ACCEPT YOUR EXPENSES AS PART OF LIFE: A COMPREHENSIVE GUIDE TO UNDERSTANDING AND MANAGING YOUR FINANCIAL OBLIGATIONS
I grew up in a lower-middle-class environment where it was common to hear daily complaints about family expenses.
“Groceries are getting more expensive every day…”
“Electric bill, this is outrageous again…”
“Gas prices keep going up…”
There wasn’t even money left for Coca-Cola! There was always something to complain about. As a child, you don’t really understand why these constant complaints exist. But when you become an adult, you quickly grasp the reality behind them.
Over time, when I started working, I understood that everyone has expenses — it’s something absolutely normal. If you consume, you need to pay. And if you need to consume, there’s no other way out. As an adult, I decided I would accept expenses as a natural part of life.
However, I understood something important: when we pay for products and services, we’re moving the economy and helping to create and maintain jobs. When you shift this perspective, you understand that sometimes spending is necessary. Money is energy, and at some point, we need to put this energy into circulation.
UNDERSTANDING EXPENSES: DEFINITION AND TYPES
Expenses definition: An expense is any cost incurred in the process of generating revenue or maintaining your standard of living. Simply put, it’s money flowing out of your pocket for goods, services, or obligations.
Expenses can be categorized into several types:
- Fixed expenses: Rent, insurance, loan payments
- Variable expenses: Groceries, entertainment, utilities
- Essential expenses: Housing, food, healthcare, transportation
- Discretionary expenses: Dining out, hobbies, subscriptions
Understanding these categories helps you prioritize and make informed decisions about where to cut costs when necessary.
TOOLS FOR EXPENSE TRACKING AND CALCULATION
Fuel Expense Calculator
Transportation costs can significantly impact your budget. A fuel expense calculator helps you estimate your monthly gas costs based on:
- Miles driven per month
- Your vehicle’s fuel efficiency (MPG)
- Current gas prices in your area
- Number of trips and destinations
Formula: (Miles driven ÷ MPG) × Gas price per gallon = Monthly fuel cost
Gas Expense Calculator
Similar to fuel calculators, a gas expense calculator can help you budget for:
- Daily commuting costs
- Weekend trips
- Business travel reimbursements
- Comparing different vehicles’ fuel efficiency
This tool is particularly useful when deciding between different commute options or evaluating whether a more fuel-efficient vehicle makes financial sense.
Living Expense Calculator
A living expense calculator provides a comprehensive view of your monthly costs, including:
- Housing (rent/mortgage, utilities, maintenance)
- Food and groceries
- Transportation
- Healthcare
- Insurance
- Personal care
- Entertainment
- Savings and investments
This calculator helps you understand your true cost of living and identify areas where you might be overspending.
UNDERSTANDING TOTAL EXPENSE RATIO IN INVESTMENTS
When building wealth, it’s crucial to understand the total expense ratio (TER) of your investment funds. The TER represents the annual fee charged by mutual funds, ETFs, or other investment vehicles, expressed as a percentage of your investment.
For example, if you invest $10,000 in a fund with a 0.5% TER, you’ll pay $50 annually in fees. These fees compound over time, so choosing low-cost funds can significantly impact your long-term wealth.
Why TER matters:
- Higher fees reduce your net returns
- Over 20-30 years, even 1% difference in fees can cost thousands
- Index funds typically have lower TERs than actively managed funds
- Always compare TERs when selecting investment options
LEARN TO TAKE PUNCHES
Just like in boxing, sometimes we’re going to take some hits, and that’s okay. That’s why it’s essential to build that “cushion” (savings) for when these inevitable blows come.
Contrary to what many people believe, savings are not an investment. It’s quick and practical money for emergencies. Yes, using a credit card works too, but nothing beats having robust savings to weather rainy days.
It took me a while to understand this concept, but reading Jesse Mecham’s book taught me how to “take punches.” And with Dave Ramsey, I also understood how valuable it is to have that money set aside.
BUDGET IS YOUR ALLY
To avoid financial surprises, the best thing to do is create monthly budgets. It doesn’t have to be complicated. Usually, I take a blank sheet and divide it into four parts: income, expenses, assets, and liabilities.
When you do this, you give a specific function to every dollar. If something doesn’t go as expected, reorganize the budget and know how to “take punches,” because believe me — eventually they come.
Pro tip: Use the expense calculators mentioned above to get accurate estimates for your budget categories. This prevents underestimating costs and helps create a more realistic financial plan.
PRACTICAL EXPENSE MANAGEMENT STRATEGIES
Track Everything
Use apps, spreadsheets, or even pen and paper to track every expense for at least one month. This gives you a clear picture of where your money actually goes versus where you think it goes.
The 50/30/20 Rule
Allocate your after-tax income as follows:
- 50% for needs (housing, food, transportation, minimum debt payments)
- 30% for wants (entertainment, dining out, hobbies)
- 20% for savings and additional debt payments
Regular Expense Reviews
Monthly reviews help you:
- Identify spending patterns
- Spot unnecessary subscriptions or services
- Adjust for seasonal variations
- Celebrate improvements in financial discipline
SUMMARIZING EVERYTHING ABOUT EXPENSES
In summary, understand what your real cost of living is through proper calculation and tracking tools. Review where you’re spending the most and correct the behavior. I understand that the first reaction is to reduce costs, but I also believe your main focus should be on increasing your income.
Once you know where you’re spending the most, all your effort should concentrate on creating more money. Start by doing small extras: freelancing, grading papers, tutoring, or selling things you no longer use. The important thing is to get moving and take action!
Remember, expenses aren’t the enemy — uncontrolled and untracked expenses are. When you understand, accept, and manage your expenses effectively, you transform from a victim of your finances into the master of your financial destiny.