If you’re exploring career options, pharmacy might have popped up on your radar — and for good reason. Not only can pharmacists command a good salary, they also have job security, as the pharmaceutical industry is one that won’t vanish any time soon.
That said, how much does a pharmacist make? Is it worth all the trouble of going through pharmacy school to become one? Let’s find out.
What Are Pharmacists?
You’ve likely picked up a prescription or two at a pharmacy, but maybe you didn’t give any thought to the person behind the counter. This individual is your local pharmacist, and it’s their job to prepare and dispense prescription medications.
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Pharmacist Job Responsibility Examples
In addition to doling out prescription drugs, pharmacists also consult with patients, provide instructions for how to take medications, and help patients find low-cost medications. Some also give health screenings and immunizations.
Keep in mind, a pharmacist often needs to be outgoing, since their work involves speaking with patients throughout the day. If that’s not your personality, you may want to look into jobs for introverts. 💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.
How Much Is a Starting Pharmacist Salary?
As with most professions, pharmacists tend to earn more money as they gain more experience. But what is a good entry-level salary for pharmacists?
Pharmacists with less than a year of experience generally earn, on average, about $54 per hour. That’s $112,320 per year.
Of course, how much you actually can earn depends on where you live, what your duties are, and whether you work for an independent pharmacy or a chain. It can also help to research the highest-paying jobs by state.
Recommended: Is a $100,000 Salary Good?
What Is the Average Salary for a Pharmacist?
Now that you see what starting salaries are for pharmacists, let’s address the next question: How much money does a more experienced pharmacist make?
Generally speaking, pharmacists are usually paid by the hour. A pharmacist with 10 years of experience earns an average of $67.05 per hour. That adds up to $139,464 per year.
What Is the Average Pharmacist Salary by State for 2023?
The amount you make will depend on where you live, among other factors. Here’s a look at the average pharmacist salaries by state, from highest to lowest.
State
Salary
California
$161,597
Oregon
$155,710
Washington
$149,466
New Hampshire
$141,041
Nevada
$140,869
Maine
$139,517
Vermont
$137,658
Delaware
$136,276
Maryland
$135,894
Connecticut
$134,175
Alaska
$134,044
Massachusetts
$131,978
Rhode Island
$131,960
New Jersey
$131,698
New York
$131,594
Pennsylvania
$129,724
New Mexico
$129,145
Wisconsin
$128,918
Minnesota
$128,502
Virginia
$128,380
Hawaii
$128,245
Arizona
$126,174
Idaho
$125,760
North Carolina
$125,068
Michigan
$124,768
Colorado
$120,986
Illinois
$120,887
Kansas
$118,122
Ohio
$117,573
Kentucky
$117,448
Indiana
$117,338
Missouri
$116,513
Nebraska
$116,366
Utah
$116,009
South Carolina
$115,570
West Virginia
$115,339
Texas
$115,089
North Dakota
$114,359
Georgia
$114,118
Tennessee
$112,879
Wyoming
$112,326
Montana
$111,924
Iowa
$110,405
Florida
$109,106
Alabama
$106,271
Mississippi
$105,677
Louisiana
$102,542
South Dakota
$100,246
Oklahoma
$98,951
Arkansas
$89,660
Source: Zippia
Recommended: Pros and Cons of Raising the Minimum Wage
Pharmacist Job Considerations for Pay & Benefits
Where you live is one factor that can determine how much you earn as a pharmacist. Your on-the-job responsibilities may also play a role. For example, there are different job titles, and each has its own set of responsibilities, requirements, and salary ranges. Examples include:
• Staff pharmacist
• Pharmacy specialist
• Clinical pharmacist
• Pharmacy manager
• Director of pharmacy
Some pharmacists may have roles and responsibilities beyond filling prescriptions, such as offering immunizations and health screenings. Some may be in charge of hiring and managing other employees. Some may work in traditional pharmacies, while others may work for companies focusing on chemotherapy, nuclear pharmacy, or long-term care.
Recommended: 25 High-Paying Trade Jobs in Demand
Pros and Cons of Pharmacist Salary
While being a pharmacist can be a rewarding job, there are potential drawbacks to keep in mind. Let’s look at some pros and cons.
Pros of Being a Pharmacist
Naturally, the high salary pharmacists tend to command may be one reason to consider this career path. Because many pharmacists get paid by the hour, they’ll be compensated fairly for their time even if they work more than 40 hours a week.
Another perk is that you may have a flexible schedule that allows you to work part-time or during certain hours. There could even be opportunities to work remotely, which may be useful if you’re working in a rural area.
You might also be able to open your own pharmacy instead of working for someone else. This brings freedom and flexibility to you as a business owner.
Finally, you’ll be a valuable member of your community, since it’s your job to help people on their path to wellness.
Cons of Becoming a Pharmacist
If becoming a pharmacist was easy, everyone would do it! For starters, you’ll need to have about six years of education after high school. And the cost of pharmacy school can range anywhere from $5,000 to $30,000 a year for an in-state public college, or $20,000 to $95,000 a year for a private school.
Depending on your financial situation, this could require you to tap into savings or take out student loans. (Creating a budget while you’re in school or just starting out can help you keep track of where your money is going. A money tracker app can help make the job easier.)
Another possible drawback? Some pharmacies may not guarantee a certain number of hours a week, and in that case, being paid hourly may not come with the big paycheck you’d expect.
Also keep in mind that some pharmacists work long hours, which can have a negative impact on your health and mental wellbeing. 💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.
The Takeaway
If you’re looking for a rewarding and potentially lucrative job, becoming a pharmacist might fit the bill. You’ll help your local community get healthier, and depending on where you live and your level of experience, you could earn competitive pay, too.
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FAQ
What is the highest pharmacist salary?
The state where pharmacists tend to earn the most is California. The average annual income of a pharmacist there is $161,597.
Is it hard to be hired as a pharmacist?
Becoming a pharmacist requires six years of education after high school. The workload is challenging, and pharmacies looking to hire generally have high expectations of applicants.
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Inside: Learn how many months it usually takes for your budget to start working effectively. Plus explore successful budgeting strategies.
Learning to budget can often be a challenging process, but its benefits are irreplaceable. Initially, it might feel overwhelming, as it involves accounting for every small expenditure, adhering to a fixed financial plan, and exercising self-control.
The frustration often emerges from unexpected expenses or changes in income, like getting a raise or having to make a new car loan payment.
However, this ongoing process ultimately fosters financial discipline, enables goal-setting, offers a clear financial picture, and encourages proactive handling of money matters, making the frustration worthwhile.
According to experts, it could take up to three months to adapt to a new budget.
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.
The Essential Role of Budgeting
Financial budgeting plays a critical role in managing resources efficiently, informing financial goals, prioritizing initiatives, optimizing financing opportunities, and offering flexibility in various situations.
These reasons make it a highly regarded tool in business and personal finance.
Defining Financial Budgeting
Financial budgeting is a systematic approach to managing your finances by mapping out your income and expenditures over a designated period.
This process provides a framework to guide your financial decisions, which aids in achieving your monetary objectives.
It’s essentially an overview of your financial position, goals, and cash flows.
How many months does it usually take for your budget to start working as a budget should?
As per our expert opinion, it typically takes around three months for a budget to start functioning effectively.
When starting a new budget, it’s normal not to see results immediately.
This time frame allows for adjusting to new spending habits, dealing with unexpected costs, and instilling a sense of discipline and control over your finances. Remember, budgeting requires patience and commitment.
Practicing Efficient Budgeting Techniques
Now, the key to being successful is having a few budgeting tricks up your sleeve.
I can guarantee you that budgeting is actually freeing. This is how you do it!
The Process of Getting One Month Ahead
Getting one month ahead in your financial budgeting means living off last month’s income.
In this practice, you pay November’s bills with October’s income, for example, essentially preventing you from spending money you haven’t earned yet.
To set up this process, create a monthly budget, determine your income and expenditures, establish your spending goals, and ensure your income exceeds your spending. More than likely, you will have to save money to get one month ahead of bills completely. YNAB can help you with this.
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Familiarizing with Zero-Based Budgeting
Zero-based budgeting is a method where every penny of your income is allocated to different categories, from necessary and discretionary spending to savings and debt payments.
You start each month with a fresh budget, balancing out your expenses and income to zero. This approach demands meticulous attention to detail and is best suited for individuals with a fixed income and predictable expenses.
Executing the Envelope Method
The envelope method involves assigning an envelope (physical or digital) to each spending category, such as grocery or utilities, and putting cash into each envelope for planned expenditure. Once the cash in an envelope finishes, it means you’ve exhausted your budget for that category.
This method, as per expert suggestion, instills discipline and curbs overspending, making it an ideal choice for cash-driven individuals. Connecting this method with digital tracking systems is possible with the cashless envelope system to cater to those using debit or credit cards.
