If you’re looking to improve the management of your expenses, in this article, I’ll be sharing my way of classifying expenses to help give me a better overview of them and make more sound decisions about my money.
Part of personal finance is keeping our expenses in check and sometimes it’s such an overwhelming task to do. In addition to having multiple expenses, there are also different kinds of expenses. I’ve found that regardless of the expense, they can all be classified into 4 general categories.
This varies from person to person. However, at some point in time, we’ve each probably encountered at least 1 of the 4. Most often, I believe there will be a mix of all 4.
4 Expense Classifications
Fixed & Necessary Expenses
By fixed, this means that the price is the same every time you pay. It doesn’t change. By necessary, this means it’s non-negotiable. It’s a must and is something you cannot live without.
Examples: Rent, Internet
Variable & Necessary Expenses
By variable, this means that the price varies every time you pay. It changes and is different every time. By necessary, this means it’s non-negotiable. It’s a must and is something you cannot live without.
Examples: Electricity, Water, Communication
Fixed & Optional Expenses
By fixed, this means that the price is the same every time you pay. It doesn’t change. By optional, this means it’s negotiable. It’s something you can live without.
Example: Spotify, Netflix
Variable & Optional Expenses
By variable, this means that the price varies every time you pay. It changes and is different every time. By optional, this means it’s negotiable. It’s something you can live without.
Example: Eating Out, Dates, Going for Drinks
Important Note: this varies from person to person, what’s important here is that you understand the kind of expense that you have for your situation.
As for me, here’s a breakdown of my expenses classified into the 4 classifications:
This has helped me keep my expenses in check especially when I’m looking to tweak, add, or eliminate expenses. It has proven to be handy during my periodical financial reviews.
If you’d like a copy of the excel file that I use, you can download it here.
Conclusion
When planning or doing a review of expenses, it’s important for me to have a good idea of the kind of expenses that I have so that I know how I can maneuver my finances moving forward.
Here are the key takeaways when I manage my expenses:
- Write/list down expenses
- Classify expenses
- Reviewing them periodically helps when making future decisions about my money.
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