Module 4 · Budgeting and saving
Where does your money go?
Why tracking comes before budgeting, how to sort costs into fixed, variable and periodic, and three ways to see what a purchase really costs.
This lesson is not translated into your language yet, so it is shown in English.
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In this lesson
- Track a month of spending using bank data, an app or a notebook
- Sort costs into fixed, variable and periodic, and turn yearly costs into a monthly amount
- Split one expense into its need part and its want part
- Judge a purchase by its yearly cost, its cost per use and the hours of work it takes
Sara, 34, is sure she spends about €250 a month on food. Then she downloads three months of bank statements and adds up every shop, café and delivery. The real figure is €340. Where did the other €90 go, and why did she not notice?
Most people guess, and guess too low
A is a plan for the money you expect to receive. But a plan built on guesses usually fails, because most people underestimate what they spend. So the first step is not planning. It is looking.
Start from your , the money that actually arrives in your account. Then record where it goes for at least one month, and three if you can. There are three easy ways:
- Bank data. Your statements already hold most of the information. Download them and mark each line.
- An app. Many banking apps sort payments into groups for you. Check the groups, because they are often wrong.
- A notebook or phone notes. This is useful for cash, which leaves no record.
While you track, do not judge. You are collecting facts, not grading yourself.
Three kinds of cost
Once you have the data, sort each payment into one of three groups.
- are the same every month: rent, a phone contract, a loan instalment.
- change from month to month: food, fuel, going out, electricity billed on use.
- are predictable but come once or a few times a year: car insurance, birthday presents, a school trip, a holiday.
Periodic costs feel like surprises, but they are not. To fit them into a monthly plan, add up their yearly total and divide by 12.
Needs and wants are a scale
Some things you need: a place to live, food, getting to work. Other things you want: they make life better, but you could live without them. In real life, most costs mix both. Thinking of as a scale helps.
Food is a need, but a restaurant meal is mostly a want. Nika pays €35 for a phone plan, while a €12 plan would cover what she uses. Her bill is €12 of need and €23 of want. Seeing the split does not mean she must cut it. It means she knows exactly what the extra €23 buys her.
Three ways to see what a purchase really costs
- Yearly cost. Multiply small, repeated amounts to a year. A €3.50 coffee on 230 working days costs €805.
- Cost per use. Divide the price by the number of times you use it. An expensive coat that lasts four winters can be cheaper per wear than a cheap one.
- Hours of work. Divide the price by what you really earn per hour, including unpaid travel to work.
The maths works the same in any currency.
Try it yourself
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