12 Effective Strategies to Make Budgets Work
These strategies not only allow the allocation of resources efficiently, but also help set realistic financial goals, prioritize projects based on their potential cash flow, and explore optimal chances to reach financial independence.
Moreover, having a budgeting plan in place also ensures flexibility to adjust to unanticipated financial challenges, contributing to long-term wealth creation.
1. Determine Goals and Objectives
Start your budgeting process by clearly defining your financial goals and objectives. Are you aiming to buy a new home, fund your education, or build an emergency fund?
Whatever aspiration you have, short- or long-term, incorporating them into your budget amplifies your drive and focus on achieving them.
This goal-driven strategy aligns your budgeting with your needs and wishes, creating a financial roadmap toward your envisioned milestones. Consider these smart financial goals to get you started.
2. Better Planning, Fewer Surprises
Planning your budget effectively requires a thorough consideration of all personal budget categories.
Also, incorporate both short and long-term financial goals into your budget by prioritizing them, such as purchasing a home, taking a vacation, or furthering your education. Regularly reviewing and adjusting your budget accordingly, based on changes in income or unexpected expenses, can also ensure you stay on track.
Utilizing a variety of budgeting tools, like spreadsheets, apps, or budgeting software, can simplify this process and help keep you accountable.
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3. Reduced Financial Stress through Budgeting
A successfully implemented budget significantly reduces financial stress by providing an accurate picture of your financial health.
With a well-defined budget, worries about overspending, living from paycheck to paycheck, or falling into debt diminish. Monitoring and updating your budget will allow you to feel more confident and secure about your financial standing, paving the way to monetary stability.
4. Deciding When to Review Your Budget More Frequently
An effective budget is not a set-and-forget one; it requires regular check-ins and updates. A bill calendar is very helpful.
A recommended starting point is a monthly review. However, when first starting out, you will need to review your budget monthly until you find it working for you.
Other situations may need more frequent check-ins according to changes in income, financial goals, or unexpected expenses.
5. Spot Potential Room for Improvement
Budgeting provides a realistic view of your spending patterns, allowing you to identify areas of improvement.
Upon reviewing your budget, you might notice unnecessary expenditures or categories where expenses consistently exceed budgeted amounts. Such insights help you re-evaluate your spending habits and update your budget accordingly.
This phase coupled with a no spend challenge involves being brutally honest with yourself, taking into account your needs, wants, and financial realities.
6. Analyze Your Expenses and Income
Critical examination of your income and expenses is crucial for successful budgeting. Begin by calculating your total income, then list and categorize your monthly expenses into fixed and variable.
Pinpointing the difference between the totals can highlight whether you’re living within your means.
If your income surpasses your spending, consider investing the surplus.
Conversely, if your expenses outnumber your earnings, think about ways to increase income or decrease spending.
7. Set Limits for Your Budget Items
Setting reasonable spending limits for your budget categories ensures financial discipline. Check each category of spending—groceries, entertainment, or personal care, for instance—and contemplate areas you can cut back.
Ask around to see how much others are spending in certain categories in your neighborhood.
Remember, your budget should be flexible and realistic to your lifestyle, ensuring you don’t feel deprived. Embed small “wants” into your budget to keep the whole process enjoyable and sustainable.
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8. Create a System for Tracking Your Expenses
Creating an efficient system for tracking expenses is vital to maintaining control over your finances. This could be a simple spreadsheet, a manual ledger, or budgeting apps on your smartphone.
Tally every cent spent, dividing your expenses into their respective categories—rent, food, clothing, utilities, etc.
This way, you get a detailed insight into your financial habits and can identify potential areas for savings. The method isn’t as important as its thoroughness in ensuring no expense gets overlooked.
9. Track Your Spending with a Spreadsheet
Spreadsheets are an optimal resource for tracking spending. You can utilize an online template, like Tally, or make one yourself from scratch.
As you spend, record each transaction under the fitting category. This real-time monitoring can help spot overspending, analyze spending habits, and adjust budgets as needed.
So, if you’re a whiz with Excel or Google Sheets, tracking expenses this way might be your best bet.
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10. Budget for Emergencies
Budgeting for the unexpected is an essential aspect of sound financial planning. Financial emergencies don’t knock before they occur; therefore, creating a buffer in your budget helps you face them without plunging into debt.
As an expert, we suggest an emergency fund of one month of income or at least $1000. Then, start a rainy day fund with three to six months of expenses.
Having these funds built into your budget ensures you’re financially covered for challenging situations such as job loss, medical emergencies, or sudden home repairs.
11. Talk to Your Family About Your Budget
Talking to your family about your budget ensures everyone understands and works towards your financial goals. This discussion becomes especially crucial if you’re budgeting for a household.
I always provide my family with an overview of the budget, explaining how it works and how we can achieve our goals. Being open about your financial plan can foster greater accountability, and cooperation to achieve shared financial objectives more seamlessly.
12. Look for Ways to Make Money
Increasing your income can be an effective strategy to make your budget work better, rather than solely focusing on cutting expenses.
By finding ways to earn more money, for example by taking a part-time job, freelancing, selling unused items, or investing, you add flexibility to your budget and reduce the pressure on spending.
Moreover, the additional income could be directed towards savings, debt repayment, or funding your personal goals as identified in your budget plan.
Financial Budgeting FAQs
Starting a budget begins by assessing your total income, followed by identifying and categorizing your expenses.
Once done, subtract your expenses from your income to understand your financial standing.
Next, set your financial goals—short term and long term.
Then, allocate your earnings across different categories, maintaining a balance between savings, expenditures, and other aspirations.
Review and adjust this plan periodically to ensure it aligns with your financial landscape.
Budgeting should ideally start as soon as a person starts earning money. It’s never too early to begin planning where your money should go, and late starters can still benefit significantly.
Budgeting is a lifelong practice that guides you to live within your means, handle emergencies smoothly, and achieve your financial goals efficiently. It’s an indispensable tool for ensuring monetary success and stability.
Successful Budgeting as an Essential Life Skill
Successful budgeting is undeniably an essential life skill. It not only helps you live within your means but also provides a clear direction towards your financial goals.
Mastering this skill early on can lead to effective financial decision-making, lesser financial stress, and a more secure way of life.
There will be fluctuations in your budgeting, so you can start to forecast your budget. It also reinforces the value of discipline and planning, offering improved self-management and positive monetary habits.
Ultimately, progressing from just surviving to thriving financially is the goal, and disciplined budgeting is a tool to get you there.
This is just one step towards becoming financially independent.
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.
Today’s guest, Christian Koenig, has perfected his system for converting paid leads from Zillow. On average, he spends $20k per month on real estate leads and converts at a rate that generates $40k in commissions—a $20k profit! Tune in for tips on getting the most out of Zillow leads, including which zip codes to purchase and where to start with your budget. Christian also shares his highest converting script and a simple strategy for maximizing your speed to lead.
Listen to today’s show and learn:
About Christian Koenig [2:02]
Christian’s start in real estate [3:02]
Christian’s thoughts on open houses [6:01]
Where Christian started with paid real estate leads [7:30]
Budgeting for buyer and seller leads [12:10]
Sustaining your ad spend for at least six months [14:20]
How to pick a zip code for Zillow leads [17:40]
Considerations to make before committing to Zillow leads [22:52]
The importance of consistent speed-to-lead practices [26:48]
How Christian increased his Zillow budget over time [28:32]
Where to cap your ad spend as a solo agent [33:42]
The two types of Zillow leads [35:56]
What Christian nets from Zillow leads right now [36:55]
Christian’s future plans for cold leads [39:42]
Tips for converting leads as soon as they come in [43:25]
A quick, simple script for setting appointments consistently [46:58]
Christian’s budget spreadsheet for real estate agents [51:05]
When doing everything on your own stops making sense [54:57]
Where to find and follow Christian Koenig [57:51]
Christian Koenig
North Philadelphia born and raised, on the BMX track is where Christian spent most of his days. All jokes aside, he is originally from North Philly and brought up in an entrepreneurial, hardworking household. Joining the United States Air Force at 18 sent Christian to Texas for basic training and then on to Langley Air Force Base in Hampton, VA for six years. He crewed F-22 Raptors for the 27th Fighter Squadron with some of the most talented mechanics he has ever met. Being a part of that team and seeing the process of bringing the first fifth generation fighter jet to combat ready status is something that Christian holds very close. He spent two of those six years as part of the USAF F-22 Demonstration Team traveling the world and showcasing Air Superiority at air shows to millions of spectators. His respect and dedication to serve those that came before him in the military drive him to excel each and every day.
