So one last one to go: your savings expenses. Saving expenses are any expenses that you have that are related to improving your financial situation now or in the future. They are payments that you make towards your financial goals and include debt payments that you are making to pay off a loan, savings plans that you are paying into, investments that you are making and any emergency or rainy day funds that you have.
When you were looking at your fixed expenses you might have been wondering what to do with these savings payments already, or you might have even included them, as many of these can look like fixed expenses that you have monthly. The reason why we want to take these out and identify them as a different category however is that they are generally very different in nature to a fixed, variable or discretionary expense, as they are focussed on achieving a financial goal, as opposed to the other categories.
In most likelihood, not many people will have a goal like: “This year I want to spend at least $1500 on eating out in restaurants.”, whereas it is likely people might have a goal along the lines of: “This year I want to add at least $1500 to my savings account.”, or “This year I want to pay off my $1500 credit card debt.”
Step 12 – Identify your Savings Expenses – in detail
- This will probably sound familiar to you but let’s get going and make a list of any savings expenses that you currently have. Examples include:
- debt reduction payments
- savings plans / savings accounts payments
- payments towards emergency money or rainy day funds
- In theory a pension payment is also a savings payment, but as you might have worked out from the net worth steps, I am not a big fan of including this in your calculations, since you have very little control over your pension generally and especially if you are relatively young it is difficult to foresee what will happen to your pension in the long run, so I would personally leave this out of your calculations.
- Once you’ve got your list ready, start writing down your monthly payments for each. If this varies and depends on the month, like with the other expenses, try to get to an average for each payment.
- For the moment don’t include any debts that you aren’t paying off yet, or if you do because you want to have a full list, add them to your list and write $0 in the column next to it, so you know that debt is still there but isn’t actually reducing.
So we got to the end of creating an overview of all of our expenses. Now that we have a clear picture of everything we spend our money on, it is now time to look at our expense patterns in more detail and take full control over our spending habits.