Elements of a Financial Budget

Anyone can benefit from creating a financial budget. A budget helps people see where the money goes, makes it easier for them to target problem areas, adjust their spending habits and reach financial goals.

All basic budgets have the same elements: fixed expenses, variable expenses, discretionary expenses and personal financial goals. By combining these basic components of a budget, a person can create a simple monthly budget.

​Read More​: What Are the Concepts of a Budget?

Determining how much income a person brings in a month is the first step to creating a successful financial budget. To determine how much income you have, calculate the net proceeds you make from any source of income.

Sources of income include any money you receive on a regular basis, such as paychecks, child support, alimony payments or rental income. Income you receive infrequently, such as an employee bonus, may be too unreliable to include as a monthly source of income.

If you know your average monthly salary or pay, you can enter it at the bottom of budget spreadsheets (like the free Excel budgets at My Fire Facts.com) subtracting your monthly expenses to see your net gain or loss each month. If you think your income will vary each month, put estimates into your budget for each month, then update them when your pay comes in.

Fixed expenses are recurring expenses that cost the same each month. Typically, these are the necessary expenses required to cover the cost of living, such as mortgage or rent payments or insurance premiums. Fixed expenses can also include recurring expenses, such as auto loan payments or telephone bills. Every fixed expense you pay each month should be written down and deducted from your monthly income.

Variable Expenses include any living expense that varies from month to month. For example, utility bills, car maintenance, groceries, credit card payments and pet food all count as variable expenses. Many people choose to estimate the cost of these expenses when creating a budget. However, you can adjust the total to a more accurate estimation by tracking your spending in these categories.

​Read More​: The Psychology Behind Creating vs. Actually Sticking to a Budget

Discretionary expenses are not necessary expenses and include purchases you make for entertainment purposes. For example, the cost of Internet fees or cable television, going out to eat, purchasing concert tickets or buying a cup of coffee at a coffee shop counts as discretionary expenses.

Many people spend more on discretionary expenses than they think they do. You can track your expenses in this category for a few months to see where you spend the most and make adjustments if necessary.

One of the main objects of creating and maintaining a budget is to meet financial goals. A goal can include anything you want to spend your money on. For example, you can build up an emergency fund by saving a portion of your income each month. You can pay down credit card debt with excess income you have after paying for your living expenses.

Using the basic components of a budget described above, you can also set-short term goals like buying a new piece of furniture or taking a weekend vacation. By deducting your monthly expenses from your income, you can determine how much excess income you have left over to put toward your goal each month. And, don't forget an emergency fund.

​Read More​: Monthly Budget Tips