“I put money into my retirement account. Isn’t that long-term budgeting?”
Good that you’re planning ahead- a participation trophy for you! All kidding aside, budgeting is the root of all your short-term and long-term financial goals, and knowing the expenses that contribute to or take away from those goals will help you meet them. Break out the pen and paper! (Or just create a Google spreadsheet.)
Fixed Expenses are your regular, inescapable costs: your rent, your cellphone bill, student loan payments, car payments, insurance premiums, or gym membership. While these expenses aren’t always set in stone (if you’ve blown through your phone’s data plan, you know this all too well), the prices are relatively locked in and you keep enough cash in your checking account to cover them.
Variable expenses are your costs that vary month by month: dining out, shopping, movie nights. Your variable expenses will be the figures to keep an eye on- don’t be caught off guard after an eight-course tasting menu for your spouse’s birthday. When you’re trying to save, you’ll likely have more wiggle room with these expenses.
Does anything on your list surprise you? Did you realize your daily latte habit costs nearly $800 a year? For some of us, sizing up a printed list of our monthly fixed and variable expenses is like visiting the Oracle at Delphi- your expense epiphany might inspire changes in your spending behavior. With a better understanding of where your paycheck disappears every month, take those numbers and outline the steps to your financial goals.
Short-term budgeting is mapping out your finances for a goal coming up in a year or less. Funding short-term goals is sometimes as easy as swapping out dinner with friends to pay for concert tickets, or reducing your shopping budget for a few months so you can afford a scuba excursion in Belize this winter.
If you’re getting married, you have some major short-term expenses in the wedding and honeymoon. You want to have the night of your life, but you don’t want to still be paying for it on your fifth anniversary. We can help.
Long-term budgeting looks at your finances a year or longer into the future. Even before the honeymoon phase is over (pun intended), you and your spouse should discuss your daily, weekly, monthly, and yearly spending habits. Long-term goals are saving for a house, taking a month sabbatical to travel across Southeast Asia, and of course a comfortable retirement. (Go ahead, wave your trophy!)
And not to sound like your mother, but you should always leave a little cushion for any unexpected costs that come up- that emergency fund isn't going to pad itself.