Understanding your expenses can help you make better financial decisions. If you still need to do so, sit down and take the time to organize your expenses. Find out where you are spending your money and get insight into where you could save.

Expense Tracking

Expense tracking is the process of recording your spending in various areas. Most people use multiple forms of payment to make purchases and pay their bills. By keeping track of these expenditures, you can make decisions about your needs moving forward, such as how you can save, where you can save money, and how you can pay off debt faster.

To track expenses, you'll need to create categories for each area you regularly spend each month. Here's a breakdown of some of those costs.

Fixed Expenses

These are expenses that remain the same each month. They are often must-pay expenses. Some examples include:

• Rent or mortgage payment
• Home insurance
• Health insurance
• Phone bill
• Internet bill
• Other utilities that have the same monthly payment

Variable Expenses

Variable expenses are necessary, must-pay expenses. What makes them different is that they may range widely from one month to the next. These are often expenses such as:

• Utilities, like heating and cooling
• Gas, or vehicle charging
• Groceries
• Medical bills
• Pet food

Variable expenses can change monthly and can be controllable based on the seasons or your spending habits. For example, you might try carpooling to reduce commuting expenses or select store-brand items instead of name-brand while grocery shopping. Depending on your decisions, spending in these areas can go up or down.

Discretionary Expenses

Discretionary expenses are a much wider field. Create categories for each one of your expenses that isn't necessary to keep your four walls up and your family safe. These costs range from month to month in some cases but are mostly categories of non-necessary spending. Some examples include:

• Personal care services and supplies
• Dining out
• Shopping trips for non-essential purchases
• Parking costs
• Out-of-pocket money
• Fun money
• Holiday spending money and other money for gifts
• Charitable giving

Remember Savings and Debt Repayment

When creating a budget, it is easy to focus on how much you are spending as the sole focus. Yet, you also need to build in ways to save money. Consider savings and debt repayments as separate but essential categories in your budget. Instead of viewing them as what to do with what's left over in the budget, make them must-pay expenses.

Sometimes, you may place your debt repayment and savings as fixed expenses. In this case, make it a point to pay the same monthly amount towards your debt. Just like paying the rent, you're putting money towards these costs.

If you are still determining if you can commit to the same monthly amount, create a variable category for saving and debt repayment. Create a target budget for that amount each month. That way, you are still contributing to those critical areas, but you have some leniency in how much you put away each month.

What's most important is committing to these two categories since they play an essential role in your ability to create financial stability. If you only pay the minimum on credit cards, it will take years for you to get caught up. If you don't put money into savings every month, you may always struggle with unexpected costs.

Creating Expense Categories

Once all your information is organized, you can create a budget. Create expense categories based on your spending. For example, if one category is your rent, allocate how much you spend on rent each month to that category. Then, look at your spending on grocery costs. If you've tracked this amount over several weeks, you'll have a better idea of how much you spend on groceries each week or month. Create a category that offers the average within that area.

Do this for all of your expenses, both fixed and variable. Once you find those categories, look at what's left over from the income you're bringing in. Now, you can start allocating towards your discretionary income. At this point, you should already be putting money into savings and debt repayment. Use what's left for spending money, entertainment, eating out, or whatever else you want to spend on. That way, each of those categories has some funds in it. You can adjust how much each gets based on how much is left over in your budget.

This process could take some time. You may need help determining where to get enough funds to pay everything at the level you want. Work as closely as you can to create a balanced budget nonetheless.

Analyzing Wants & Needs

If you are having trouble with your budget, it's crucial to consider needs and wants for what they really are. Even if your budget is balanced, you could adjust your needs and wants and better align your debt repayment or savings goals with your actual income.

For example, you may spend $20 monthly on a TV subscription service. You may use it, or you may not. In all situations, this is not a need but a want. You want to be able to stream TV, so you pay for this cost.

You may have to spend a certain amount on medications each month, and this is not a want but a need. No matter what, you need to invest that amount into your monthly medication purchases, especially if they are life-saving medications.

Go through all of your debts carefully like this. Consider what your actual needs are and what wants are. Most often, your needs are costs that keep you healthy, pay for your four walls to remain up, and any other necessary purchases related to your well-being. Wants are everything from your Amazon Prime subscription to the hunting license fees you pay.

When you categorize these items like this, you can better see where to cut funds if needed. If you are running tight on funds, you can cut off that gym membership to help cover the costs.

Recording Recurring vs One-Time Expenses

When you focus on month-to-month transactions, it's always important to recognize what is going to be a recurring payment.

For example, you may need to buy your child shoes for school. That's a one-time payment, as would be a doctor's office visit payment. When categorizing these purchases, try to create categories that fit those areas. For example, you may have some discretionary spending put aside for gifts, clothing, holidays, or bulk purchases.

Looking for Trends, Problems, and Opportunities

With all of your information outlined in front of you, realize the value of what you have. You can look for trends and patterns in your spending and find areas to cut costs. For example, you may be spending far too much on dining out, and you can direct some of those funds toward groceries. You can also look for savings opportunities. Can you reduce your lawn and garden spending by fertilizing yourself instead of paying someone?

Work through your budget to find areas of opportunity. Look for ways to direct more of your funds into your savings and debt repayment, so you keep yourself on a solid financial path.