Managing Monthly Expenses: Tips and Strategies for Financial Stability 

Managing monthly expenses can feel like navigating a maze, but once you find your bearings you’ll gain a greater sense of financial stability and peace of mind. Understanding and controlling your spending helps you prevent unwelcome surprises so you can more easily achieve your financial goals. Ready for some practical tips for managing your finances more effectively? Let’s get started.

In this article, we’ll cover: 

• Types of monthly expenses

• Monthly expense examples

• Tips for managing monthly expenses

Types of monthly expenses

One of the first things to understand about managing monthly expenses is that each expense can be categorized based on a couple factors. The first is predictability: some expenses are about the same every month (aka, fixed expenses), while the cost of others fluctuates (aka, variable expenses). The second way to categorize expenses is based on necessity: some expenses are needs (necessary expenses), while others are wants (discretionary expenses).  

By categorizing each of your monthly expenses according to these factors, you can more easily create a balanced and realistic budget that accounts for your various kinds of spending.

Fixed expenses

Fixed expenses are those that remain constant each month. This type of monthly expense  includes things like rent or mortgage payments, insurance premiums, and subscription services like video streaming or gym memberships. Fixed expenses are predictable and require regular, consistent payments, making them easier to plan for in your monthly budget.

Variable expenses

As opposed to fixed expenses, variable expenses fluctuate from month to month. These expenses may include groceries, utilities, or transportation costs. Because these monthly expenses can change, it’s helpful to track and average them over time. Seeing concrete evidence of your variable expense spending patterns can help you more accurately estimate how much you’ll need to spend on average each month. Additionally, setting a monthly limit based on your spending history can help you keep your variable expenses in check.

Necessary expenses

As you evaluate your monthly expenses, it can be helpful to distinguish between needs vs. wants. Needs are the necessary expenses required for basic day-to-day living, like food, shelter, utilities, and transportation. Some necessary expenses are fixed, while others are variable. Covering these monthly expenses is required for maintaining your basic standard of living, so when you make a budget, it’s wise to prioritize funding these monthly expenses before planning to spend on wants.  

Discretionary expenses

Discretionary expenses are non-essential items and activities that you enjoy but can live without if necessary. For example, you may like dining out, going to movies and concerts, subscribing to an audiobook service, or investing in a special hobby. While discretionary expenses may be fixed or variable, they’re all things you might decide to cut from your budget if you need to tighten your belt. The costs associated with these things can be adjusted based on your financial goals, income, and cost of necessary expenses. The non-essential nature of discretionary spending makes it quite flexible, but it’s important to monitor it closely to ensure you stay within your means. 

Examples of monthly expenses to include in your budget

When creating a budget, it’s helpful to further break down all of your monthly expenses into budget categories. That will enable you to tally up how much you need for each expense and allocate your income among all your monthly expenses. Here are some common classifications you may want to include:

Housing

Housing costs can take a big chunk out of your monthly budget. In fact, it’s often the largest fixed expense most people have to manage. The housing category can include rent, mortgage payments, property taxes, homeowners or renter’s insurance, and various home maintenance costs. Consider allocating a specific percentage of your income toward this category, typically around 30%, to ensure that this essential expense is covered each month. Because many housing costs are fixed, it can be pretty straightforward to plan for them. But variable expenses like maintenance can be more tricky to anticipate, so you may want to review your spending in the category over the last year to see how much you’ve devoted to housing monthly expenses. 

Utilities

Utilities cover necessary services such as electricity, water, gas, heating oil, sewer, and garbage collection. These expenses are often variable because they’re dependent on the amount you consume. To save on your utility bills, consider reducing your electric bill by using energy-efficient appliances, unplugging devices when they’re not in use, or implementing a programmable thermostat to regulate heating and cooling throughout the day. You can also cut down on your water bill by adjusting your habits: taking shorter showers, watering your garden in the early morning, turning off the tap while brushing your teeth or scrubbing dishes, and fixing any leaky faucets can help reduce waste. 

Food and dining

Food and dining expenses include groceries, eating in restaurants, and ordering takeout. If you’re looking for ways to save money on this monthly expense, consider setting an overall budget for food each month, and breaking it down into week-by-week budgets to align with your typical schedule for meal planning and grocery shopping. It also helps to cut back on dining out, use coupons at the grocery store, and buy in bulk if it makes sense for your living situation. Planning and preparing meals in advance can also help reduce impulsive food purchases, like spontaneous stops at the drive-through or dinner delivery when you aren’t in the mood to cook.

Transportation

Transportation costs include car payments, fuel, vehicle maintenance, and parking fees. If you take public transportation or use ride-sharing services, you’ll also want to include those costs in your monthly expenses for transportation. Because most of these expenses are variable, it’s helpful to estimate your monthly transportation costs by reviewing and averaging out your past spending. If you’re a car owner hoping to save money on fuel, maintenance, and parking, you might try using public transit when you can or carpooling with friends or coworkers. Or, if your financial position allows, consider making the switch to a more fuel-efficient vehicle. 

Childcare and pet care

Whether your babies have two legs or four, expenses for their care can be categorized in the same place. Daycare, babysitters, pet food, and veterinary bills all fall under childcare and pet care expenses. In addition to budgeting for the fixed and variable expenses attached to this category, consider setting aside a small amount each month for emergency expenses. Having an extra cushion to cover an unexpected vet visit or a few additional hours at daycare ensures that you’re more prepared for bumps in the road. You might want to add this buffer money to your rainy day fund so it’s easy to access when you need it, but stored in a savings account so you don’t accidentally spend it on something else.  

