Primary difference between those two expenses is how fixed they are. On one hand, you cannot change how much you pay for rent, therefore mandatory expenses are quite static. On the other hand, discretionary expenses can be easily changed by simple actions like going to Starbucks every other day instead of everyday.
However, some expenses are both mandatory and manageable. Food and Transportation.
You have to eat to survive, so the cost is unavoidable but you can change what you eat and how much you eat out, which very much affects how much money you have. The same goes for transportation. A few tips to stay in budget in terms of food and transportation:
- Keep track of how much you are spending for each to see where you need to cut back
- Instead of driving to work, try public transit or carpooling! You can save the environment and your wallet.
- Try eating out less and prepare your meals for the week ahead of time
There are lots of apps that can help you keep track of how much you are spending, like Mint, Wally, and Level Money to name a few.
However, some expenses are both mandatory and manageable. Food and Transportation.
You have to eat to survive, so the cost is unavoidable but you can change what you eat and how much you eat out, which very much affects how much money you have. The same goes for transportation. A few tips to stay in budget in terms of food and transportation:
- Keep track of how much you are spending for each to see where you need to cut back
- Instead of driving to work, try public transit or carpooling! You can save the environment and your wallet.
- Try eating out less and prepare your meals for the week ahead of time
There are lots of apps that can help you keep track of how much you are spending, like Mint, Wally, and Level Money to name a few.
Compare Monthly Expenses to Monthly Income
Tally up how much money you are spending at the end of the money and compare it to how much money you made for that month. By seeing them side by side you can easily see where all your money is going.
Tips on cutting back:
- Be able to identify where you spend the most money, seeing what is costing you the most money is where you need to start cutting back, if you can.
- Another way is cut back a little spending in every category, therefore it can all add up to a lot of savings at the end of month. Maybe, not eating out on Fridays or making coffee at home instead of going to Starbucks
Also be sure to check how much you are saving! It is very important to make sure you are saving every month. Some suggest that AT LEAST 20% of your income every month should go into savings. Do what is comfortable for you and what you are able to manage. Maybe starting off by saving only 8% each month and gradually saving more as time goes on is better for you, that's fine. Just remember, having even a little bit of savings is better than none. Check out the savings and investment page to learn more about the importance of saving.
If you want more guidance, there is a popular 50/30/20 rule. This is talking about distributing 50% of your budget for living expenses (mandatory expenses), 30% for wants and necessities (discretionary expenses) and saving 20%. The formula is pretty simple and an easy way to get started on budgeting.
Tips on cutting back:
- Be able to identify where you spend the most money, seeing what is costing you the most money is where you need to start cutting back, if you can.
- Another way is cut back a little spending in every category, therefore it can all add up to a lot of savings at the end of month. Maybe, not eating out on Fridays or making coffee at home instead of going to Starbucks
Also be sure to check how much you are saving! It is very important to make sure you are saving every month. Some suggest that AT LEAST 20% of your income every month should go into savings. Do what is comfortable for you and what you are able to manage. Maybe starting off by saving only 8% each month and gradually saving more as time goes on is better for you, that's fine. Just remember, having even a little bit of savings is better than none. Check out the savings and investment page to learn more about the importance of saving.
If you want more guidance, there is a popular 50/30/20 rule. This is talking about distributing 50% of your budget for living expenses (mandatory expenses), 30% for wants and necessities (discretionary expenses) and saving 20%. The formula is pretty simple and an easy way to get started on budgeting.
Monitoring and Sticking to your Budget
Making a budget is the easy part, sticking to it is another story. One important thing to make sure is that you are changing your lifestyle accordingly. You need to make the right lifestyle adjustments so that you can stick to your budget. Here are a few tricks:
Closely Watch the Grocery Bill
. So many times we have gone to the grocery store with intent to buy a few things and end up way overspending by planning your meals beforehand even before you go to the grocery can help save time and money.
Don't Overestimate Yourself
Plan your budget to fit your lifestyle. Make sure you are able to enjoy yourself while cutting back spending, do not make yourself miserable. Also, do not try to change a lot of things at once. Rarely will you be able to do it and it can also become so overwhelming that you give up. Give yourself realistic goals and stick with them. Do not forget to treat yourself too. A little indulgence here and there isn't a bad thing. You need to accept the setbacks when they happen and continue on to your goal.
Cash! Cash! Cash!
It is very easy to put everything on your credit or debit cards but when you do that it is also very easy to lose track of how much you are spending. It is much harder to overspend when you have the money in your hand. Decide beforehand how much you want to spend and only bring that amount, it'll force you to stick to what you brought.
Stay Strong
If you make a mistake that's fine, do not give up. It can be hard at first but you'll get better at it as time goes by and you'll start to see that money pile up.
Closely Watch the Grocery Bill
. So many times we have gone to the grocery store with intent to buy a few things and end up way overspending by planning your meals beforehand even before you go to the grocery can help save time and money.
Don't Overestimate Yourself
Plan your budget to fit your lifestyle. Make sure you are able to enjoy yourself while cutting back spending, do not make yourself miserable. Also, do not try to change a lot of things at once. Rarely will you be able to do it and it can also become so overwhelming that you give up. Give yourself realistic goals and stick with them. Do not forget to treat yourself too. A little indulgence here and there isn't a bad thing. You need to accept the setbacks when they happen and continue on to your goal.
Cash! Cash! Cash!
It is very easy to put everything on your credit or debit cards but when you do that it is also very easy to lose track of how much you are spending. It is much harder to overspend when you have the money in your hand. Decide beforehand how much you want to spend and only bring that amount, it'll force you to stick to what you brought.
Stay Strong
If you make a mistake that's fine, do not give up. It can be hard at first but you'll get better at it as time goes by and you'll start to see that money pile up.
You should align your spending with things that are the most important to you
It is really important to budget your money in terms of what you want to spend money on things. An exercise that can help you do this is to make a list of the 30 things that are most important to you. Those things are what you should be spending your money on, if not you will not be able to find true long term happiness with your money. Obviously, this implies you are spending a reasonable amount of money on these things and sticking to your budget.
I created an example budget that walks through this process and shows how I divided my money on those things.
I created an example budget that walks through this process and shows how I divided my money on those things.