After leaving the Air Force in 2012, Christian began working for a defense contractor on the west coast manufacturing explosives and assembling defense missiles. That led to a position within the quality control department and soon he was the lead inspector specializing in three-dimensional scanning technology for the company. Christian spent the next four years working closely with their research and development departments bringing in new technology to stay ahead of their competitors while increasing quality control. His dedication to craft and constant attention to detail lead in everything he does.
Christian was introduced to the amazing Idaho lifestyle in 2012. As an avid outdoorsman, there is, in his opinion, no better place to call home. Each season offers a unique way to enjoy the outdoors. Saving the best for last, Christian’s beautiful wife is the driving force in his life that keeps him grounded. They have two incredible children and spend their off hours keeping them entertained along with their German Shepherd, Ivy.
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Inside: Are you finding yourself struggling to cover unexpected expenses? This guide will teach you how to create a financial plan and budget that will help you avoid costly surprises.
Life is full of surprises, and not all of them are pleasant. Sometimes, these surprises come in the form of unexpected expenses, hitting when one least expects them.
This can leave you devasted financially. Over the years, we have been slapped with unplanned costs and left scrambling.
However, you can successfully navigate through the rollercoaster ride of money management.
The key is knowing “What are unexpected expenses?’ Along with the knowledge equips you to avoid or mitigate them.
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 are Unexpected Expenses?
In the realm of personal finance, unexpected expenses are costs you haven’t foreseen or budgeted for. They strike out of nowhere, leaving you scrambling to balance your finances.
These expenses differ from other cost categories such as fixed expenses (weekly, monthly, and recurring costs like rent) and variable expenses (those that do not happen regularly but vary in cost like groceries).
The crux lies in not being able to anticipate these unplanned expenses, making them disruptive to financial plans.
What is an example of unplanned spending?
Unplanned spending often occurs when there’s an unforeseen event that demands immediate financial attention.
Picture this scenario: You take your car for a routine inspection; however, the car fails the inspection due to a defective part that needs immediate repair. Initially, you hadn’t allocated funds for this, but now you have to deal with this unforeseen cost – a classic case of unplanned spending.
Common Examples of Unexpected Expenses
Unforeseen financial events can leave many unprepared and struggling, adding unnecessary stress. This section will delve into examples of typical unexpected expenses that individuals often encounter, providing key insights into how to efficiently incorporate these into your financial plan.
By understanding and preparing for these unexpected expenses, one can effectively mitigate the surprise factor they pose, promoting a healthier and more secure financial state.
We have overcome many times and you can too!
1. Medical Emergencies and Healthcare Costs
Medical emergencies are prominent examples of unexpected expenses. Even with health insurance, costs can amass, thanks to high deductibles, co-payments, and therapies not covered by insurance.
One factor is paying for the medical costs, but the other weighing factor is loss of income when dealing with medical emergencies or critical diseases like cancer.
Overcome this by:
Contributing the max each year to your Health Savings Account (HSA). This way you have a bucket of money just for medical expenses.
Look into short-term disability insurance that can cover part of your lost wages while you can’t work.
2. Automatic Home or Vehicle Repair Needs
Home and vehicle repairs often sneak up as unexpected expenses. Time, accidents, natural disasters — all can cause wear and tear that demands immediate repair. The consequences of ignoring these repairs can be hefty.
Similarly, significant home repairs such as fixing a faulty HVAC system or leaky roof can set you back by thousands of dollars.
Overcome this by:
Be proactive with routine maintenance. Take care of your house and car before problems escalate.
Save the same amount each month for home and vehicle repairs separately.
Personally, we save $100 monthly for car repairs as one is a beater car. This amount will be increased to $350 to start saving for a new car. Conversely for home repairs, we keep a minimum of $1000. This amount will fluctuate depending on when we last did a major repair. Since we just replaced our HVAC, our funds are lower.
3. Natural disasters
Natural disasters, such as hurricanes, earthquakes, wildfires, and floods, lead to unexpected spending. The impact of these events can cause significant damage to homes, cars, and other property, leading to repair and replacement costs.
Furthermore, these situations might also necessitate expenses for emergency supplies, temporary shelter, and other necessities. For instance, Hurricane Katrina inflicted a staggering $196.3 billion in damage, illustrating the overwhelming cost of such unpredictable events.1
Overcome this by:
Make sure you have proper insurance whether it is renter insurance or flood/wildlife insurance. Also, make sure you have the proper amount of insurance. As highlighted by the Marshall Fire where most people were underinsured. 2
Storing cash on hand at home in case of an emergency. A cushion of money will always be helpful.
4. Increase in Bills
Monthly bills are a constant in our lives, but what’s not constant is their amount. Landlords may raise the rent when leases are up for renewal, utility companies could increase their rates, and insurance premiums may also inflate periodically.
All these scenarios lead to higher monthly expenses. For example, the U.S. energy costs per household rose by 13% in 2022 reaching the highest percentage increase since it was measured. 3
Being unprepared for these increases can cause significant financial strain.
Overcome this by:
Get one month ahead on your bills. Then, you will start building a cushion. Also, known as aging your money – thanks to YNAB.
Be proactive and realize that with inflation high. All of your bills will likely increase in cost.
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.
Start 34 Day Free Trial
5. Overlooked Taxes
Overlooked taxes pose another source of unexpected expenditure.
A higher than expected tax bill can indeed surprise and unbalance your budget. This happened to my friend when she started her own fitness coaching business.
Uncertainties in estimating the exact tax amount, mathematical errors in filing, or an overlooked quarterly tax payment often culminate in an escalated tax bill. An audit from the IRS, though it may find no additional taxes owed, can lead to expensive fees from a CPA or tax attorney.
Overcome this:
Use a tax calculator to know what your estimated tax payment due.
Understand the common reasons you may owe higher taxes this year.
6. Pet Emergencies
Pet emergencies can bite a large chunk out of your budget without warning. For instance, if your cat suddenly starts having seizures or your dog gets hit by a car, the medical costs associated can spiral rapidly.
Emergency vet care can range between a few hundred dollars to several thousand dollars. For instance, a poisoning can range from $200-$3000. 4
Overcome this by:
Prevention methods like pet insurance can help you manage these costs effectively.
Decide in advance the maximum you are willing to spend on emergency vet care.
7. Delayed payments
Delayed payments may not be an external expense, but the repercussions can be just as financially challenging. This affects your income stream, potentially leading to difficulty in managing your financial obligations.
For example, if an employer goes bankrupt, salaries might be delayed or even indefinitely withheld. According to research, late payments can cost businesses $3 trillion globally, affecting both personal financial planning and business operations.5
This is a highly stressful situation.
Prepare yourself financially by:
Aging your money. By getting one month ahead of your bills, you can scrap through a delayed payment. YNAB coined this term.
Start saving for a large rainy day fund.
Raisin
Simply select one of the high-yield savings products offered by their network of federally insured banks and credit unions to begin your savings journey.
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8. Gifts and Special Occasions
Commemorating special occasions can lead to unexpected expenses. Life events such as birthdays, weddings, baby showers, and retirements, traditionally require gift-giving.
While typical gift giving on Christmas or birthdays should be part of your planned variable expenses. Saying yes to being a bridesmaid can definitely set you back a few thousand dollars. These are costs that we often fail to factor into our budgets.
Overcome this by:
Setting aside money monthly to cover gifts and special occasions.
If saying yes to a special event will hamper your finances, then you may have to politely decline the invitation.
9. Unexpected Travel Costs
Unexpected travel costs can significantly impact your budget, particularly when they arise from unplanned events such as attending a funeral or a wedding. The costs of last minute travel can vary widely depending on the destination, distance, and mode of transportation.
To manage these expenses, consider driving or taking public transportation for shorter trips, exploring less expensive lodging options, and creating a meal plan that limits dining out.
Overcome this by:
Setting aside a regular amount in a travel fund can help prepare for these unexpected costs that tend to crop up every year.
Decide if taking the unplanned trip is something you can feasibly manage with your current financial situation.
10. What You Forget to Budget for
Some subtle but regular expenses often sneak past our budget plans. This is why we have a full list of budgeting categories so hopefully, you don’t miss anything!
Consider online subscriptions and memberships: Many services offer free trials, but the charges kick in if not canceled. Other overlooked budget items may include pet care, parking fees, and toll fills—small amounts that may seem insignificant but can considerably dent your budget over time.
Overcome this by:
Review your checking account and credit card bills to see all of your expenses for the past year. Write down those unexpected expenses that came through.
Now, make a plan for how to spend your money in advance with your findings.
This helps you prepare for unexpected expenses
Here are simple tips to make sure you employ the habits of a financially stable person.
