Helping you handle your financial situation is one of our top priorities at Remitly. This means making sure that you’re knowledgeable about recurring expenses and how they fit into your budget. Whether you’re managing your personal or business finances, we’re here to help you run a successful audit.
In this guide, we help you understand the importance of monitoring your recurring expenses. We also present some best practices for budgeting so that you can maximize your financial health.
Understanding recurring expenses
Having a clear understanding of where your money comes from—and, perhaps more importantly, where it goes—is key to financial success. Often, recurring expenses are costs that we “set and forget,” programming our debit card or credit card accounts to pay these expenses automatically. However, keeping them in mind is helpful when budgeting and planning for your future.
Overview and importance of recurring expenses
“Recurring expenses” is a broad term referring to any payment that happens on a regular basis. Understanding the recurring expenses in your life is a great way to manage your money. These predictable costs allow you to forecast your spending, which is crucial for budgeting, managing cash flow, and maintaining financial stability.
Whether you’re managing your personal expenses or running a business, understanding your recurring expenses is one of the first steps toward improving your financial health.
What happens if I don’t review my expenses?
When you think about reviewing your expenses, it might feel like just one more item to tack onto the bottom of your long to-do list. Do you really need to review expenses if you’re mindful about your spending in the first place? The short answer is yes. If you’re keeping track of your expenses, you’ll avoid the following pitfalls:
- Losing track of financial goals: Most people have goals that they want to achieve. Financially, you might be working towards something big, like buying a house, or something small, like purchasing a few new clothing items. Regardless of your goals, it’s a good idea to track your expenses to help you increase your savings, manage debt, and invest wisely.
- Facing unexpected expenses: Unexpected costs tend to pop up even when we do our best to avoid them. Whether it’s a price increase on a subscription or a late fee on a credit payment, you’ll want to know where your money is going. The best way to stay on top of these unexpected charges is to review your expenses regularly.
- Struggling to adapt to changing conditions: Your life, employment situation, and priorities can change, and so can the economy. Understanding your expenses will help you respond to these changes by making small budget adjustments.
Identifying and categorizing recurring expenses
Common recurring expenses
Any regular expense you are expecting falls into the category of “recurring expenses.” Some of the most common recurring expenses are:
- Housing payments: Rent, mortgage, or property taxes that you know are coming every month are a top recurring expense for most people.
- Transportation: This could be car payments and car insurance. If you don’t drive, it might be a monthly public transport pass.
- Utilities: Think about everything you pay for regularly to keep your spaces running, like water, gas, electricity, and Wi-Fi.
- Insurance: Recurring payments for home insurance, pet insurance, or life insurance all fall into this category.
- Cell phones: Your cell phone bill might fluctuate depending on how you use your service, however, there’s likely a baseline contractual fee that counts as a recurring expense.
- Childcare and tuition: Whether it’s school tuition or payments for day care, nannies, or babysitters, these are recurring financial commitments.
- Monthly memberships: Gyms, pools, social clubs, and other self-care services usually offer monthly memberships that count as recurring expenses.
- Subscriptions: Streaming services like Netflix, Spotify, and Hulu are recurring expenses. Memberships that provide access to premium services, like Amazon Prime or InstaCart+, would also fall into this category.
- Debt payments: The minimum monthly payment on any outstanding loan or credit card balance also counts as a recurring expense.
Although the list above encompasses recurring expenses that are set by external providers, you might choose to set your own recurring budget categories. For example, some people allocate a specific amount of money each month towards the following:
- Dining out
- Entertainment
- Travel
- Fun activities
- New clothes
Necessary vs. discretionary expenses
Once you’ve identified all of your recurring expenses, you can categorize them into necessary versus discretionary expenses.
Necessary expenses are essential and cannot be eliminated without drastically impacting your quality of life—things like rent, groceries, and utilities. Discretionary expenses refer to non-essential costs that can be adjusted or removed depending on your financial goals—like dining out or buying new clothes.
The total of your necessary recurring expenses forms the baseline of your monthly expenditure. From there, reviewing your discretionary recurring expenses helps you assess whether your spending is moving you closer to your financial goals.
Optimal frequency for reviewing expenses
Reviewing your expenses is a key part of budgeting, but deciding how and when to do it can be tricky. Ultimately, the goal is to help you feel more in control and confident in your financial decisions, not overwhelmed. Here are some tips on how to approach the task.
Monthly vs. quarterly reviews
The most common financial review frequencies are monthly or quarterly. Monthly reviews are done every thirty days on average, while quarterly reviews are conducted about every three months.
- Monthly reviews provide timely and actionable insights about your spending. If you’re reviewing your expenses each month, you can quickly identify any problematic costs or transactions, adjust your spending, and respond more confidently to financial opportunities. Despite these benefits, monthly reviews can feel time-consuming or stressful if they’re not properly managed.
