets and Microsoft Excel with your latest spending, balances, and transactions each day.
No more tedious data entry, CSV files, or logging into multiple accounts.
You can customize everything and finally track your money, your way.
Tips to Control Variable Expenditures
Managing and controlling variable spending is an essential aspect of sound financial planning.
Honestly, the more proactive you are in monitoring the continuous changes in variable expenses and introducing strategies to suppress any unnecessary hikes, the faster you will reach your goals.
This section will provide insights into various effective methods to control variable spending, as well as the behavioral adjustments needed for successful implementation.
Tip #1 – Save on fixed and variable costs
Everyone wants to save money and here are a few tips on reducing both fixed and variable costs:
Fixed costs: Considering these costs are more constant, savings can usually only be achieved by longer-term changes. This could be refinancing your mortgage for a lower rate, negotiating a lower car insurance premium, or switching to a cheaper phone plan.
Variable costs: Changes in habits can lead to significant savings. For instance, cooking at home instead of dining out, carpooling or using public transport to save on gas, or unplugging electronics when not in use to save on utilities.
By scrutinizing both types of costs, you can identify opportunities to cut back and increase your savings over time. Being frugal green is a huge topic! Remember, the little things can add up!
Tip #2 – Set expense limits and find ways to save
Budgeting requires discipline, and setting limits on your variable expenses is a big part of that. You can do this in three ways:
Start by reviewing your spending patterns: examine your transaction history to identify areas of overspending. Once you’re aware of these, set spending limits that align with your financial goals. Drawing from my experience, I can assure you that awareness of overspending areas, followed by setting spending limits, can significantly align with your financial goals.
Consider taking part in a no spend challenge. Personally, that is when I realized I spent a lot of money on things that didn’t matter to me in the end.
Adopt practical money-saving habits like adopting DIY approaches (e.g., home repairs, sewing, cooking), utilizing coupons and cash backs, shopping secondhand, or carpooling.
Remember, you have control over your variable expenses, and setting restrictions doesn’t mean depriving yourself. It just means making informed decisions and prioritizing your spending according to your financial goals.
Tip #3 – Use Sinking Funds
A sinking fund is an effective money management strategy that can help handle variable costs. It’s a fund where you regularly set aside a certain amount of money for a specific expense. For instance, you might establish a sinking fund to cover property taxes or unexpected costs (but they will happen) like car maintenance, vet bills, or holiday gifts.
When the time comes for these expenses, you won’t have to scramble to find the money because you’ve already collected a fund over time.
This approach can ease financial stress and prevent unplanned debts, making sinking funds an excellent remedy to unexpected variable expenses. For us, this is when we maximize the placement of our hard-earned money across multiple bank accounts.
FAQs about Variable Costs and Budgeting
While all expenses matter, we generally advise budgeting for fixed expenses first. These are critical costs that typically stay constant month-to-month, like rent or mortgage payments, insurance, and fixed utilities.
Allocating money toward these essential costs first ensures that you’re covering your necessities. Once you’ve accounted for these, you can then budget for variable expenses which are discretionary and fluctuate based on personal usage.
Thus, it helps you realize your spending habits and identify areas where you can cut back if needed.
Yes, entertainment is typically considered a variable expense. These costs vary month-to-month based on your discretionary spending habits.
For instance, your spending on concerts, movies, dining out, or subscriptions can fluctuate based on your lifestyle, events, or personal choices. Remember, since entertainment costs are discretionary, they can often be trimmed when looking to make budget adjustments.
Ready to Master your Variable Budgets?
Understanding the ins and outs of variable expenses and strategizing accordingly can empower you to manage your money more effectively.
By distinguishing between your fixed and variable expenses, budgeting effectively, and identifying potential savings, you’re setting yourself up for financial success.
Whether you’re using the 50/30/20 budget approach, a zero-based budget, or sinking funds, the goal is to ensure your money is being used wisely. It’s all about creating a balance that nurtures a comfortable lifestyle while paving the way toward your future financial goals.
So review your inconsistent costs, implement new financial strategies, and take control of your variable expenses.
The key takeaways is a well-planned budget is not just beneficial for controlling spending, but also integral to your financial freedom.
Source
Ramsey Solutions. “How to Budget With the Cash Envelope System.” https://www.ramseysolutions.com/budgeting/envelope-system-explained. Accessed November 28, 2023.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Northwestern Mutual launches Market Pathway model portfolios, broadening access to professionally advised offerings Younger investors can now more easily begin relationships with financial advisors MILWAUKEE, Nov. 30, 2023 /PRNewswire/ — Northwestern Mutual announced the expansion of its professionally managed investment offerings with the launch of Signature Portfolios Market Pathway models, which require a minimum investment … [Read more…]
Editor in Chief Sarah Wheeler sat down with Kenon Chen, executive vice president of strategy and growth at Clear Capital, to talk about appraisal modernization and how technology is just part of the solution.
