Understanding your monthly expenses is the first step to financial stability. For homeowners, costs like utilities, maintenance, and insurance can add up quickly. Creating a clear spending list will help you plan for both expected bills and the hidden costs of homeownership, allowing you to budget with confidence.
This Redfin article brings together a comprehensive list of costs and advice from experts to help you manage your budget, whether you live in a home in Evanston, Illinois, or across the country in Portland, Oregon.
Three core areas of focus
To create an effective budget, you need to divide your list of expenses into three main areas: fixed costs, variable costs, and recurring costs. This distinction is important because it emphasizes controllable and consistent expenses. This breakdown is especially important for homeowners. That’s because housing costs span all three categories, from fixed mortgage payments to unpredictable maintenance.
Peter Newman, CFA, president of Peak Wealth Planning, points out that financial flexibility typically falls under the category of variable costs, and encourages separating fixed and variable costs. Splitting your costs in this way helps you get a complete picture of your financial obligations and ensures that you don’t overlook any costs when budgeting.
monthly fixed costs
Fixed costs are non-negotiable expenses that remain the same each month and are the most predictable part of your budget. These costs are often tied to long-term contracts and agreements, providing stability to your financial plan. For homeowners, these costs represent the cost of their home. Many people underestimate the true cost of housing, leading to confusion about where that money goes. By knowing these totals, you can quickly determine the minimum income you need to maintain your current standard of living.
However, many people overlook irregular but predictable costs, such as insurance premiums and annual subscriptions, that should be treated as fixed obligations. Lisa Chastain, a money coach and author of Stop Budgeting, Start Living, teaches people to divide their money into three categories: bills, lifestyle spending, and savings so that “every dollar has a job.” A “bill account” includes all of your home living expenses, such as rent or mortgage, utilities, insurance, taxes, and ongoing maintenance.
Kelsa Dickey, founder of Financial Coach Academy, calls these predictable monthly costs ‘SpendFixed’ expenses, and says, “Although these are mostly stable, some costs (like heating in the winter and cooling in the summer) can spike seasonally, so it’s worth planning for the higher months.” Common expenses to consider include:
Housing: Mortgage or rent payments Insurance: Homeowner, renter, life insurance, or personal health insurance premiums Debt payments: Student loan, auto loan, or minimum credit card payments Utilities (fixed plans): Internet service, cell phone plans, and recurring subscriptions billed at a flat rate
monthly variable expenses
Variable expenses often represent the biggest opportunity for savings because they vary from month to month. These costs are highly influenced by usage, lifestyle choices, and market prices and must be carefully tracked and managed. Properly managing variable costs is the key to achieving a flexible and adaptable budget.
Jeffrey Cutter, CPA/PFS, president of Cutter Financial Group, describes small, recurring purchases like your daily coffee or unnecessary apps as “surprise” expenses that can have a big impact on your savings over time. He says, “I have three daughters and they love these apps. We just burned through $225 a month on apps we don’t need. We’re saving about $3,000 a year. They add up over time and can have a significant impact on your savings as a result.”
Robert P. Finley, CFA, CFP, a principal at Virtue Asset Management, advises that variable lifestyle expenses like food, travel, and ride-sharing tend to increase over time and should be reviewed regularly to prevent them from adding up unnoticed.
Peter Newman added that reviewing your subscriptions and recurring services annually can help you align your spending with current needs and maintain long-term financial independence. It’s important to know how much of your monthly expenses go toward:
Food: Groceries, eating out, food delivery services Utilities (usage-based): Electricity, gas, water Transportation: Gas, maintenance, public transportation Personal care: Haircuts, toiletries, cleaning supplies Entertainment: Movies, events, other leisure activities
Term fund disbursements and sinking fund disbursements
Many important costs occur on an annual, quarterly, or semi-annual basis, but should be accounted for in your monthly budget to avoid major financial surprises. These expenses are best addressed by creating a sinking fund, where you set aside a small, fixed amount each month for a future lump sum. This proactive approach will smooth your monthly cash flow and ensure your money is available when your infrequent bills arrive.
Kelsa Dickey calls these costs “SpendFuture” costs. These are annual, seasonal, or recurring expenses that don’t occur every month, but are completely predictable if you plan ahead. These costs include things like property taxes, HOA fees, lawn care, and the inevitable appliance repairs that fall on a monthly rhythm. To avoid future problems, please keep the following in mind:
Annual fees: Software subscriptions, club memberships, or credit card fees Taxes: Property taxes (if not in escrow) or vehicle registration fees Maintenance: Home repairs, preventive vehicle maintenance, annual health exams Gifts and holidays: Funds set aside for birthdays, travel, or seasonal celebrations
Incorporate savings into your monthly expense list
A successful budget views savings and investments as mandatory items on your monthly spending list, rather than as optional leftovers. Peter Newman, Robert P. Finley, and several experts emphasize that saving, whether for retirement, an emergency, or a future goal, should be treated as a non-negotiable expense. They encourage automating contributions to emergency funds and retirement accounts.
make a budget
Step 1: Calculate your monthly income
Start with after-tax income from all sources, including salaries, freelance work, and other steady income.
Step 2: List your fixed costs
Add up your predictable monthly costs, such as mortgage or rent, insurance, loan payments, and subscriptions. These form the basis of your budget.
Step 3: Estimate variable costs
To find a realistic monthly average, look at your past spending on groceries, utilities, and entertainment.
Step 4: Allocate what’s left
After covering your necessities, divide the remaining income between savings and discretionary spending. Prioritize building an emergency fund first.
Step 5: Track and adjust
Check your monthly expenses and compare them to your budget. Adjust habits and categories as needed to stay on track.
How can I make my budget more manageable?
Kelly Ann Smith of Freedom in a Budget says an easy way to get a realistic picture is to look at your bank and credit card statements from the past two to three months to see how much you’re actually spending and to spot any spending you might be missing. “From there, you can easily manage your budget by breaking down your expenses into simple categories such as housing, transportation, food, debt repayments, savings, and lifestyle spending.”
Jeffrey Cutler echoes this advice, saying, “Sit down with a simple Excel spreadsheet. Enter all your fixed expenses, then your variable expenses. Add them up, isolate what you can currently control, and try to change those behaviors. Take it one step at a time. You have to be honest with yourself. Manage your variable expenses first, then your fixed liabilities. And remember, you can’t go wrong here unless you quit.”
FAQ
What is the difference between fixed costs and variable costs?
Fixed expenses are expenses that occur in the same amount every month, such as a mortgage payment or a car loan. Variable expenses are expenses that change from month to month based on your usage and choices, such as utilities, gas, and entertainment.
What is “creep” expense?
“Creep” spending is small variable costs that increase over time or are overlooked, subtly increasing overall spending. Examples include everyday convenience purchases, unnoticed lifestyle upgrades like excessive eating out, and subscriptions or apps you no longer need.
Why should you budget for home maintenance if you haven’t made any repairs yet?
By budgeting for future maintenance and repairs, you can prevent sudden and large expenses from leading to debt. The cost of homeownership involves not only monthly payments, but also reserves for unpredictable expenses like appliance replacements, unexpected special appraisals, or major home projects.
