How to set up guidelines for allowable expenses with personal finance?
With personal finances our spending is not dictated the way it would be in a business. In a company, even if you have a company credit card, there are allowable expenses, and then there are things that would not be covered. You know this, and so you would never use your company credit card to buy such things. Well, you should have the same sort of system for your personal finances. There should be some set guidelines to help you determine what you should, and should not be spending your hard earned money on. So, how can you set up guidelines for such allowable expenses? Try the following:
1. Your first guidelines should be if it is a need or a want. This should be set as if it is a need then yes, if it is a want then maybe. For example, we all need to eat, but do we need to eat lobster tail and shrimp? No! So, just like if you were eating on a company credit card, give yourself an allowable need based limit. This does not mean you can't leave some room for enjoyment, but it does mean set some limits so you do not spend five thousand a month to eat.
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2. Next set up a budget for yourself. This should include how much you make, and then subtract out all fixed expenses such as insurance, house, car, utilities, etc. What is left over is what you can spend, so look at it closely, then ask yourself if the thing you want to buy should be allowed based on whether or not it would fit into what is left. For example, if you find that after all of your bills, you have about $400 a month left over for gas, food, and entertainment, and you really want the new Wii videogaming system, which will run you about $300, is it an allowable expense? No! It costs less then what you have left, but if you bought it, chances are you would not be able to drive to work and feed yourself for a whole month with what is left. You pretty much just have to ask yourself what you will have to do without if you were to buy that and not go in to debt. The answer should tell you if it is an allowable expense or not.
3. Set up plan for making things allowable. If there is something you really want, then chances are you will buy it. So, if it has been deemed an unallowable expense based on the above two criteria, but you really want to have it, it is time to figure out a way to get it. You do this by saving for it. Novel concept. So, you find that based on your budget you have room for $75 a month of entertainment, so you see a movie, which runs you $25 with popcorn etc. so that means put the other $50 in a jar, or a bank account, or whatever, until you have the full amount. Yes, you will have to wait, but it is how you make an unallowable expense into an allowable one.
4. Make your last requirement be whether or not it gets in the way of financial goals. If your financial goal is to get out of debt, you won't do it if you allow frivolous expenses such as coffee from a shop every morning, or every new item that comes out for a specific line of clothing, etc. If your goal is to save a certain amount each month, can you do that if you buy a new car? Etc.
Ask yourself these pertinent questions, and you will know if it is truly an allowable expense or not. If it helps think of it in the context of a business, and determine if it was a business credit card could you be spending that much?