Tip #1 – Building an Emergency Fund
Building an emergency fund is a fundamental strategy to brace for unexpected expenses. This fund acts as a financial buffer, providing the economic security to cover unexpected costs without tapping into monthly budgets or savings aimed at other goals.
As a starting point, aim to save $1000 and then work your way up to save a month’s paycheck. Start small and build over time – every penny set aside helps to mitigate future financial stress.
Tip #2 – Properly Utilizing Sinking Funds
Sinking Funds are a sagacious tactic to prepare for larger, infrequent expenses. They allow you to systematically and gradually save up for anticipated financial obligations such as vacations, holiday gifts, car maintenance, etc.
By assigning a specific amount to save each month, by the time the need arises, you’ll have a pool of money ready. With platforms like YNAB, creating sinking funds becomes easier, letting you monitor your progress month by month.
This is how we have less frequent unplanned costs than we did in our 20s.
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.
Try Tiller Free
Tip #3 – Saving for the Larger Rainy Day
Beyond smaller emergency funds and sinking funds, saving for the ‘larger rainy day’ is a crucial tactic to avoid financial duress caused by unexpected expenses. This refers to padding your savings to cover larger, more substantial financial shocks that might require more than just a few months’ worth of expenses.
It may take time to build such a fund, but even a small contribution each month can result in substantial savings over time.
Tip #4 – Pick up a Side Hustle
One way to strengthen your financial resilience against unplanned expenses is to start a side hustle. This could mean picking up extra shifts at work, selling handcrafted items online, or using skills like photography or writing for freelance work.
With the rise of the internet, making money online is really easy and simple to get started. We have a few side hustles to shield against unforeseen costs.
Tip #5 – Budget Properly and Stick to It
Budgeting is an essential line of defense against unexpected expenses. By tracking your income and comparing it against both predictable and variable expenses, you can calculate how much money can be saved each month.
Regular budget check-ins help ensure you’re staying on track, steadying your financial footing.
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.
Save 40% on New Memberships
Our Review
Tip #6 – Regular Review of Financial Plans
Regularly reviewing and updating your financial plans can serve as a preventative measure against unexpected expenses. Consider changes in income, expenses, and lifestyles, and adjust your savings and spending plans accordingly.
Tip #7 – Utilizing Digital Banking Features for Money Management
Digital banking tools have revolutionized financial management and can be part of a robust strategy to avoid unexpected expenses.
Features such as instant account balance checking, transaction alerts, set-and-forget savings transfers, budgeting tools, and proactive spending categorization help you grasp where your money is and how it’s being spent.
Tools to Ward Off Unexpected Expenses and Not Go into Debt
Unexpected expenses are inevitable, yet going into debt to cover these costs can lead to financial strain due to accumulated interest and fees.
Here are crucial steps in preventing unexpected expenses from turning into debt.
Dealing smartly with Credit Cards options
Credit cards can serve as a lifeline during a financial crunch but should be employed judiciously.
To smartly deal with unexpected expenses, consider options like 0% or low-interest credit card offers – these are particularly useful if you can pay off the balance during the introductory period. But tread with caution: high-interest rates can cause difficulties if you can’t pay off the balance in time.
Profit from Asking for a Paycheck Advance
In times when emergency expenses arise, asking for a paycheck advance can help. Some employers offer this as part of their policy to assist employees dealing with abrupt financial needs. A salary advance allows you to ‘borrow’ from your future earnings and repay the amount through future pay deductions.
Budgeting apps like Chime not only help in tracking expenses, but they also enable early access to your paycheck, up to two days before payday. This feature ensures you avoid running short of money at the end of the week or month, allotting you ample room to plan, track, and adjust your spending and savings.
Chime
Chime offers mobile and online financial services with an award-winning app that allows you to manage your money on-the-go!
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Exploring Personal Loans for Emergency Situations
Personal loans are a convenient option during urgent monetary needs. They are unsecured loans and therefore don’t require collateral.
However, they’re typically accompanied by relatively high-interest rates. Consider using online prequalification tools for personal loans to determine if you’re eligible and view potential interest rates.
Explore different lenders, but be wary of the terms and conditions to make sure you don’t invite more financial trouble.
Which of the following is true regarding unexpected expenses?
Unexpected expenses are costs that are not anticipated or planned for, such as sudden car repairs or medical emergencies.
To efficiently manage unexpected expenses, it’s recommended to make them a part of the monthly budget. A suggested approach is to analyze past “unexpected expenses”, then estimate their costs and timing, which can provide an estimate of how much should be saved each month.
While basing future expenses on past ones only furnishes savings guidelines, this method can prevent an unexpected expense from turning into a severe financial emergency.
Planning for unexpected expenses by setting aside money from each paycheck can protect individuals from unforeseen financial difficulties.
Understanding what types of unexpected expenses might occur can help in the development of strategies to handle them successfully, reducing the impact of any unpleasant financial surprises.
Yes, all of the statements above are true.
What is not true about unexpected expenses?
Unexpected expenses are entirely out of our control.
Unexpected expenses can be completely avoided.
These unanticipated costs only occur irregularly or infrequently.
You can’t prepare for unexpected expenses.
All of these statements are not true. While the occurrence of these expenses might be unexpected, they’re not entirely unpredictable. Many times, they are the result of poor financial planning or management as they are often unforeseen costs that were not anticipated or included in a budget.
Frequently Asked Questions (FAQ)
It’s advisable to aim for at least 3 to 6 months of living costs for an emergency fund. This acts as a buffer to cover unexpected expenses and offers financial security during unexpected life events like job loss or serious illness.
However, the “right” amount to save varies depending on your personal situation, lifestyle, and financial obligations. Always remember: saving something is better than saving nothing; start small and increase gradually as your income allows.
Financial experts generally advise having an emergency fund equivalent to three to six months of monthly expenses. This guidepost factors in expenses such as food, housing, utilities, transport, healthcare, and other necessities.
However, if you are in a volatile occupation or the sole breadwinner of the family, aiming for a larger fund may be prudent. Whichever your situation, remember it’s not about reaching the benchmark overnight; the key is consistency in saving.
Managing urgent financial liabilities without incurring debt hinges on proactive financial planning.
Building an emergency fund: Start small and deposit to accumulate enough to cover at least three to six months of essential expenses.
Proper budgeting: Maintain a budget, ensuring you live within your means and regularly contribute to savings.
Insurance coverage: Adequate insurance coverage can help circumvent the financial impact of medical emergencies or catastrophic events.
Extra income: Consider a side hustle for additional income to bolster your budget and increase your savings.
Plan Ahead to Avoid Unforeseen Expenses
While unexpected expenses are an inevitable part of life, their financial stress isn’t.
Through effective planning and budgeting, you can cushion their blow, ensuring they don’t throw you into financial turmoil. Around here at Money Bliss, we strive for our readers to have less stress with money.
No matter how well you plan, unexpected costs can still arise from time to time. They can happen quite regularly, which is why it’s crucial to include them in budget planning.
By setting aside a portion of each paycheck in a savings account, you can be better prepared for such costs when they arise.
Remember, every dollar saved is a step towards greater financial stability, helping you to navigate life’s uncertainties with confidence and peace of mind.
Now, make sure you are financially sound.
Source
NOAA.gov. “Costliest U.S. Tropical Cyclones.” https://www.ncei.noaa.gov/access/billions/dcmi.pdf. Accessed December 1, 2023.
Colorado Public Radio. “Most people who lost homes in the Marshall Fire were underinsured, Colorado insurance regulators say.” https://www.cpr.org/2022/05/02/most-people-who-lost-homes-in-the-marshall-fire-were-underinsured-colorado-insurance-regulators-say/. Accessed December 1, 2023.
U.S. Energy Information Association. “U.S. residential electricity bills increased 5% in 2022, after adjusting for inflation.” https://www.eia.gov/todayinenergy/detail.php?id=56660. Accessed December 1, 2023.
BetterPet. “Average emergency vet costs: what to expect.” https://betterpet.com/emergency-vet-costs/. Accessed December 1, 2023.
Mastercard. “Your real-time guide to real-time payments.” https://www.mastercard.com/news/perspectives/2023/real-time-payments-what-is-rtp-and-why-do-we-need-instant-payments/. Accessed December 1, 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.
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.
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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.
Start 34 Day Free Trial
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.
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.
Try Tiller Free
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.
Save 40% on New Memberships
Our Review
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.
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.
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.
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Inside: Fixed expenses are a vital part of any budget, and understanding how to account for them is essential to staying on track. This guide will teach you about fixed expenses and how to use them in your monthly budget to keep expenses under control.
Budgeting is the cornerstone of financial stability.
Whether you want to or not, it will take away the stress of money.
A budget is a practical tool that enables you to plan your spending and savings, ensuring a fair share of your income goes towards critical expenses. It also gives you more control over your money, reducing stress and enabling you to meet your financial objectives.
