Level 5: Lesson 1 – Your Monthly Expenses
The “Pay Yourself First” Strategy
This strategy prioritizes saving and investing a set portion of your income immediately upon receiving it (usually 10% of your income), before allocating funds for bills or spending. This can be your first expense.
This approach flips the traditional budgeting method on its head, ensuring your financial goals are funded first, and remaining income is used for living expenses. By automating transfers and setting realistic savings targets, you can build a secure financial future one “paid yourself first” paycheck at a time.
Fixed Expenses
These are the pillars of your monthly budget, the predictable costs that stay the same each month like rent, mortgage, utilities, and insurance. These are essential and often non-negotiable, forming the foundation of your financial commitments.
Variable Expenses
On the other hand, are more fluid. Groceries, entertainment, dining out, and transportation fall into this category, fluctuating based on your choices and needs. Tracking and managing these expenses is crucial for avoiding overspending and staying within your budget.
Emergency Fund
This acts as a safety net, a pool of savings reserved for unexpected events like car repairs, medical bills, or appliance breakdowns. This is 3-6 months worth of your monthly expenses. Building a healthy emergency fund helps you weather financial storms without resorting to debt or dipping into other savings goals.
Wrap Up!
By understanding these three categories, you can gain control over your spending, prioritize your needs, and achieve financial stability. Remember, fixed expenses are essential, variable expenses require informed choices, and an emergency fund provides peace of mind.