Budgeting - Living Expenses
Everyone's budget is different and this post is there to key in on things that you may have not considered. The first category that we will explore is Living Expenses in our budget. Living Expenses contain both items that are absolutely essential to live in America and items that can be considered luxuries. Luxury items can be sought out in the budget to remove when things get bleak. So let's look at what should be considered. For reference purposes we will concentrate on making everything fit into a month. That way we can simply multiply by 12 to get a yearly value. Most of us will receive retirement income on a monthly basis.
The first items to consider are those items that are associated with Rent/Mortgage and related principle and interest. You will have values like rent or mortgage payments due each month. Then there are home repairs/maintenance to the home. If you are renting, this will in general be $0. You can estimate this value by taking the current value of the home times 0.005 (or one half of one percent) then dividing the value by 12 to get a monthly amount. In addition, this is a good place to put maintenance lawn care on a monthly basis if you have a lawn service, or something else if you do your own mowing. Do you have homeowner fees, like a community charge. There is also property tax to add here. Note not all jurisdictions have property tax on a home, but this needs to be considered on a monthly basis to make sure we have enough in the till to pay our tax so that our house is not taken from us.
Next we have basic utilities. This would include utilities such as gas (averaged per month), electric (averaged per month), any water/sewer charges (averaged per month), and trash service (again, averaged per month).
After that we have extended utilities. We would put these in more of a luxury basis since if we needed to, we could get rid of these utilities in order to survive. This would include things like Cable / Internet / Home Phone charges (averaged per month), cost for cell phones (averaged per month), and a security system if you have one (averaged per month).
Food is something we all love and enjoy and that might include several different grocery stores and trips to various dining establishments and restaurants. Here we do not want to skimp on what it is costing us. If you are spending $200 a month on eating out, don't put $35 here - that might come later, but only if we are going to get serious about cutting expenses. I generally go through my bank statements and add up grocery receipts over a couple of months to get a semblance of what I spend on a monthly basis. Note that seasonal changes may cause the amount you spend to go up or down. Maybe less in January because we want to loose weight we gained during November-December of the previous year. So you might not want to forget to include those months in the calculations. Again, all back to a averaged monthly basis.
Next we come to items that might be considered miscellaneous, but they are near to our hearts. First up is a gym membership. Going to a gym is good for the retired body I have been told. I am fortunate that I have spent a lot of time in the gym in my 50s and 60s and will continue on after the pandemic subsides. This might include a subscription to SilverSneakers plus the extra to the gym itself so it will vary with the person. Next is entertainment items like DVDs and streaming services (also check how that is paid monthly, might be a credit card, but it still needs to go into the budget). How about recurring general expenses like Amazon Prime, Pandora, etc. These should be realized since they are in the category of nice to haves, and if we are getting slim on the finances might need to go.
Part of our entertainment budget might be books if you like to read. I highly recommend that you read, it helps keep your brain occupied and tuned, not just to have something to do. How much do you spend on books in a month. Since my wife retired last year, my budget on books has gone up considerably. What about education expenses? this is the place to put average monthly costs to keep our minds up to speed (like, professional dues, professional books, classes that we might take, etc.).
Next comes charitable stuff; you do give from what you have right? If you don't you are missing out from a great blessing. Give as you have been blessed. This includes regular charity items, church offerings, and missions work (all set as an average monthly expense). This is something that I have decided that I will not stop doing and will remove other items from my budget before this. That is just me.
What about support items, like monetary support for a relative or child care for your own children or grandchildren. If you are an empty nester then this group of monthly expenses will generally be $0, but be aware that may change in the future as necessary. This is one item on the budget that might change due to extenuating circumstances.
Next we have costs for doctors (medical and dental), this would be co-pays and maybe saving up for procedures. Along with the doctor visits you also have pharmacy expenses on a monthly basis. This might be a good place to include budgeting for procedures that you may have later on in the year. I am not including insurance premiums like Medicare or Medicare advantage; that will come in a different post.
Next we deal with transportation. This would include things like bus fares, gas in personal vehicle, taxi charges, Uber/Lyft, and maintenance on your personal vehicle. All of these charges are again tied to a monthly average. If you have a motorcycle, here would be the place to put relative expenditures.
Financial counseling and Tax Preparation / CPA expenditures are another item that needs to be listed in your budget. If you don't have those, then any tax software you use amortized over a year and averaged to a monthly bases would be here.
Now we come to the lump category, known as Other / Personal Goods. If you have children, this might include budgeting for children's activities / babysitting. How about cleaning and laundry charges? Clothing and shoes (as an average monthly basis). Women might consider having a budget for shoes as part of their "mad money" category. How about club dues? Hobby expenditures (as an average monthly basis). Men might consider having a budget for hobbies as part of their "mad money" category. Professional dues would also fall under this category. Don't forget about setting a budget for gifts (birthdays / holiday / special times). Newspapers and magazine subscriptions would also go here. Finally, this would also be a good spot to deal with miscellaneous expenditures in the form of cash. In fact, the miscellaneous cash budget item would lend itself to how much you are letting yourself take from your bank account as cash each month.
Lastly, this is a good place to deal with Taxes. Specifically taxes taken by Federal, State, and Local jurisdictions (amortized over a year period). There are also those special taxes that show up as a result of activities during the year, like moving money between an IRA and a Roth IRA. You pay taxes up front on that change of retirement account. This would of course be budgeted on a monthly basis. In fact, if Taxes are a major category unto itself with you, you could always put the Tax stuff in a different major category than Living Expenses.
There may be some items that I did not mention here that you might consider living expenses. However, I have tried to put together a list of things that should be considered. If you don't have expenditures in those areas then fine, put a $0 next to the item and move on. I find that setting up an Excel spreadsheet with some tabs that are used to calculate averages on things over a year broken down into monthly averages makes the process go easier. That way the calculation is away from the budget itself so that printing the budget gives you the categories and monthly expenditures to try and follow.