- Quarterly reviews give a broader picture of your financial situation and allow you to see trends in your expenses. Reviewing your expenses on a quarterly basis will help you see if your short-term actions are aligned with your long-term goals. However, quarterly reviews might not give you the real-time information you need for quick financial decisions.
Overall, a monthly review system will give more immediate insight, while a quarterly review system helps to identify trends. If you’re experiencing changes in your situation, like starting a new job, moving to a new country, or opening a business, monthly reviews might be the best approach. If you’re in a more stable financial situation, quarterly reviews will be sufficient.
Recommendations for small businesses and personal budgets
Some industries or states have regulatory requirements that might require formal quarterly reviews. If you’re a small business owner in the US, check with your local government to make sure you’re complying with all the financial requirements to keep your business in good standing.
For personal budgets, monthly reviews will help you understand your spending habits. From there, you can adjust your behaviors based on the financial goals that you’re working towards.
Strategies for managing recurring expenses
Once you’ve identified your recurring expenses and sorted them into necessary and discretionary categories, you’re ready to start making budget adjustments. Here are some practical steps you can take to make sure you’re spending your money as effectively as possible:
Implementing budget adjustments
- Consolidate expenses: Look for opportunities to bundle services for better rates. For example, some providers offer discounts when you combine Wi-Fi and cell service, or insurance policies under the same provider.
- Cut redundant expenses: Cancel any subscriptions or memberships that you’re not actively using. Be wary of subscription services with “free trials” that automatically roll into paid plans.
- Adjust discretionary spending: Consider minimizing or eliminating some discretionary spending to save money for necessities, paying off debt, savings, or investments.
Utilizing automation and expense management tools
Budgeting doesn’t have to be overwhelming, especially with tools that make tracking and reviewing your expenses easier. These are often free and can help provide a clear picture of where your money is going. This is especially helpful if your financial situation changes or if you’re a small business owner. Here are some of our recommendations:
- Spreadsheets: A simple spreadsheet is a great tool to manage your finances. Updating your expenses daily helps you track your spending. At the end of the month, you’ll have all the information you need to carry out a monthly review.
- Mobile apps: Most credit cards and banks offer apps to review your spending. If you’d like a more in-depth look at your expenses, consider financial management apps like YNAB (You Need A Budget), Mint, or Personal Capital.
- Software: If you’re a business owner, you might benefit from a service like Ramp or Bill.com to automate your expense tracking, freeing up time and reducing the risk of manual errors.
Financial decision making: using reviews to enhance financial health
Making informed financial decisions and adjustments
Smart financial decisions start with a clear understanding of your current situation. Reviewing your recurring expenses and overall budget is a great first step. From there, gather as much information as you can about the decision you’re trying to make.
If you’re looking to invest, research different avenues to understand the risks and potential benefits. If you’re trying to pay down credit card debt, consider looking at cards that offer no-interest introductory periods.
Once you’ve gathered the necessary information, discuss your options with trusted individuals. This might be your financial partner, spouse, business partner, or accountant. Whenever possible, try not to make financial decisions on impulse.
Finally, keep your long-term financial goals in mind. Use these targets as deciding factors for your decision. Your daily spending habits and financial decisions—whether as small as buying a drink at Starbucks or as big as purchasing a new car—should align with your financial goals.
“Found” money and your financial goals
Reducing your expenses is one way to “find” money in your life. By reducing discretionary spending on things like meals at restaurants, entertainment, and new clothes, you’ll free up money to be used elsewhere in your life.
For example, a premium Netflix membership costs about $25 per month, or $300 per year. Cancelling it would give you $300 of “found” money.
Allocating this “found” money into your savings or investments is a great way to move towards your financial goals. You might use this “found” money to create an emergency fund or pay down debt. Reviewing your expenses and making budget adjustments to reduce daily costs will help you reach your financial goals faster, whatever they may be.
FAQs
What is the 50/30/20 rule?
This is a budgeting formula that suggests you allocate your after-tax income to:
- 50% — needs
- 30% — wants
- 20% — savings
“Needs” are essential expenses that you cannot live without, like housing, groceries, and transportation. “Wants” refer to non-essential expenses, like entertainment, dining out, and new clothes. “Savings” can mean investments, developing an emergency fund, or paying off debt.
How often should I update my budget?
As most billing cycles are monthly, it’s a good idea to review your expenses and your budget once a month. This ensures that you’ll have no surprises at the end of the quarter or the year. In addition, being aware of your cash flow can help you make financially smart decisions.
What is the ideal breakdown of expenses?
This depends on your financial goals and income. The 50/30/20 rule is a general guide, but there are other budgeting methods like the 60/20/20 or 70/20/10 that might be more applicable to your lifestyle and situation. It’s worthwhile to either work with a professional financial planner or accountant, or sit down on your own and think about your markers for financial success. Then, you can adjust your budget to reach your goals.