Between your monthly bills, daily necessities, and the little things you buy along the way, it can be difficult to know where all your money goes. If more cash seems to be going out than coming in, a great way to take financial control is to set aside some time to calculate your expenses.
If you take the process step-by-step, it can be surprisingly easy to find out how you’re spending your money. Here's how:
Step 1: Gather your financial statements.
These documents, such as bills, mortgage statements, and account statements, can help you see exactly where your money is going. Looking for charges you make regularly can help you determine your largest expenses.
Step 2: Create a list of monthly expenses.
While this includes your recurring living expenses, such as your rent or mortgage, car payment, and utilities, it also includes the more variable amounts you spend on haircuts, groceries, and clothes each month.
Step 3: Examine your expenses.
To find patterns in your spending, try organizing your purchases in an expenses worksheet. No fee online tools, such as My Spending Report, can automatically track your spending to give an overview of your finances. You might want to distinguish between different types of expenses, potentially highlighting each in a different color. Consider separating your expenses into the following three categories:
Fixed expenses:
These are the necessary expenses that remain the same each month, including your rent, car payment, and insurance. You generally need to make big changes in your life to impact these expenses, such as trading in your flashy ride for something more economical or shopping around for a better insurance rate.
Variable expenses:
These are the necessary expenses that can vary each month, such as your utilities and weekly grocery bill. You can lower these expenses by changing your habits. For example, turning down the heater by a degree or two in the evening or using coupons for your purchases can help decrease these flexible costs.
Discretionary expenses:
These are personal expenses where you have more control over what and how much to spend. This category can include things like trips to the coffee shop, going to the movies, and dining out at restaurants with friends. If you eat out three times a week with your family or friends, you could potentially save hundreds of dollars each month by eating at home or by simply moving these gatherings to someone’s house.
Tip
Gather your financial statements to use as a reference when tracking your spending.
Taking time to really think through these monthly expenses, and how to decrease them, is the first step towards managing your budget. Once you get your spending in check, you can begin to make big financial plans for the future – and feel confident about making them a reality
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FAQs
How do you calculate total expenses? Subtract your net income (or loss) from the total revenue. If the result is negative, treat it as a net loss.
What is the 50 20 30 rule? ›
Key Takeaways. The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.
How do I calculate my living expenses? ›
Simply add up all of your monthly fixed expenses, like rent or a mortgage payment, and your variable expenses, such as groceries and gas costs. Also factor in occasional but expected purchases, such as new tires. The resulting amount, assuming you aren't going to debt every month, is your cost of living.
How do I calculate my spending? ›
Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20 budget principles: 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.
How do I find my expenses? ›
How to calculate your expenses
- Step 1: Gather your financial statements. These documents, such as bills, mortgage statements, and account statements, can help you see exactly where your money is going. ...
- Step 2: Create a list of monthly expenses. ...
- Step 3: Examine your expenses.
As the name suggests, the actual expenses method requires you to add up all the money actually spent in the operation of your vehicle. You then multiply this figure by the percentage of the vehicle's business use.
How to budget $4000 a month? ›
How To Budget Using the 50/30/20 Rule
- 50% for mandatory expenses = $2,000 (0.50 X 4,000 = $2,000)
- 30% for wants and discretionary spending = $1,200 (0.30 X 4,000 = $1,200)
- 20% for savings and debt repayment = $800 (0.20 X 4,000 = $800)
How to make a budget
- Do a monthly review of your income, expenses and investments. ...
- Understand your spending and saving habits. ...
- Set up expense guardrails. ...
- Set your financial goals. ...
- Track, monitor and adjust your budget as needed.
Monthly expenses list. According to the same 2022 BLS study, the average American's monthly expenses are $6,080, 1 which is about 77% of the average monthly income before taxes. This list of expenses covers everything from housing, health insurance and food to entertainment, personal care products and books.
Can you live on $1000 a month after bills? ›
But it is possible to live well even on a small amount of money. Surviving on $1,000 a month requires careful budgeting, prioritizing essential expenses, and finding ways to save money. Cutting down on housing costs by sharing living spaces or finding affordable options is crucial.
Follow the 50:30:20 rule – By spending 50% of your salary on your needs and 30% on your wants, you can make sure you're not spending too much on things you don't need – and also ensure that some income is set aside as savings. Needs would include expenses on rent, mortgage, utilities, groceries, clothes etc.
How to budget $5000 a month? ›
If you bring home $5,000 after-tax each month, according to the rule you'd split your income as follows:
- $2,500: 50% of your income, is allocated towards necessities — rent, utilities and groceries.
- $1,500: 30% of your income, is allocated towards things you want, whether it's the latest iPhone or a fresh outfit.
A basic formula to determine investment spending for a small business is written as: Investment spending= gross investment- depreciation. On a macro level, the formula is written as: Investment Spending = Gross Domestic Product (GDP) - Consumption (C) - Government Spending (G) - Net Exports (NX).
What is a good monthly budget for one person? ›
The average monthly expenses for one person in 2022 were $3,693, up 8.5% from 2021. That translates into an increase of $287.75 per month. The 2022 average for annual expenses was $44,312. That is less than half of the average expenses for a family of four, which was over $100,000.
What are the average person's monthly expenses? ›
A single person household spends an average of $4,337 on monthly expenses. Married couples without kids spend an average of $7,111 on monthly expenses. A family of four spends an average of $7,875–9,168 on monthly expenses (depending on kids' ages).
How do you calculate total cost and expenses? ›
The formula to calculate total cost is the following: TC (total cost) = TFC (total fixed cost) + TVC (total variable cost).
How do you calculate expense rate? ›
An expense ratio is determined by dividing a fund's operating expenses by its net assets. Operating expenses reduce the fund's assets, thereby reducing the return to investors because the expense ratio is deducted from the fund's gross return and paid to the fund manager.
What is the formula for expense percentage? ›
Divide total expense by the average assets. You get a percentage that tells you how much of the fund's assets are used annually by expenses. These expenses include management fees, administrative fees, 12b-1 fees, custodial costs, legal fees, and other expenses.
