If you’re on a budget, you’ve probably been wondering: how do I prioritize my expenses? Here’s a simple process: divide your expenditures into two categories: Wants and Needs. After you’ve decided which category each item fits into, you can make a list of the non-negotiable expenses. Then, think about what alternatives you have to each one.
Table of Contents
Wants
Identify your needs and wants. Some are necessities and don’t cost much, such as transportation to work, while others are more frivolous, like entertainment or hobbies. Prioritize your needs, then group your wants into a hierarchy of priority, moving things you can’t afford to the next month. You may also want to give yourself some slack if you have too many wants, or make a compromise between your needs and wants.
Listed below are a few items to prioritize. Don’t forget about those things you want, but don’t need right now. A fancy steak or Mercedes are nice, but don’t need to be a priority. Other small purchases can be classified as wants. However, if you want to see the latest movies, spend some time at the cinema, and upgrade your television, these are all options. In order to make your budget work with these wants, you should decide on whether they are necessary and which ones aren’t.
Another way to sort wants and needs is to determine whether they have an actual cost or a psychological value. Consider renting a larger apartment than you need, for example, or spending more on a more expensive model. Similarly, a designer rain coat may cost several hundred dollars more than a cheaper, off-brand one. You must consider your needs when setting your budget, and prioritize these against your wants. Keeping in mind that these categories are relative, not absolute.
You can buy the things you want as long as you don’t spend too much on them. Keeping your needs and wants separate can help you reduce your expenses without compromising on the things you need most. If you can’t afford the latter, you can downsize your wants and prioritize your needs. You might even consider staying at a cheap Airbnb instead of spending money on a fancy hotel. It’s worth it!
Needs
When creating a budget, you have to decide what you want and what you need. The basic human needs are food, water, shelter, clothing, and security. Without these, you will die. Therefore, when making a monthly budget, your needs should always come first. You can then group your wants in a hierarchy, based on their importance to you. The things you cannot afford to purchase this month should be moved to next month’s budget.
Food is a necessity and should be your first priority. It is cheaper than other necessities and is often flexible. Health is another important need. In some cases, health needs are more important than other needs. If you don’t have enough money to afford all of your needs, you will become even more insecure and feel worse. By prioritizing your needs, you will be able to afford more important things. A budget helps you keep track of your expenses and create a disciplined spending and saving routine.
You should also determine what is important and what isn’t. While a cell phone or Internet connection are important, a new smartphone isn’t necessarily a need. If you have a family and want to stay connected, it’s a need to have a cell phone or internet. However, the latest cell phone or internet service is probably not a need. It’s a good idea to stick to the basics and cut out unnecessary expenses.
Non-negotiable expenses
While some expenses are considered necessities and must be included in your budget, others can be deemed luxury items. These items may include Wi-Fi, cell phone service, Netflix, and Tidal Music. A non-negotiable expense in a budget is anything you would like to buy, but not as an immediate necessity. This could include the cost of buying clothes or taking a spa visit.
Fixed expenses are those costs that do not change from month to month. They are predictable and fall within a predetermined range. These costs occur on a regular schedule. Examples of fixed expenses include rent, mortgage, car payment, utility bills, and insurance. For most people, these expenses will be a constant in their monthly budget. If you are overspending on rent, look for a less expensive place to live. If your insurance bill is $1200, divide it into two equal payments of $600, twelve months apart. With that amount, you will need to save $100 each month.
Other non-negotiable expenses in sizing a budget include rent, utilities, and groceries. These expenses aren’t going anywhere soon. If you want to save money, you’ll need to reduce the expenses you’ve listed as non-negotiable. You can also reduce the amount you spend on things that you know you don’t need. One way to reduce non-negotiable expenses is to cut back on these expenses and prioritize what you want instead of needing.
If you don’t want to reduce your income, you may want to consider cutting back on your non-negotiable expenses. These are the things that you enjoy but don’t need. Examples include premium cable or cell phone service, restaurant meals, personal care services, and entertainment. By cutting back on non-essential expenses, you can free up cash for the things that are absolutely necessary.
Embracing scarcity
Embracing scarcity in your budget can help you make better decisions and live a more purposeful life. The feeling of scarcity motivates you to spend more on what is truly important to you, rather than the newest toy or the latest gadget. You’ll have more time to devote to the things that really matter to you. And you’ll be more likely to stay on track with your financial goals when you’re living within your means.
Embracing scarcity in a plan means giving your dollars a job. The key is to avoid the temptation to lie to yourself and feel sorry for yourself. When you have no extra cash in your budget, you’ll be tempted to spend it on frills or luxury items. If you’re not sure how to start living a scarcity lifestyle, read this article. You’ll be amazed at how much you can save!
Spending within your means
While it can be hard to separate wants from needs, you should first consider what is truly necessary in your life. Needs are things that you need to survive, while wants are things that you might want to do but don’t really need. For example, you need food and shelter, but you also need to buy gifts, travel, and entertainment. This decision will vary from person to person, but for most people, they will decide to postpone purchasing wants until they’re debt free, have savings in place, and have more disposable income.
Make sure your spending is reasonable. If you’re over your budget, you may be tempted to spend tomorrow’s money today. In this case, you’ll end up paying credit card interest, and this can make your budget tighter than it would have been without the extra money. In addition, cutting back on fixed expenses, such as your rent, cell phone bill, and other regular expenses, can help you avoid overspending.
When creating a budget, you’ll want to create a list of expenses. Identify which ones are most important to you and what you can eliminate or delegate to others. You can even budget for things like restaurants and daily coffee runs. You may even want to consider a part-time job or freelancing in order to save for a larger purchase. You’ll be glad you did!
Start by identifying the factors that will drive revenue and expenditure. Next, prioritize your bills based on these factors. Spend the most on necessities first before luxuries. A car is still an essential necessity, but it’s an unnecessary expense. Likewise, activities that aren’t essential may be deemed as luxuries. If they cause you to miss paying your bills, they’re probably not necessities.
