Types of expenses

AlexNow let’s take a closer look at the expenses in my budget. There are three different types of expenses, and understanding each of them can help you decide what’s important as you watch your budget.

Alex’s 4-week budget

Description Income (+) Expenses (-) $ Available
Earnings — babysitting and running errands $80.00 $80.00
College fund $15.00 $65.00
Snack money $20.00 $45.00
Savings for a computer $15.00 $30.00
Entertainment / clothes $20.00 $10.00

Fixed expenses

AlexThe first kind of expense is a fixed expense. These are expenses you can’t really control because they’re necessary. Adults usually have fixed expenses — like rent or car payments. They occur regularly and don’t change from month to month. Fixed expenses:

  • Occur regularly
  • Are necessary for day-to-day living
  • Don’t change from month to month

Flexible expenses

AlexThe second kind of expense is called a flexible expense. Like fixed expenses, flexible expenses occur regularly, and they’re expenses that you can’t really get around. Flexible expenses:

  • Occur regularly
  • Are necessary for day-to-day living
  • You have some control over the amount

Discretionary expenses

AlexThe difference is that with flexible expenses, you have some control over how much you spend. Adults, for example, have to spend money on electricity or groceries, but can make choices over how much they spend.

The third kind of expense is called a discretionary expense. This is money that you choose to spend — like money for movies or having pizza with friends — or even money that you save. So far, all of my expenses are discretionary, but I try to think of my college fund as a fixed expense. Discretionary expenses:

  • You choose to have the expense
  • You control the amount

AlexRemember, your budget is a general plan. If your expenses change, or if you have an emergency expense, your budget will have to change too. So try to allow yourself a few dollars left over every month for pocket change — or to help pay for the unexpected.

So that’s just a little glimpse of my budget. When we get older and live on our own, there’ll be so much more to budget for and keep track of. That’s when a budget requires even more planning. Come on! Let’s take a look!

Click the Next button to learn about a budget for a family of four.