Expenses

Definition of Expenses

noun

money received, especially on a regular basis, for work or through investments.

 

Why am I teaching you about expenses?

• Expenses are the driving force between positive net income or negative net income

• I know I discussed increasing your income to be an effective way to grow your profit margin, but we still need to have a great understanding of expenses.

• We have two types of expenses: Fixed and Variable

 

1. Fixed Expenses: These are expenses that you have to pay. They don’t care if you are employed, unemployed, or somewhere in between. Sure, some are cancellable, but they are typically items that make it tough to live without.

   1. Here are some examples:

      1. Mortgage/rent

      2. Utilities

      3. Car – monthly payment, gas, and insurance

      4. Insurance – life, disability, etc.

      5. Groceries

      6. Phone bill

      7. Wi-Fi/Cable

      8. Subscription services – Netflix, Hulu, Spotify, etc.

      9. Health services – gym, therapy, yoga, etc.

      10. Memberships – think golf

   2. We can go on and on with other examples, but these are the major ones

   3. Going back to my previous thought – a gym membership is not a necessity, but if this is something you deem essential, and you pay for it monthly, then you better make sure it is accounted for.

2. Variable Expenses: These are expenses you can technically live without and they fluctuate on a monthly basis. Some of these expenses may seem like they are recurring and “essential”, but at the end of the day you are able to get rid of them in case you have no other choice.

   1. Here are some examples:

      1. Going out to dinner

      2. Going out for drinks (yes, separate from dinner)

      3. Extracurricular activities – golf, music, books, watch collection, or any other hobby

      4. Coffee – the dreaded “don’t spend $5 a day on coffee”; I love Starbucks so I get it.

      5. Daily meals – this could be breakfast/lunches that you buy while at work when you could technically make the food at home. I am not saying this is a bad expense, but definitely something to keep track of.

      6. Shopping – both in store and online

      7. Amazon – I give Amazon its own category given so much is available on there. I could make an argument that this could be a fixed expense if some of your recurring and essential expenses are bought through here, but for simplicity purposes it will stay here

      8. Anything else that you can think of

 

Some important things to consider:

• If you are making a budget, there are going to be things that you spend money on that are truly one-off expenses – going to a wedding, buying something for your home, etc.

• however, if your budget is set up properly, these one-off expenses can be separately saved for and not impact your budget

• if you are having trouble remembering all of your expenses, I would read through all of your debit card and credit card statements to make sure everything is accounted for. It is a tedious process but it could make a meaningful impact on your budget.

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Important Calculations -> COMING SOON!