Budgeting your monthly expenses by categories is a surefire way to ensure that you will save money in the long run. Let’s talk about exactly what this means. In your household budget, you should have a list of categories. They might be set up on a spreadsheet or on a piece of lined paper.
At the top of the list of categories are the most essential payments that must be made every month. For example, you can place your mortgage payment, rent, groceries, insurance, daycare, and utilities at the top of the list. Underneath these major recurring expenses, you will have spots for other expenses that recur every month. These are secondary expenses that could be cut if you had a sudden change in income, such as a job loss or a reduction in work hours at your job. Examples of secondary expenses are a gym membership, a cell phone plan, a cable bill, and extracurricular activities for the kids.
At the bottom of all of these expenses are discretionary spending categories where you have some flexibility. You don’t have to take the kids to the Chuck E. Cheese every week and spend $30, and you don’t have to send the kids on every field trip with the Cub Scouts or the dance team. Also, sometimes the kids can take their lunch instead of buying school lunch. What you have to do is prioritize so that you have discretionary cash available when needed.