I consider my discretionary expenses as my wants. Performing the in depth analysis of all necessary expenses is called value analysis. In addition, I lower my costs by downsizing my residence, increasing deductibles and reviewing coverage. I check the market place for insurance annually to find the lowest price and quality service. I take a proactive approach with all my expenses, but the necessary ones require more scrutiny! I spend a lot of time to get the lowest interest rate for my mortgage and best terms. I view my expenses as necessary and discretionary. Saving and investing is separate although I considerate it necessary! Discretionary expenses include credit card bills, auto loan, gasoline, mobile phone, entertainment, dining out, travel/vacation, pets, gym membership, alcohol/cigarettes, cable, internet access and clothing (above what’s needed). Some people may refer to these expenses as your fundamental needs. Typical necessary expenses are rent/mortgage, property taxes, utilities, insurance, groceries, student loans, laundry, taxes and childcare. Your personal expenses have a fixed and variable component, but are more necessary and discretionary. Variable expenses or costs respond directly and proportionately to changes in activity level or volume. Fixed expenses or costs do not fluctuate with changes in production level or sales volume.
In business, there are fixed and variable expenses. My approach to personal finance is to keep it simple! The less you have to think about the better. Other expenses such as property taxes, property, auto, and life insurance change annually. Your mortgage is the same unless you refinance it. Some expenses are the same every month and only change annually. I check every expense that has more than 5% variance. It is a good idea as far as it goes, but I think you should analyze your expenses monthly. Most people create an annual budget and just track their expenses every month.
I review my expenses every month and make small changes. An effective budget not only controls your spending, but helps you look at your expenses critically to change your spending. It is a finance plan that allocates future personal income toward expenses, savings and debt repayment. A budget is a structure to help you reach your financial goals. I know this works, but maintaining a budget is more than tracking your expenses. Many personal finance experts suggest budgets to track your expenses. Contrary to most personal finance gurus, I am much more careful when I use my credit card. Whenever I have cash in my pocket, I will spend it! It is one of the reasons I do not carry cash. The simple answer is you have finite income! It is real easy to spend more money than you earn or have. Track your expenses or you will overspend.
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