This is something you want, right?
In this post, we will uncover information specifically related to fixed budget expenses.
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.
Decoding Your Expenses – Fixed and Variable
Understanding expenses forms the bedrock of effective budgeting practices. There are two key types of expenses to consider: fixed and variable.
Fixed expenses are those that remain constant every month, such as rent or car payments.
Variable expenses, on the other hand, fluctuate monthly based on usage or consumption, like groceries, utilities, or gas.
Balancing these two types of expenses forms a significant part of personal budgeting.
What is A Fixed Expense?
A fixed expense is a cost that remains typically constant and is paid at regular intervals. These intervals may be weekly, monthly, quarterly, or annually.
Given their consistency, they contribute to financial predictability and ease of budgeting.
What is an Example of a Fixed Expense?
Here are common fixed expense examples that cover a wide spectrum but predominantly include costs required to maintain a basic standard of living. Here are some examples:
Rent or mortgage payments: This encompasses the regular cost of housing.
Insurance premiums: This could be for your car, health, life, renters, or homeowners insurance.
Loan payments: Regular installments for obligations like student loans and car loans belong to this category.
Utilities: Though they may fluctuate occasionally, regular payments like water, gas, and electricity are often treated as fixed costs.
Subscriptions: Recurring payments for services such as gym memberships or streaming platforms.
Savings: For disciplined budgeters, fixed contributions to saving accounts can be considered a monthly fixed expense. This is how Money Bliss readers save so much money!
The list can extend to include other less common fixed expenses, such as alimony, child support, or back tax payments, depending on personal circumstances.
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Option to manually add and upload transactions from accounts each month.
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What is a periodic fixed expense?
A periodic fixed expense is a cost that is regular and predictable but does not occur monthly. These expenses still retain the characteristics of fixed expenses.
They may be caused by quarterly, semi-annual, or annual payment terms and require careful budgeting and planning. Examples include annual subscriptions, car insurance paid semi-annually, or yearly property taxes.
It’s essential to account for these expenses in your budget, dividing the total cost by the number of months until payment to ensure you’re adequately prepared when they’re due.
How to Budget for Fixed Expenses
Budgeting is a crucial financial activity as it helps manage income effectively and ensures all necessities are covered.
Most people use the zero based budget or the biweekly budget as a starting point.
1. Start With Fixed Expenses in Budgeting
Starting with fixed expenses in the budgeting process is essential, as they make up the majority of one’s budget and are typically consistent for longer periods.
When writing out your budget, prioritize fixed expenses such as housing costs, insurance, and childcare. You can use our personal budget categories to find out which expenses you shouldn’t forget.
Upon allocating your income for the month, ensure these bills take precedence over discretionary spending to avoid budgeting errors.
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Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
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Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
2. Prioritizing Between Fixed and Variable Expenses
Prioritizing between fixed and variable expenses can often feel like walking a tightrope.
The first step is budgeting for your fixed expenses. Since they make up the majority of your budget and are for longer periods of time, it’s crucial to ensure these costs are taken care of first.
Next, plan for your variable expenses. These costs fluctuate every month and can be adjusted easily.
Finally, you will account for flexible expenses.
As always, don’t forget to save and invest, as this will help with financial sustainability and wealth development.
3. Tools and Techniques for Efficient Budgeting
Today’s digital landscape offers myriad tools and techniques for efficient budgeting, which is great news for you!
Apps and digital tools can facilitate the tracking of expenses in real-time, thus making it easier to discern patterns and identify savings opportunities. Using a line-item budget can help you dig into where your money is going and plan every dollar you earn.
Here are our favorite budget apps.
Regularly reviewing and updating your budget can help you stay on top of changes and future uncertainties.
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How do I determine whether a cost is fixed or variable?
Determining whether a cost is fixed or variable often comes down to its consistency and its correlation with a factor such as output, usage, or time.
Fixed costs remain constant over time or within certain activity levels; examples include rent and insurance premiums. They do not fluctuate with changes in production or the number of goods sold.
Variable costs, on the other hand, fluctuate in direct proportion to levels of spending, such as groceries or gas.
Understanding this difference can help with accurate cash flow forecasting and effective financial management.
Strategies to Save on Fixed Costs
Now, the key is to try to lower your fixed expenses as much as possible. This will make the biggest difference in your budget.
For example, if your rent for a one bedroom apartment is $1850, maybe you move in with a roommate, and your rent is lowered to $800 per month. That is a savings of $1050, which you can save for a down payment on a house.
Ways to Curb Fixed Expenses
Optimizing your budget often entails finding ways to reduce your fixed expenses. Several strategies can help achieve this:
Renegotiate Your Bills: Reach out to service providers to negotiate lower rates for services such as insurance premiums, Internet, phone service, and more.
Refinance Your Loans: If interest rates have decreased, consider refinancing your mortgage or student loans to lower the monthly payments.
Downsize Your Living Situation: One major way to cut costs is to find a smaller or cheaper place to live.
Cancel Unused Subscriptions: Regular payments for services you don’t use, like gym memberships or streaming platforms, can silently drain finances.
Automate Savings: Regular, automated transfers to a savings account can enforce discipline and consistency in managing money.
Remember, while these strategies can help you cut costs, each individual’s circumstances are different, so personalized considerations should be made.
Which fixed expense would be most difficult to change if money is needed for car payments?
Car payments are a real struggle for most people. Right now, the average car loan is between $516-725 per month depending on a used or new vehicle. 1
As such, your largest fixed expenses are usually the most challenging to change.
If you require more money for car payments, the most difficult expenses to alter would likely be your mortgage or rent payments. Reducing these costs often necessitates significant lifestyle changes, such as moving to a cheaper home or obtaining a roommate.
Other difficult-to-change fixed expenses could include insurance or student loan payments, depending on the terms of your loans or policies.
It’s important to have an emergency fund set up for unforeseen repairs like these to avoid having to drastically change your lifestyle.
Practical Tips for Achieving Financial Stability
Achieving financial stability often boils down to effective management and strategic planning. Here are some practical tips:
Pay Your Bills on Time: This reduces unnecessary fees and interest costs. If this is a challenge, setting up automated payments may help.
Save Regularly: Aim to set aside a certain percentage of income on a regular basis. Automated savings plans are a useful tool for this.
Prioritize Spending: Distinguish between your wants and needs to help prioritize your spending.
Get Insured: Protect yourself from large, unexpected expenses by ensuring appropriate coverage on insurance.
Stay Informed: Regular budget reviews and financial check-ups can help you stay on track and adjust your plans as necessary.
Remember, financial stability is a journey, not a one-time achievement. It requires consistency and patience. So, celebrate your small financial victories along the way!
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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Frequently Asked Questions
Yes, rent is considered a fixed expense. It is a recurring cost that typically stays constant, regardless of changes in your income, spending, or other factors.
The rental or lease agreement specifies the monthly rent expense, which does not change until the lease period ends or is renegotiated.
If fixed costs become variable costs in a personal budget, it can add some unpredictability to your expenses. For instance, if you have a variable-rate mortgage, your payments may change due to the mortgage agreement.
To restore control, consider opening separate savings accounts for each variable expense category, turning these unpredictable expenses into ones that can be anticipated and budgeted for each month.
Fixed costs refer to expenses that do not change with fluctuations in your budget. They are incurred regularly and remain relatively constant, independent of your spending.
These costs are critical expenses necessary to live your life and cannot be quickly modified or eliminated.
Does This List of Fixed Expense Examples Help You?
In conclusion, examining and reducing your fixed expenses can be a transformative step toward achieving financial stability.
Contrary to popular belief, fixed costs are not immutable. With diligence and thoughtful consideration, you can explore cheaper alternatives for health insurance premiums, cell phone plans, and other consistent expenses.
Lowering your fixed costs enables automatic, consistent savings which can then be directed towards settling debt or securing your future. The beauty of this approach lies in its subtlety as this won’t feel like an imposition on your lifestyle.
Therefore, understanding and managing your fixed expenses can indeed play a crucial role in your journey to financial soundness.
It’s not just about making frugal decisions, rather it’s about making smart ones that can reap substantial benefits in the long run.
Now, do you have the traits needed to be financially stable?
Source
LendingTree. “Average Car Payment and Auto Loan Statistics 2023.” https://www.lendingtree.com/auto/debt-statistics/. Accessed November 27, 2023.
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Learning how to budget money on a low income takes work, but it can pay off big if you start early. Here’s how.
November 28, 2023
Starting your first job after school can be exciting, but it also ushers in new challenges. One of the biggest hurdles is making sure you can cover all of your bills and living expenses with your entry-level income.
