Expenses
"INCOME AND EXPENSES ALWAYS GO HAND IN HAND, AND THE AMOUNT OF INCOME MINUS EXPENSES IS YOUR ACCUMULATION."
Let's learn about cash outflows – the activities that involve money in your daily life.
Just like with income, you also need to make a spending chart to see whether the number of cash inflows you have are enough (also known as “balancing”) for the cash outflows.
Try to recall and write down in as much detail as possible what you spent last month, then separate your expenses into categories. Next, calculate what percentage of your total spending is used for each category.
For example,Tuan and Mai estimate the proportions of their spending categories as follows:
TUAN’S SPENDING CATEGORY
MAI’S SPENDING CATEGORY
CLASSIFICATION OF EXPENSES
Expenses can be classified into three types:
1. Fixed expenses:
Fixed expenses are the same every time-often a set monthly payment, such as house rent. These are easy to plan for because you know how much needs to be paid and when. The downside is the amount is set by someone else, so you can’t adjust your payment (postpone or lower it) when money is tight.
2. Variable expenses:
Variable expenses are common expenses where the amount is different each time, such as paying for groceries or a meal. The advantage here is you have control over how much it’ll be. For example, you can change how often you eat out and where you go. So, if money is tight, you can just stop eating out and save yourself some cash.
One downside is you can end up spending too much and not have enough left for fixed expenses. You can use your spending log to estimate an amount for your spending plan.
3. Irregular expenses:
Periodic expenses arise occasionally during the year, usually less than once a month. School fees and trip expenses are examples. The good news is you don’t have to deal with them every month. The bad news is these expenses can totally blow your budget.
After learning how to categorize expenses, Tuan and Mai have listed typical monthly expenses from their spending logs in the following chart:
COMPARE THEIR TYPICAL EXPENSES WITH THEIR ESTIMATED INCOME. HOW ARE THEY DOING? ARE THEY ABLE TO MEET THEIR SAVINGS GOALS AND AFFORD THEIR EXPENSES?
SPENDING HABITS
What spending habits do you have? List your spending habits. Mark them as sensible (+), unwise (–), or neutral (N). We’ll come back to finish the right-hand column in this chart later.
Right now, your spending habits may not seem like a big deal. However, these habits are often hard to shake, and can be one of the core factors affecting your financial situation. Good habits help you have self-control as you plan to achieve your goals. But bad habits may push you out of the driver’s seat and lead you somewhere you really don’t want to go. The closer you get to being out on your own, the more you need to be in control of your actions.
FOR THAT REASON, THE TIME TO TAKE ON GOOD MONEY HABITS IS NOW.
By doing so, you also will find it easier to afford the things you really want today!
To begin managing their money effectively, Tuan and Mai have made a list of what they see as their good and bad spending habits, as shown in the following table:
DO ANY OF THEIR HABITS SOUND FAMILIAR TO YOU?
The problem with unwise habits is the short- and long-term impact they have on your life. Say you’re Tuan and you spend VND 30,000 on iced coffee every morning when you go to work. Assuming you skip them on the weekends, that’s VND 150,000 a week on drinks. OK, that’s not horrible, right? But what does that add up to in a month? In a school year? And what do you really have to show for all the money you spent? You could have spent that amount on a smart phone or even a laptop!
It’s not that spending money on iced coffees or fast food is necessarily bad. It’s OK to have things you enjoy in life. The question is, could you enjoy certain things less frequently to afford other things you’d enjoy in your life even more?
WRITE DOWN AND LOOK AT YOUR MONEY HABITS. THINK ABOUT HOW EACH HABIT COULD AFFECT YOU IN THE FUTURE. FOR EACH UNWISE HABIT YOU HAVE LISTED, WRITE DOWN A SENSIBLE HABIT TO REPLACE IT.
THE CASE OF THE DISAPPEARING MONEY
Have you ever opened your wallet to pay for something and realized you’re down to your last few dollars? You get flustered trying to figure out another way to pay and, in the meantime, your brain is racing to grasp: “Where’d the rest of my money go?” The good news is that the “thief” will be super easy to catch. Just look in the mirror! Then remind yourself how even little expenses add up-fast.
Of course, the only way to be sure of where your money goes is to track your spending. So, put on your detective hat and start keeping what’s called a spending log. In it, you’ll record everything you spend money on and how much you spend each day. When you review the list, you can bet that your findings will be an eye opener!
HOW TO MAKE A STATEMENT OF MONTHLY/ ANNUAL EXPENSES
Activity Make a statement of monthly expenses.
Hints:
3 Personal shopping for basic needs: including clothes, shoes, cosmetics, perfumes, basic accessories, etc. This expense should only be equivalent to 2-3% of your total net income for a month.
4 Miscellaneous in the Pocket Costs: for example, shopping out of need.
5 Eating outside of the fixed monthly expenses for food.
6 Other in the Pocket Costs: For example, the expense of hairdressing, spa, etc.
7 Dining out: Including meals that cost 50% or more from your usual standard meal (by income standards).
8 The portion of the value that exceeds the basic needs.