How To Make A Budget Plan For Your Non-essentials & Luxuries
Not only can budgeting help ensure you have enough each month to pay for essential expenses, such as mortgage or rent, debt, utilities and food, but also for non-essentials or luxuries, such as entertainment, going out to eat, shopping, or even a vacation.
The best way to track and control your spending, contribute to savings, and work toward meeting your financial goals, is creating and sticking to a budget.
Not only will a budget show how much income you have each month, it helps you break down and allocate your spending and compare incoming to outgoing cash flow. Being aware of this can help you accomplish your goals more quickly.
Here are a few steps for making a budget, as well as tips for how to use your budget for saving for non-essential and luxury purchases.
5 steps for making a budget
When creating your budget, you can use an Excel spreadsheet, notebook and pen, download a template, or use a mobile budgeting app. The most important thing is to choose something that works for you that you’ll stick to.
1. Financial prep
There is information you’ll need to gather before starting your budget, such as:
- Checking and savings account statements
- Investment account statements
- Recent pay stubs
- Recent mortgage or rent statements
- Recent auto or other loan/debt statements
- Past three to six months of:
- Utility bills
- Credit card bills
Having information about your recent income and expenses can help you level set on where your saving and spending habits are now, and calculate a monthly average to build your budget off of.
2. Calculate your income
The next step is to calculate your monthly income, which is how much money you’ll be bringing home each month. Include all income, such as regular paychecks, side-hustle income, or other sources like Social Security.
If you have variable income, like if you’re a freelancer or you’re paid hourly, consider using the total income from one of your lower-earning months within the past 12 months as a baseline. This way, you’re covered if you have a month where you earn less than planned.
3. List essential expenses
Next, create a list of expenses that you must pay each month, including the average total amount. Use the bank statements, receipts, credit card bills, and utility bills you gathered in Step 1 to help. Examples could include:
- Mortgage or rent
- Auto loan payment
- Student loan payment
- Other debt
- Gas or transportation
- 401(k) plan or other savings
If you don’t already have an emergency fund, consider including regular contributions as part of your essential expenses. Experts recommend having at least three to six months’ worth of expenses saved in a fund in case of an emergency, such as job loss. Once you’ve saved enough, you can remove this contribution from your list of monthly expenses.
Once you’ve listed all these expenses, calculate the total amount you expect to pay each month on essential items. Subtract this amount from your total income.
4. List non-essential expenses
Now, looking at the financial documents you gathered in Step 1, list out the types and amounts for non-essential expenses. This could include:
- Eating out
- Shopping (clothes, shoes, home decor, accessories, etc.)
- Subscription services
Once you’ve subtracted your essential expenses from your income, subtract how much you spend on non-essentials from the remaining number.
5. Calculate your income-to-expense ratio
For some people, their total income to expense ratio may be in the negatives. This means they spend more than they make, which could quickly lead to increased debt and make reaching their financial goals difficult.
On the other hand, if your income is more than all of your expenses, you should consider putting that extra into savings to ensure you have funds to spend when you want or need them.
Using your budget for non-essential purchases
Typically, once you subtract your essential expenses from your income, the remaining number is all you should spend on non-essentials. However, depending on your income and total amount of essential expenses, you may not have much left for fun.
The good news is there are things you can do to help cut back on expenses so you can save more — and faster — for non-essential purchases. Making this plan as part of your budget can help.
- Meal plan. When you plan meals for the week and take and stick to a list at the grocery store, you’ll likely spend less on groceries because you’ll know exactly what you’re cooking and how much, and will be less tempted to throw things in the cart you don’t need.
- Shop generic and sales. Most of the time, the generic brand tastes the same or has the same quality as name brands. Whether you’re shopping for groceries, clothes, or something else, opting for the cheaper version can help save you money.
Also, keep an eye out for sales. Shopping the discount or sales rack can get you great buys for lower prices. You can also use coupons to help save some change.
- Be energy-efficient. Unplug items in your home when you aren’t using them. Turn off the lights when you aren’t in a room. Adjust your thermostat so it’s not too high or too low. Purchase energy-efficient lightbulbs or appliances to save on utility bills in the long-run. There are a number of small things you can do to cut expenses at home, and they can add up quickly.
- Start a side hustle. If you don’t already, consider starting a side hustle. It can be consulting or freelancing doing something you’re good at, babysitting, house sitting, pet sitting, or selling things you no longer need. Regardless, this income can be saved and put toward non-essential or luxury purchases.
- Know your goal. If you’re planning ahead for a large purchase, like a vacation or a new vehicle, estimate the total amount needed and divide it by the number of months until you want to make the purchase. For example, if you know you need $3,000 for a vacation in 12 months, divide $3,000 by 12 for a total of $250. That’s how much you’ll have to save each month to make sure you have enough.
Once you know how much extra you need to save, you can look at your budget and figure out where you can make adjustments or cuts to meet that goal.