Taking the time to create a budget can reduce stress and set you up for long-term financial success, says Michela Allocca, founder of the personal finance blog Break Your Budget. Sticking to a budget on a low income in your 20s can get your financial life in order with the right mindset for planning.
Not sure how to budget money on a low income? Allocca explains what a budget is, why it’s important to have one, and how to stick to one—even on a low income.
Why budgeting for young adults is important (especially on a low income)
Creating a budget may not sound like the most exciting way to spend time when you’re young and adventurous. But Allocca says that putting in the work now will make it easier to reach your financial goals and avoid money stress in the future.
In short, a budget is a spending plan based on an individual’s income and expenses, Allocca says. “In its simplest form, it’s how you choose to allocate your funds over a certain period of time,” she says. “It includes the essential expenses that make up your cost of living, as well as your nonessential expenses such as eating out, entertainment, or travel.”
Allocca believes having a budget is helpful at any stage of life, but it’s especially important in your 20s. “Not only does it provide direction on where your money is going, but it draws your awareness to what you are spending your money on,” she says. “This level of awareness makes it possible to nip poor spending habits in the bud early on, as well as ensure the money you are spending is being directed toward things that matter to you.”
How to create a budget that works for you
Younger people are often looking to align their spending with their values, Allocca says, and creating a budget can make your financial dreams a reality. When you’re ready to create a budget, Allocca recommends taking the following steps:
1. Gather information
“First, start by bringing awareness to your expenses,” Allocca says. “Look back at how you’ve been spending pre-budget.” She recommends taking a look at your credit and debit card statements from the last three months. From there, you can figure out the categories, based on your monthly expenses, that you’ll need to allocate money to.
2. Pinpoint your spending
Next, identify what you’re spending on average for each of the various categories of your budget. “You can use your historical information as a guide from the statements you reviewed earlier,” Allocca says. This is especially helpful if you’re thinking about how to budget to pay off debt.
3. Adapt and adjust
No budget is perfect out of the gate, Allocca says. Rather than spending time making sure your budget is flawless, it’s more important to put it into action and iterate as you move forward. “It’s super normal for your budget to shift and change both throughout the month and over time,” she says. “If it’s your first budget, keep an open mind to adjustments, and don’t worry if you are over or under in a certain area at first.”
To build your beginner budget, Allocca recommends using either a budgeting app or a budgeting spreadsheet (her personal preference).
How to stick to your budget over the long run
Creating a budget is the first step toward building a healthy financial future, but sticking to a budget is crucial. Allocca shares some tips for budgeting for young adults, even those who have a low income.
Learn how to say no
“’No,’ is a full sentence,” Allocca says. “In your early 20s it can be easy to succumb to peer pressure or to feel like you need to buy things to keep up with an image. It’s okay to turn down plans if it’s going to stretch your finances too thin or if it just isn’t worth it.” Your future self will be rewarded for making those sacrifices early in adulthood, she says.
Keep your essential expenses as low as possible
Having fewer expenses will make it easier to stick to a budget. “The highest expenses you’ll have are rent and your car, if you have one,” Allocca says. “If you’re in your early 20s, get a roommate or two, and don’t buy or lease a car that is more than 10%-15% of your income.”
Prioritize your value categories
What expenses are most important to you? “You don’t need to do everything, and you don’t need to spend your limited income on anything that isn’t adding value to your life,” Allocca says. “In my early 20s, I prioritized my discretionary income on my gym and my restaurant budget because those two things added the most value to my life.” Or, if you’re learning how to budget to pay off debt, you should prioritize your debt payments in your budget to become debt-free.
How to adjust when your expenses outweigh your income
Allocca says that budgeting for young adults on a low income is very similar to budgeting on an average or even a high income. The formula stays the same, she says: Allocate your income to the appropriate categories.
“The challenging part of having a low income is that you have less wiggle room, which can make day-to-day decision-making a lot harder,” Allocca says. “Don’t let this intimidate you, because a budget shows you how to use your money. It’s designed to be a tool to help you.”
And if your expenses outweigh your income, you can either reduce your expenses or increase your income. “Unfortunately, there is no secret sauce to this problem; it boils down to the math,” Allocca says. “That being said, there are ways to go about this that don’t need to be super overwhelming or stress-inducing.”
First, look at your expenses. If this is your first budget, there are likely many ways to make cuts. Start with unnecessary expenses: What can you live without? Once you’ve trimmed the nonessentials, assess whether you can reduce any essential expenses—whether that means moving to a less expensive apartment or buying produce on sale.
Spending less is a great start, but you can only cut your expenses so much. “The other side of the coin is increasing your income, which isn’t as hard as you think,” Allocca says. She encourages people to pick up a side hustle, such as ride-share driving or delivering food to earn extra cash. “Think about skills you have that you can leverage to earn money online via freelance websites,” she says.
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Budgeting allows you to get a handle on your expenses, spending, and financial goals. Having a budget in place early in adulthood helps you develop healthy financial habits—such as regularly adding to your savings account—and can reduce money-related anxiety, Allocca says.
But budgets are not a one-and-done exercise; your budget should evolve to adapt to your life situation and goals, she says. To stay on top of your changing priorities, try referring to a financial review checklist to ensure your budget is always aligned with where you are—and where you want to be.
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Who doesn’t like a little something extra? While there are some benefits your employer is required to provide you, they may also give you additional perks in the form of what are known as “fringe benefits.”
Here’s a look at some examples of fringe benefits, how they work, and whether they’re taxable.
What Are Fringe Benefits?
Typically, employers compensate their employees with a traditional paycheck and some additional benefits that they must provide, such as workers’ compensation coverage or unemployment.
But in an effort to keep workers happy, loyal, and motivated — attract new talent — many organizations also offer fringe benefits such as health insurance, childcare assistance, and employee stock options. These extras are above and beyond a regular paycheck and are often included in a hiring package. 💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.
Common Fringe Benefits
Here’s a look at some common fringe benefits:
• Accident and health benefits: Provides help with health-related costs not covered by your traditional insurance plan.
• Athletic facilities: Provides access to on- and off-site athletic and gym facilities.
• Dependent care assistance: Helps you pay for some care-related expenses for qualifying dependents, including children, a disabled spouse or legally dependent parents.
• Adoption assistance: Provides payment and reimbursement for expenses related to adopting a child.
• Employee stock options: Gives employees the chance to buy a certain amount of company stock at a specified price and by a certain time.
• Group-term life insurance coverage: Allows employers to provide their employees with up to $50,000 in tax-free insurance. Coverage is traditionally 1-2x salary, where the first $50,000 is received tax-free, then any additional coverage is taxed.
• Health savings accounts (HSAs): Provides tax-advantaged savings accounts for employees enrolled in high-deductible health plans. These accounts may receive contributions by the employer or simply be funded on a pre-tax basis by the employee to help them pay for dental and health care costs.
• Transportation and commuting benefits: Helps employees get to and from work, such as through the use of a company vehicle. Employees may also be able to have qualified transportation costs taken from their pre-tax pay, which reduces their taxable income.
• Tuition reduction: Allows employers to chip in for the cost of tuition to educate an employee and sometimes their spouse or children.
• Meals: Provides employees with free on-site food and snacks.
For a more complete list of fringe benefits, check out IRS Publication 15-B .
Are Fringe Benefits Taxable?
Generally speaking, most fringe benefits are subject to employment taxes. The taxes are taken out of your paycheck and reported on your annual tax return. (If you’re a contractor, you’ll typically report fringe benefits on a Form 1099-MISC. If you’re a non-employee, fringe benefits are not subject to employment tax.)
That said, the IRS does consider some fringe benefits nontaxable. This means they’re not subject to federal income tax withholding, Social Security, Medicare, or federal unemployment tax, nor must they be reported on your tax return. Often, in order for a fringe benefit to avoid being taxed, certain qualifications must be met.
Here are some extra perks that are considered nontaxable (the full list is available on the IRS’ site:
• Retirement planning services
• Adoption assistance
• Meals and snacks (If certain conditions are met)
• Health insurance (up to a certain dollar amount)
• Group-term life insurance (up to a certain amount of coverage)
• Commuting or transportation benefits
• Dependent care assistance (up to a certain amount)
• Awards given for achievements
Tax-Advantaged Fringe Benefits
Some fringe benefits allow employees to direct a certain amount of funds pretax toward qualified accounts and expenses, which can lower their taxable income.
These tax-advantaged benefits are (somewhat oddly) known as “cafeteria plans,” because they allow employees to select the benefits they want. You must be permitted to choose from at least one taxable benefit, like cash, and one qualified benefit. Examples of qualified benefits include:
• 401(k) plans
• Accident and health benefits, excluding Archer medical savings accounts and long-term care insurance.