Health insurance

Monthly premiums, copays, and deductibles all fall under the health insurance category. Budgeting for both expected costs and unexpected urgent medical situations can help you avoid financial strain in an already stressful situation. Be sure you’re aware of how much your deductible and out-of-pocket max are for your insurance plan, as those amounts will be important if you have an unplanned, high-cost medical situation. You may also want to carefully review your plan options each year during open enrollment season to ensure you’re getting the best coverage and most affordable rate for your needs. And since medical emergencies can leave you with large bills, consider putting a little extra money into an emergency fund each month, just in case you need it.

Debt payments

Monthly expenses for debt payments include the amount you pay on credit cards, personal loans, and student loans. This encompasses your minimum required payments as well as any extra money you put toward paying down your debt each month. Carrying a lot of high-interest debt can squeeze your budget in the present and make it harder to save money for the long term, since mounting interest can keep you trapped in a cycle of debt. This is an instance where increasing your monthly expenses for debt payments can support more financial stability in the long run. You might consider using the avalanche method or the snowball method to pay more toward your balances each month so that you can get out of debt sooner. 

Savings contributions

Whether you’re saving to hit your emergency fund target, fund a specific financial goal or adding to a retirement account, contributions to your savings and investment accounts belong on your list of monthly expenses. Although you’re saving, not spending, including these contributions in your monthly expenses helps you plan and prioritize them. You might think of these monthly expenses as payments you’re making to your future self. Consistent savings habits can contribute to your long-term financial health, ensuring you have money for the things you need and want down the road. Consider setting up regular, automated contributions to make saving even easier and more convenient.

Entertainment

Entertainment expenses include movies, sporting events, concerts, theater, and hobbies. These monthly expenses are often first in line when you’re looking to reduce your spending. But it’s not realistic to give up all the things you enjoy, so don’t try to go cold turkey. That can easily lead to a sense of deprivation that drives impulse buying and abandoning your budget. Instead, avoid overspending by setting a reasonable spending limit for entertainment and stick to it each month. You might also look for free or lower-cost options to keep yourself entertained without overspending, like free community events, discount days at local zoos or museums, or programs from your city’s library or parks and rec department.

Streaming services and subscriptions

Monthly expenses for subscriptions like Netflix, Amazon Prime, Spotify, gym memberships, newspapers, or subscription boxes can add up quickly. If you want to trim your spending, review all your subscriptions and consider canceling any that you rarely use. Keep an eye out for things you might have signed up for using a free trial but forgot to cancel. You might also evaluate the plan you’re own for the subscriptions you want to keep. You might be satisfied with a lower-cost tier, or could save money by using a family plan. Finally, see if your local library offers free streaming services; many have options for video, music, and audiobooks you can use free if you have a library card. 

Travel expenses

Costs related to travel—like airfare, lodging, and travel insurance—can be categorized as travel expenses. These might be monthly expenses if you travel frequently or if you save aside money every month for a future trip. In fact, it can be advantageous to make contributions to your vacation fund part of your monthly expenses; planning and saving for travel in advance can help spread out the cost over time. It also gives you the opportunity to savor the anticipation of your vacation, keep an eye out for deals and discounts, and capitalize on strategies to travel cheaper without skimping on fun.

Miscellaneous

A miscellaneous category for monthly expenses can be handy for capturing small costs you might not have planned for in other categories or didn't anticipate ahead of time. This might include things like clothing, personal care products, and gifts. Setting aside money in your budget for occasional, irregular expenses like these can help you feel more confident in your finances when unusual or special situations arise, or if one of your variable expenses costs more than expected. One caveat: if you find yourself spending money on something in your miscellaneous category every month, it may be a sign that you need to adjust your budget categories to include that cost as part of your regular, planned monthly expenses.  

Tips for managing monthly expenses

The three-step combination of creating a budget, tracking your spending, and optimizing your spending habits can help you more effectively manage your monthly expenses. Here are some practical tips to get you started:

Create a budget

Creating a budget involves listing all sources of income and all monthly expenses. Start with your fixed expenses, then move on to your variable costs. Take time to determine which of these expenses are necessities and which are discretionary. Allocate funds from your income to each category based on your needs, priorities, and overall financial goals. Don’t forget to include savings and debt payments in your budget’s monthly expenses. You may find it helpful to base your budget on the 50/30/20 rule or another budgeting strategy that helps simplify budget creation.

Track your spending

Adhere to your budget by tracking your spending with an app, spreadsheet, manual method, or whatever works best for you to monitor your expenses regularly. Keeping a close eye on your spending helps you recognize when you’re going over your budget for specific categories and reign in spending as needed. Tracking your spending also helps you identify areas where you may need to adjust or reevaluate how you’ve allocated income to various monthly expenses.

Adjust and optimize your budget

Use the budget tracking data you’ve gathered to adjust and optimize your budget. Identify areas where your monthly expenses can be cut or optimized, such as reducing discretionary spending or finding practical ways to save money in other areas. Or, if you find that you’ve consistently budgeted too much in a particular area, you may consider rerouting those leftover funds to savings or debt repayment.

Take control of your monthly expenses

Learning how to manage your monthly expenses can support your financial stability and help you reach your long-term goals. By understanding the types of monthly expenses and how to categorize them, creating a comprehensive budget, and regularly tracking and adjusting your spending, you can get more control over your money now, plus work toward your future aspirations. Start implementing these tips today and experience the confidence and peace of mind that comes with embracing financial stability.