The significance of determining your expenses
In todays commercialized world, you and I are not exempt from this phenomenon called spending. The high cost of living has caused a disproportionate increase in the spending habits of people. This only results in mounting expenses. Nobody is spared for this bug. Neither the rich nor the poor.
Our expenses can be categorized in to two - essential and non-essential expenses. Essential expenses are related to the survival of human beings while non essential expanses generally aim to add luxury to normal survivl habits. These are really unnecesary expenses.
The most common and essential expense are those spent for food and for the daily subsistence of a person. A person couldn’t survive without food and water so almost all people are forced to spend money on these items. Expenses for housing utilities like water and light are also considered essential expenses because any household couldn’t operate efficiently without them.
For people on the move, the cost of fuel or fare is also considered an essential expense because they couldn’t go about their daily work without spending for these items. Sometimes it is difficult to really categorize expenses. What is a necessity for one may be a luxury for another. These necessities change with the change in lifestyle.
Essential expenses are the expenditures that a person couldn’t live without because these are necessary for the day to day subsistence of a person. Try cutting down your food expenses you will soon realize how essential food is in the daily household budget.
However this may not be a valid judgement if your income is lesser than your expnses. If this is te case you will be frced to cut on expenses and these expenses could be your daily survival expenses. Although it would be improper to stake te elements necessary for survival, there is barely anything such a person can do if his income doen not suffice his monthly expenditure. A person who isn’t lucky enough to get a good paying job will definitely have no choice but to lessen the budget even for his essential expenses. This means cutting back on his basic needs like food, water and power consumption and even his toiletries.
But this is not understood my many people. You will always find people who earn less but still spend more for their household expenses. These people have failed to understand the meaning of being in debt and are managing their finances very poorly. The key to successful household management is to limit the expenses to the minimum.
While it is understood that the expenses of every person differ and the money allotted for each type of expenses depends on the priorities of the person, you still eed to live within your means.
On the other hand, a person who is engaged in business will definitely be familiar with business expenses. As these are necessary expenses to run a business, any entrepreneur should keep his expenses at a minimum and it should be lesser than the total sales of the business. If not, the business will be in a loss and teh entrepreneur will not be able to make a profit.
The usual expenditure for the entrepreneur would be those related to the promotion of the business, advertising, maintenance of the business establishment like expenses for power and water, salaries and wages for the employees and other expenses.So also a person who works at home can claim a certain percentage of the household expense as a business expense.
Business enterprises should control their overhead expenses to get a decent margin and a homeowner should keep his household expenses to the minimum to achieve a reasonable savings.
Savings advocates however argue that savings shouldn’t be the remaining cash after the expenses are deducted from the total income. They say savings should be deducted from the total income first and the remaining cash should be the basis of the monthly budget of the person. What this does is you set aside a fixed portion of your income as savings and then run your monthly expenses out of the remaining money. This way saving becomes a constant every month and your expenses get variably managed.
If the intention is to profit and to achieve savings then you need to be a wise spender. Keeping expenses to the minimum would be the wise man’s prerogative. Control every expense item including grocery sales, promotions, and free coupons. A person can choose to buy a cheaper product with the same functions and quality as another known product which is more expensive.
The essence is to take control an monitor your expenses wisely. you will need to make this a habit to get consistent positive results. This is what profit making is all about, be it a business or your personal life. Over a period of time you will chalk out ways for yourself to save money. You are your own judge and in a better position to evaluate what works for you. There are a thousand and one ways to save money and keep expenses low; it is however up to you to set and achieve these goals.
Article by Nakagava Ltd., creator of PiggyBob™, the first truly user friendly personal finance and appointment scheduling software. PiggyBob™ is an extremely convenient tool to help you keep track of your income and expenses, plus a very useful printable calendar to record all important events in your life. Downloand now