• Adoption assistance
• Dependent care assistance
• Group-term life insurance coverage
• HSAs (distributions from HSAs can be used to purchase long-term care coverage.)
There are, predictably, a few more nuanced rules about cafeteria plans and employee tax treatment. While most regular employees receive normal tax treatment, other employees or contractors may not be treated as such for cafeteria plans.
If you have tax-related questions about fringe benefits, it might be a good idea to consult your attorney or preferred tax specialist. 💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.
Planning Around Fringe Benefits
Employers typically offer fringe benefits to make the work environment better for the people who currently work there and more desirable for prospective employees.
Some benefits may hold a lot of appeal. For example, 401(k)s are a powerful tool for saving for your retirement. But others may be less appealing. For instance, you may decide you don’t want to use FSAs, which often restrict how much you can contribute and when you have to spend the funds.
It’s common to choose which fringe benefits you want when you’re starting a new job and filling out your initial paperwork. However, many companies will allow you to go back and make changes if you decide later that some choices aren’t right for you.
The Takeaway
Fringe benefits can run the gamut from use of the company car to adoption assistance to employee stock options (to name just a few examples). These extra perks are in addition to your paycheck and can be a powerful way to keep workers happy and loyal while also attracting new talent.
Generally speaking, most fringe benefits are taxable, though some — like retirement planning assistance, athletic facilities, and on-site meals and snacks — are not. Some fringe benefits will even allow you to direct a portion of funds pretax toward qualified accounts and expenses, which can help lower your taxable income.
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Inside: Are you struggling to make ends meet on a low income? This guide will teach you how to budget money effectively on a low income, so you can live a comfortable life without having to skimp on important expenses.
Let’s face it… Navigating through the budgeting on a low income can often feel overwhelming.
The fear of insurmountable bills, the anxiety associated with rising living costs, and the overall foreboding nature of budgeting often make for a persistently stressful experience.
However, it is crucial to understand that you are not alone in this journey. I have been in your spot as well as many Money Bliss readers.
Regardless of how daunting the budgeting task may appear, we truly believe that with the right guidance and adherence to solid financial principles, you are capable of achieving financial peace of mind.
This process will simply require patience, persistence, and strategic planning. This guide aims not only to shine a light on the struggles of budgeting with a low income but also to offer a beacon of hope.
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.
How to Budget Money on a Low Income
While it’s true that budgeting with a low income can be tough, proper money management can make it doable.
When you have less disposable income, it leaves you with less leeway in your budget. That’s why you have to be accountable and meticulously plan your spending to ensure financial stability.
So, let’s dig in and you can find success.
Step #1 – Figure out Your Monthly Income
Developing an effective budget starts with understanding your monthly income.
Here’s a step-by-step guide:
List out all income sources: This includes all your regular paychecks, part-time jobs, side hustles, social security, child support, or any other form of income you have. If your income is irregular, say from commissions or seasonal work, it’s advisable to base your budget on your lowest monthly income.
Account for taxes and deductions: To get an accurate picture of your disposable income, you need to factor in taxes and deductions from your earnings. You need to make sure you understand the difference between gross pay and net pay.
Include irregular income: If you occasionally get money from gifts, or sporadically earn from passive income sources like investments, be sure to include these too. As these are inconsistent, it is best to fund discretionary spending with this money.
Personally, I recommend using your net income with budgeting. This will give you an accurate budget that you can truly follow.
This knowledge is powerful when it comes to effective budgeting.
Step #2 – Define your bills and Expenses
Knowing how much you spend and what you spend your money on is another crucial step in budget planning.
The key is to define ALL your bills and expenses. Here are the personal budget categories that cover almost everything you can think of.
Now, you must do the following:
Identify your fixed costs: These are basics that you have to pay monthly and remain fairly constant, such as rent, car payments, and student loans.
Consider flexible costs: These expenses vary from month to month. Examples include groceries, transportation, electricity, water, and gas bills.
Remember periodic costs: Some costs only appear annually or semi-annually. For instance, insurance premiums, car registrations, and property taxes. It’s important to set aside money each month to cover these expenses when they arise. A sinking fund is great for these expenses.
Account for daily spending: Beyond fixed and flexible bills, consider your day-to-day expenses like shopping, subscriptions, and entertainment. Be honest about the little expenses. It’s often the small, frequent purchases that can derail a budget.
Prepare for unplanned costs: Finally, remember to budget for unexpected expenditures such as car repairs or medical bills.
By defining and categorizing your bills and expenses, you can see where your money is going and better manage your spending.
Step #3 – Reach a Zero Budget
A zero-based budget is a strategy that requires you to assign every dollar you earn to a specific expense or savings category, with the goal of having your income minus your expenses equal zero by the end of the month.
Write down your income: From the step before, you already know your total monthly income.
Subtract your expenses: Subtract the total of your monthly expenses (including savings) from your total monthly income. If you’ve correctly accounted for your income and expenses, the result should be zero. This is what it means to have a “zero-based budget”.
Balance the budget: If your income and expenditure don’t balance, adjust your variable expenses and other discretionary spending until they do. This can involve cutting back on nonessential overspending, like takeout meals or unnecessary purchases.
Allocate every dollar: With your budget balanced, each dollar should now have a purpose, whether it’s paying bills, going into savings, or providing for your daily needs.
Many people struggle to hit a zero based budget on the first try. It is common for your expenses to be higher than your income. Thus, a no spend challenge may help you identify what is important to actually spend your money.
Reaching a zero-based budget equips you with a clear picture of your financial status.
Thus, it allows you to use your money purposefully and prevents unnecessary spending. This way, even with a low income, you can still meet all your needs and work towards your financial goals.
What do you do if your budget shows your expenses are more than your income?
When your monthly spending exceeds your monthly income, immediate attention is needed to prevent worsening financial issues. Before panic sets in, consider taking the following steps:
Analyze your budget: Reevaluate and scrutinize your budget. There might be necessary adjustments overlooked or expenses incorrectly categorized. This will give you a clearer understanding of where your money is going.
Prioritize essential expenses: Allocate money to necessities like housing, food, utilities, and debt repayments first. Other less necessary expenditures, like entertainment and dining out, can be reduced or eliminated.
Reduce expenses: After prioritizing, identify areas where cuts can be made. Impulse buys, unnecessary subscriptions, or expensive habits might need to go.
Increase your income: Consider part-time jobs, side hustles, selling unused items, or picking up freelance work to bring in more money.
Seek advice if debt is weighing you down: As a last resort, you may look at ways to lower your interest rate on your debt. These strategies like debt consolidation or restructuring could help make your situation more manageable.
Remember, this situation, while stressful, is not permanent. With careful planning and disciplined execution, you can turn this around and regain financial stability.
Taking Control of Your Budget When Income Doesn’t Cover Your Expenses
Now, this is where you need to learn to manage your money wisely. You are in control of where you spend your money.
Many truly believe with a higher income all of their financial problems go away. From my research, most people end up with bigger money problems, the same spending habits, and still living paycheck to paycheck even with a higher income.
So, let’s reign in what you can do today to make your budget feasible.
1. Prioritize Essential Bills and Expenses. The key is to identify which expenses are truly essential to your livelihood. All remaining expenses, like entertainment or eating out, should be considered secondary and only met after the primary expenses have been satisfied.
2. Participate in a No Spend Challenge. A No Spend Challenge not only helps you save money rapidly but also makes you cognizant of your spending habits, helps identify non-essential expenses, and guides you towards a minimalist, sustainable lifestyle. Start with a no spend month.
3. Reduce your Housing Expenses. Housing costs can be one of the most significant expenses. Look at ways to downsize, negotiate rent, refinance your mortgage, or get roommates. Or even housesit permanently.
4. Be Cognizant of Bad Spending Habits. Some examples include impulse purchases, expensive convenience, not comparison shopping, or paying too much. By becoming aware of your spending habits and making conscious choices, you can break the cycle of unnecessary spending and start saving money with the penny challenge.
5. Skip the Expensive Coffee Shop. Choosing to forgo your daily coffee shop run can result in surprisingly significant savings. Implementing just this one change could save you over $600 a year!
6. Use Public Transportation to Save Money. The costs of owning a car – gas, maintenance, parking, and insurance – can quickly add up. So, look for public transportation as an alternative or even cycling, carpooling, or walking.
7. Take Advantage of Free or Cheap Entertainment. When living with a low income, entertainment expenses can quickly eat into your budget. Good news for you! There are plenty of things to do that don’t cost money.
8. Cut Back on Grocery Spending. By implementing simple strategies such as meal planning, cooking at home, cutting down on processed food and reducing waste, you can maintain a healthy diet while significantly reducing your grocery bills. Don’t forget to use those discounts and coupons!
9. Stick to Your Shopping List. Preplan your purchases before stepping into a store. This is a powerful tool in curbing those impulse purchases which can inflate your expenses substantially.
