Variable Expenses: The Keys to Spending Freedom
Contributor: Kristen Fricks-Roman
Company: Morgan Stanley Wealth Management
Title: Financial Advisor
Atlanta is my hometown, so it was hard not getting caught up in the excitement buzzing around the city about hosting the Super Bowl. Most of us love fun, once-in-a-lifetime experiences, like getting seats to the big game and feeling the thrill of the crowd. And while it’s important to treat yourself to special and unforgettable times occasionally, it’s not a good idea to make spontaneous, expensive purchases with a credit card without knowing how you’ll pay it back.
The good news is there are ways to enjoy guiltless experiences. It simply takes some planning and a good financial tool: the budget. To avoid money-related stress and help you make smart financial decisions, here are a few ideas to prepare for fun experiences without regret.
Know what you’ve got. The first step is to understand how much money is coming in each month and where it’s going. Calculate your monthly income after taxes to get a more accurate understanding of your cash flow. Next, you’ll focus on two kinds of expenses — fixed and variable — and it’s important not to get them mixed up.
Figure out what’s fixed. Each month, you have expenses that don’t tend to change much but are essential basics to keeping your life going. These include rent or mortgage payments, utility bills, loan payments, insurance premiums and transportation costs. In general, you should deduct your fixed expenses from your cash flow amount first, and then you can determine which variable expenses you have left over for fun.
Have fun with the variables. Variable expenses are the nice-to-have items that aren’t essential to daily living and can be reduced or adjusted if there’s an unexpected fluctuation in income. They include things like entertainment, dining out, clothing, travel, and subscriptions. It’s okay to have some fun, as long as you’ve planned for it (and, yes, sporting events can fit in this category). If you find that you have to dip into your savings for a special event, make sure you have budgeted for it beforehand and know how you will replenish your savings. Paying for the experience with a credit card and hoping you figure out how to pay for it later is usually not a winning idea. (Note: If you have debt, be sure to pay it off as quickly as possible and don’t continue to add to it.)
Planning is key, and budgeting is an essential part of the planning process. Budgets are meant to be used as guides, not straightjackets. The key is to find an empowering balance that enables you to both live for today and save for tomorrow. Although many of us didn’t have the expendable income to purchase tickets to the Super Bowl, focused financial planning may make it a possibility one day.
Kristen Fricks-Roman is a Financial Advisor with the Wealth Management Division of Morgan Stanley in Atlanta. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness. Morgan Stanley and its Financial Advisors do not provide tax or legal advice. Before investing, investors should consider whether tax or other benefits are only available for investments in the investor’s home state 529 college savings plan. Investors should carefully read the Program Disclosure statement, which contains more information on investment options, risk factors, fees and expenses, and possible tax consequences before purchasing a 529 plan. You can obtain a copy of the Program Disclosure Statement from the 529 plan sponsor or your Financial Advisor. Morgan Stanley Smith Barney, LLC, member SIPC. CRC 2235406 09/18
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