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Living Expenses Vs. Personal Expenses
Living expenses are those things we must have in order to live day-to-day. Items that are considered necessities are food, clothing and shelter. Some other items come into play as necessary such as utilities and transportation to and from work. Properly budgeting living expenses means planning for the things that must be paid for on a regular basis.
Personal expenses include dining out, excessive clothing, entertainment, leisure travel, and gifts. Anyone who is budgeting living expenses properly will be able to afford more of these personal expenses by utilizing effective budgeting techniques.
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How to Create a Budget for Living Expenses
While there are many software programs and websites to help create and maintain a budget, the easiest way to start is with a paper and pencil. Make a list of every regularly occurring living expense and its amount for each month including rent or mortgage payments, electricity, natural gas or propane, cable, telephone, Internet access, and cell phones. Add groceries, laundry, pet care, and a minimum clothing allowance to this list. These are your living expenses.
Make a second column of monthly debts not related to living - car payment, insurance, credit card debt, student loan payments, and any other loans. These are regular recurring expenses not required for day-to-day living.
Finally, make a third column of all of the household income. If you are a single person working one job with no investments, the list will be very short. Compare the total of the first column plus second column to the total of the third column. Hopefully, the third column will be greater than the total of the first two - that's a great start.
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Understand Where Your Money Is Going
If your simple budget indicates that you should be able to pay all of your living expenses and debt reduction and still have some for savings but you don't, you need to understand exactly where you money is going. It might take a month of two of meticulous record-keeping to realize that you are spending $80 per month for lattes or $200 per month dining out, all of which eat into your budget.
In the meantime, begin to methodically reduce your monthly living expenses. Are you in a position to refinance your mortgage to a lower monthly payment? Is your rental lease about to expire, enabling you to move to less expensive housing? "Overhead" or mortgage or rent payments are the usually the highest monthly expenses.
Reduce your electric or heating bill by turning off the lights when you leave a room and turning down the thermostat to 65-68 degrees. If you feel cool, grab a blanket or a warm sweater. Do you have more rollover minutes on your cell phone than you could possibly use? Check if you can switch to a lower-cost plan. Use your cell phone for long distance calls when the minutes are free. Replace the washers in a leaky faucet.
Have you had an insurance check-up lately? You might be paying more than necessary.
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Further Reductions in Living Expenses
Commuting and parking can take a big chunk out of anyone's budget. Find ways to reduce those costs and get a better grasp on budgeting. Avoid unnecessary convenience store purchases by filling up your gas tank once a week. Is there someone who lives and works near you? Perhaps you could car pool, cutting your gas and parking costs in half by ride-sharing with just one person.
Do you watch all of the premium channels in your cable package? If you don't watch the movies regularly, you could save money by eliminating premium packages and renting movies on DVD.
Are you eating all of the groceries you buy or do things go bad in the refrigerator because you forgot to cook them? Package meats for freezing as soon as you return from the grocery store to prevent spoilage. For items that can't be frozen or aren't shelf-stable ask yourself if it's something you really need.
By reducing and budgeting living expenses, you can get a true picture of where your money goes every month.
Please be sure to check out the other tips and strategies in Bright Hub's collection of personal and household budgeting guides.
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Ohio State Extension Service - http://ohioline.osu.edu/ss-fact/pdf/0205.pdf
Image Credit - iprole at www.sxc.hu