10. Start Meal Planning. Meal planning is a practical and economical way to manage your food budget. By planning your meals for the week, you can control your grocery spending and eliminate waste.
11. Stockpile Goods That Will Stay Stocked Up Long Term. Remember, the goal of stockpiling is to save money, not to transform your home into a supermarket. Purchase enough to last a few months and focus on items that you’re certain to utilize. Here are the best foods to buy when broke.
12. Pack Your Own Lunch and Skip Eating Out. With an average meal out costing around $10, you could easily save $200 a month by packing lunch from home. Over a year, that’s $2,400 in savings!
13. Drink Water and Avoid Processed Foods. Shifting dietary habits can be a significant change, but your commitment to a healthier lifestyle can reap both health and financial dividends. It’s an investment in a life of wellness and economic sustainability.
14. Take Advantage of Discounts when Shopping. Remember, the goal of shopping with discounts is to spend less on what you need, not to buy more than you need. So, make sure to use coupons wisely, shop sales, buy off season, and use Cashback apps like Rakuten and BeFrugal.
15. Avoid Impulse Purchases. By avoiding impulse purchases, you give your budget room to breathe and create an opportunity for savings. This makes a significant difference over time, especially when money is tight.
16. Apply for Discounts on Utilities and Services. Many utility companies provide low-income home energy assistance programs. The same is true for internet service. Contact your service providers to check your eligibility.
17. Get Free or Discounted Goods Through Charities. Charities, faith, professional, and local organizations often offer grants for people experiencing financial hardship. Utilizing them can be a lifetime as they help you stretch your budget further and provide necessary support in times of financial struggle. Don’t be afraid or too proud to ask for help when you need it.
18. Get Outside. Reconnecting with nature can provide you with cost-free entertainment and a sense of tranquility that’s hard to find elsewhere.
19. Avoid Unnecessary Expenditure. While each person’s definition of “unnecessary” may differ, the key to budget management is curbing expenditures that don’t add substantial value to your life. A common culprit could be brand-name goods or late fees.
20. Start the Practice of Saving with a Mini Savings Challenge. The Mini-Savings Challenge can pave the way to a habit of saving regularly, even on a tight budget. Essentially, this challenge consists of setting aside a small amount of money each day or week, gradually increasing the amount over time.
21. Show Gratitude. While it may seem less directly related to finance, practicing gratitude is indeed integral to efficient budgeting and financial wellness. Remember, financial success isn’t just about making more money. It’s also about appreciating what you have and recognizing the steps you’re taking towards your goals.
Inciting Additional Income Avenues
Okay, this section is how you take a low income and increase your money. While cutting back spending is helpful, creating more money will help you to reach money success faster. This will take the strain off.
1. Look for Ways to Earn Extra Income
Boosting your income, no matter how minimal the increase, can help cover necessary costs and elevate your financial standing.
Here are some ideas using your current job:
Work Overtime: If possible, consider getting more extra hours at your current job. Earnings from overtime or extra shifts can be significant.
Negotiate a Raise: If you’ve been with a company for a while and demonstrated your worth, it might be time to discuss a raise. Prepare well for this conversation with evidence of your productivity and value.
Every extra dollar earned can be put towards savings, paying down debt, and creating better financial stability.
2. Leverage Side Hustles for Extra Money
Side hustles have become an increasingly popular way to earn extra money online in your spare time. They allow for flexibility and can be a great supplement to your current income.
Start a Side Hustle: These can be a great way to make use of spare time to earn extra cash. This could be anything from driving for a rideshare company, offering freelance services, tutoring, delivering food or groceries to selling homemade goods online.
Sell Unused Items: You probably have items in your home that you no longer need. Selling anything from clothes to electronics or furniture can be a good source of income.
Passive Income: From writing an eBook to renting out a room in your house or investing in stocks, creating passive income streams can provide extra money over time.
Remember to choose a side gig that fits your schedule, interests, and skill set. Not only could it bring in extra money, but it could also turn into a passion project, making the work feel less like a chore.
3. House Sit for Extra Income
House sitting can be a viable option for those looking to generate extra income, especially if you’re flexible with your time and location. It typically involves looking after someone’s home (and sometimes their pets) while they’re away.
Not only is house-sitting a way to earn money, but it can also offer a free place to stay. Hello – you just lowered the biggest expense in your budget. However, remember that taking care of someone else’s home is a huge responsibility, so only take on tasks you’re confident you can handle.
Get started by building your profile on Trusted Housesitters.
4. Items You Don’t Need Anymore
Selling items you no longer need or use can both declutter your home and add to your income. It doesn’t just have to be big-ticket items; even small routine household items can yield returns.
While this may be difficult to do, look for items in good condition that you and your family no longer need or use. If you have extra baby stuff, you can rent it on BabyQuip for extra money.
Remember, while selling items won’t provide a consistent income, it can be a great one-time source of extra cash especially if you have these highly popular flipping items in your house.
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Whether you are traveling or just don’t want to purchase, this is a great idea to check out.
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5. Pick up a Part-time Job
When you’re on a limited income, picking up a part-time job can be a reliable way to supplement your earnings. You are trading your time for money.
Many of these jobs that pay weekly offer valuable experiences, skills, and possibly even room for growth and advancement. Remember to save and plan for any taxes due as a result of your increased earnings.
Smart Use of Technology in Budgeting
Taking advantage of personal budgeting tools can make managing your finances easier. They can help track expenses, create a budget, and set saving goals. Here are some popular options:
You Need a Budget (YNAB): YNAB helps you create a budget and live within your means, educating you on effective money management along the way.
Simplifi by Quicken: This app crunches the numbers to show how much money you have for day-to-day spending after accounting for bills, goals, and savings.
Empower: This free tool offers a comprehensive financial dashboard that includes budgeting features and investment tracking.
Tiller Money: If you want a more manual approach, you can use Google Sheets or Excel to create a customizable budget spreadsheet.
Remember, the best tool is the one you use consistently. Try a few options to see which one best meets your needs and preferences. Every tool has its pros and cons, but all aim to help you control your finances effectively.
Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
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Access Paychecks Early with Digital Banking Apps
With the rise of digital banking, access to innovative financial tools like early direct deposit has become more accessible, even for those with low incomes. These services can be crucial lifelines between paychecks or in case of emergencies.
Here are a few platforms that offer such services:
Chime: Once you set up direct deposit with Chime, you may get your paycheck up to two days earlier than at a traditional bank.
Current: Current, a mobile bank account, provides users with paychecks up to two days in advance.
Varo: Varo also offers early direct deposit for its users, helping you gain access to your money more quickly.
Clair: Clair’s on-demand pay solution lets you advance a portion of your paycheck before payday. This can be particularly helpful when navigating financial crunches.
It’s important to note that while accessing your paycheck early doesn’t give you extra money, it does provide more flexibility in managing your finances and can help avoid overdraft fees or high-interest loan options in times of need. As with any financial tool, it’s essential to use early paycheck access wisely and not rely on it for regular spending.
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FAQs
Saving money on a low income can seem challenging, but a few strategic changes and smart habits can make it achievable.
Engaging in a money-saving challenge can be a motivating way to encourage disciplined saving, helping you to creatively manage your finances and significantly boost your savings plan over time.
Remember, the key to saving on a low income is to stay consistent, patient, and adaptable in your approach.
Surviving on a low income budget can be challenging, but strategic planning and careful spending can help you manage your finances effectively.
The focus as Dave Ramsey likes to say is on your four walls – food, utilities, shelter, and transportation.
Remember that it’s okay to adjust your budget as you go. Circumstances change, and so should your budget. Review your budget regularly to ensure it’s still working for you and adjust as needed.
Budgeting when you’re broke might seem like an uphill battle.
The key is to make sure you stick to your budget and track your spending consistently. Don’t hesitate to reach out to local charities, government programs, and non-profit organizations for assistance.
Remember, being broke is often a temporary situation, and even small steps towards better budgeting can compound into big changes over time. Try to stay positive and focused on your financial goals.
Now, How do you Survive on a Low Budget?
Surviving on a low income involves careful planning, budgeting, and making the most of available resources. While it may seem challenging, it is indeed possible.
Every small step you take towards frugal living, such as sticking to a budget, reducing unnecessary expenses, or earning extra cash, can lead to considerable savings in the long run.
Remember, it’s also important to invest in yourself – whether that’s asking for a raise at work, learning a new skill, or starting a side hustle.
The journey of living on a low income can be tough, but it also offers an opportunity for creativity and gratitude for the essential things in life. With a positive mindset, some patience, and careful budgeting, you can not only survive but thrive, even on a low income.
The goal isn’t to just get by but to build a financially stable future.
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