Sarah Wheeler: What are some of the biggest challenges right now?
Kenon Chen: The challenge that’s in front of everyone continues to be the market itself, and then housing affordability. With mortgage rates continuing to remain high and home prices remaining high because of low supply, we’ve had another year of a reduced market. It’s difficult for lenders who don’t have a lot of extra cash to invest in making big changes right now — they need to stay focused on running their business in a smart way. But that’s why I think it’s really on solution providers like us to run ahead and create great opportunities that don’t require a lot of extra work and time and investment.
For us that means really simple APIs that are easy to integrate with, providing flexible options for how lenders can consume the products. That’s also making sure we’re partnering with the ecosystem to solve problems before the lender even asks for it and working with partners to make sure they can consume these products within the solutions they’re already using. That’s been a big part of the focus: getting the whole ecosystem to work together better so it doesn’t put all the onus on lenders to have to integrate a lot of different places to just get one solution together.
SW: How are appraisers adapting to some of these challenges, including new rules on valuations from the GSEs?
KC: Change is always hard. The GSEs implemented a number of policy changes that are an evolution from what appraisal has been for decades. So now we have multiple risk-based options: waivers, waiver plus property data, desktop appraisals, hybrid. Lenders and appraisal companies have a lot more menu options and their tech choices have to take them down the right path.
We’ve invested in the property data collection process and scaled it for a national level with mobile tech to capture all of the data right at the site. We’re using computer vision, AI, to capture the whole property into the space. We’re creating a digital twin and bringing the property into the digital realm, building a formation model and driving from that place as opposed to starting from a clipboard.
That’s required changes for everyone involved and we’ve been rolling that out as the market change happened at the same time. We see lenders really looking to the future and preparing for when volume returns — investing now to have a competitive edge in the future.
SW: How hard is it to change the way valuations are done at a fundamental level?
KC: Many lenders’ loan origination systems are really just providing a document repository and maybe some screens. But what ends up happening is that underwriters have to open up a lot of different documents, go to a lot of different sites. And one, that’s inefficient, but two, I think there’s something powerful about aggregating all the data first, running models on it, and then bringing back findings that focus underwriters where they need to look.
Most lenders’ loan origination systems are not designed to do that, for collateral especially. That’s been an area that’s a lot more PDF-based, because you have a PDF-based appraisal, you have a PDF base SSR. So that’s why we’ve invested a lot in a tool with an API that you can bring all your findings in at one place, as well as underwriting tools that put the right information in front of the right person at the right time. But all of that takes years of investment to create something that is really battle tested and can have proven results.
SW: Is the end goal of appraisal modernization to replace appraisers?
KC: The GSEs say all the time that they didn’t redesign these processes to replace appraisers, but to add more objectivity to the process, to create efficiencies in the process. Regardless of the tech used, there are human eyes reading, observing and looking at the data or a model, but starting with objective truth about the subject property is essential. And having a process that’s repeatable and standardized and consistent in every community — that’s where tech really helps.
We’ve been able to roll out standards through our mobile app that guides appraisers so that they’re grabbing the same data in the same way at every home. The evolution of mobile tech and AI and then greater connectivity when it comes to APIs to bring that data to people at their desks is what’s allowed us to approach this differently and do it at scale.
SW: Getting accurate square footage and floor plans has been a thorn in the side of the GSEs and agencies for years. Is that now solved?
KC: We went shopping for a solution back in 2016. There was a refi boom in Oregon and Colorado and appraisals were taking six weeks at the time. There was so much pain caused by elongated turn times — borrowers having to live In hotels when they were in between properties. We thought there has to be a better way.
Looking at the amount of time just driving, a time study showed appraisers were spending sometimes 30-40 hours a month just driving. Instead, we wanted to bring homes to the appraiser. We tried everything but we didn’t find anything that scaled to where anyone could do it with a mobile phone. Then we discovered CubiCasa and it actually worked. We had a partnership that led to acquiring the company. It’s now been adopted by real estate agents, brokers, photographers. We have about 30 Multiple Listing Services who have partnered with us as well.
MLSs want more accurate data and public records not always up to date. CubiCasa provides better data, shortening the days on market for the property. Consumers can really understand the property before they visit. It’s really rare that an app helps both the real estate process and the mortgage process and also makes secondary investors more comfortable.
SW: What keeps you up at night?
KC: Tech is always changing. And the conversations around generative AI have captivated the industry because seeing how fast things are changing and how fast these new capabilities are coming is now a lot more visible. So it’s always necessary to innovate, but in a way where you’re not introducing risk into the system. For us, it’s always about innovating in a thoughtful way, not just to try the new thing for the sake of trying a new thing, but making sure it really will have the outcome, the benefits we’re looking for and that it can be really useful to our clients.