Essential Expenses Budget by Order of Importance

Share With Your Friends!

Shares

An essential expenses only budget helps you get out of debt, reach financial independence faster, and improve your overall financial well being. It ensures that you can save as much money as you can so that you are prepared for a rainy day.

When I first started working, I lived on a very lean budget. My rent was about $640 a month with food being another $200 a month. I wanted to progress towards financial independence much faster than my peers. I’m happy to report that I succeeded.

After 2 – 3 years of spending on an essential expenses budget, I have gotten there. I built a nest egg in the high $300,000’s just by the age of 26. According to many net worth statistics, that is in the top 1% net worth for my age group. Although I no longer live in an extremely tight and frugal budget, I don’t regret doing it for a second.

Be careful of the lifestyle creep. When you only spend money on necessities and the essential items, you are practicing simple living. You don’t need many things in order to sustain you and keep you alive. Sometimes, you have to live on a very frugal budget because outside factors force you to.

If the coronavirus pandemic taught you one thing, it’s that life can change at the blink of an eye. Layoffs can happen at the flip of a switch and you could lose your job tomorrow. That’s when it becomes more important than ever to save as much money as you possibly can.

Keep your expenses flexible that way you can adjust at any time as you wish if you change your mind. Don’t let your stuff own you.

What is an Essential Expenses Budget?

An essential expenses budget is a budget that only includes the most necessary items in order to keep you alive. For the most part, this is only a temporary budget. Don’t let life pass you by by permanently living on this budget. It’s not healthy for you, physically and mentally.

Although I’ve lived on this budget for 2 – 3 years, I know that it isn’t a sustainable lifestyle. After a while, you become miserable at how much happiness that you are sacrificing. Whether we like it or not, we have to spend money in order to reach some level of baseline happiness.

When there are so many constraints restricting you the choices that you make, you start to feel like your choices aren’t yours. You feel like someone else is controlling your mind, decisions, and choices which isn’t a good feeling. However, if you are struggling and you find out that you need to cut expenses, then follow the steps outlined here.

You have to make sure that you don’t go overboard and follow this budget example permanently. There’s no point in spending 40+ hours per week toiling yourself if it means you can’t enjoy your life. You already work hard enough for somebody else already. Why not treat yourself and reward yourself now and then?

Splurging is important in your journey. Not just to reach financial independence but in your life journey as well. My choice of splurging are vacations and travel. I travel quite frequently out of town, almost on a monthly basis to escape from the stresses of my job and the city.

Don’t be consumed by saving money that you have to spend sanity points in order to get there. It’s not a good long term solution.

Essential Expenses Budget by Importance

Essential expenses means paying taxes.
Don’t fail to pay taxes.

All right, now that you know what an essential expenses budget is, let’s get into what items to include in it. One essential expense you should never skimp out on is DESTROYING that social share button and posting to your favorite social media!

Your friends might be at a difficult financial situation and they could be wondering what to include in their essential expenses budget as well. We can better everyone together and share the knowledge that we have instead of just keeping it to ourselves!

There are times when we need to cut back to the bare bones budget and we all need a good guide on what to include. So now, let’s get to it!

Essential expenses include the following:

  • Taxes
  • Food and water
  • Rent
  • Utilities
  • Medical bills
  • Medical and auto insurance
  • Car expenses
  • Debt payments
  • Wifi and cellphone

The list outlines major necessary expenses to include in your budget. It’s listed by order of importance. The number one thing you need to pay is taxes. Otherwise, Uncle Sam will jail you. The next items are self explanatory its necessity in your budget.

Some people might argue that “wifi and cellphone” expenses are a luxury and not a necessity. I disagree. These days, that expense became a major necessary that you have to have. If you drive a car, you need GPS. When you want a source of entertainment, you need wifi.

These days, whatever you want to do, you need the internet as part of your survival. Your mental health depends on it.

When you feel like you have to resort to a bare-bones budget, keep the list above in mind. During the lockdown of 2020, I used the above list to guide my spending decisions. It will be helpful to you.

How to Identify Essential Expenses vs. Non Essential Expenses

Essential expenses doesn't mean buying a boat.
Boats are a nonessential expense.

The easiest way to identify the difference between essential expenses versus nonessential expenses is to ask yourself it contributes to your existence and sanity. If the answer is yes, then it’s essential. If the answer is no, then it’s nonessential. Most things that we buy are wants, instead of needs.

Now, this doesn’t go so far as to only include expenses that contribute to your existence. If that’s the case, the only necessary expense is food and water. You could theoretically live out on the streets and live till you’re 90 years old just buying food and water for the rest of your life.

However, that’s going too far. We are looking at essential expenses that keep you sane, integrated into society, and keep your health intact. When your essential spending checks off that test, then it is a necessary component of your budget.

The next step now is to actually look at what you spend money on on a weekly, monthly, or yearly basis. The great thing about using credit cards is that every spending is tracked. You can easily see what items you spent money on so you can decide whether to cut or add to your budget.

You quickly know exactly what things that you value in your life. Don’t figure out what you value by thinking about what you value. Figure out what you value by taking a look at your spending habits. We work very hard for our money, if it’s important, we actually shell out the money for it.

When you find out that you value nonessential expenses more so than essential expenses, then it’s time to make some adjustments and changes. You don’t want to get sucked into the consumerist lifestyle that drags and keeps you down.

My Essential Expenses Budget Example

So now, here it is! It would be hypocritical of me to not share my expenses and budget to show what I spend on necessary expenses. Below is a good breakdown of my monthly budget spending on those categories.

CategoryMonthly Amounts
Rent$1,125
Food and Water$300
Car insurance$40
Wifi and cellphone$80
Medical insurance$300
Car expenses$25
Approximately $22,500 in total, yearly.

Now, keep in mind, this doesn’t include expenses I include in my budget for fun and entertainment. I estimate an additional $500 a month for these expenses. Also, the medical expenses budget is skewed because it is employer sponsored and therefore, I do not spend as much money on it otherwise.

Utilities are also included in my rent payment. These expenses are non-negotiable expenses. Come hell or high water, I will always spend money on these categories. My yearly spending just in order to keep me alive is approximately $22,500 that only goes up higher every yeart.

Your essential expenses budget could be higher or lower than what I spend, depending on where you live in the world. However, this does give a good baseline indicator of what a personal finance blogger spends his money on. You can absolutely use this as a guideline and as a benchmark on how you are doing comparatively.

I always prepare myself for every expense category to increase in the future. Therefore, I save as much money as I can to generate as much passive income as I can to beat inflation to the ground. Expenses such as food, water, wifi, and cellphone expenses are the most sensitive to price increases.

Don’t let inflation inflation destroy your finances and let it wreck your wallet!

Never Cut Back on Essential Expenses

Never, ever, EVER cut corners on your essential expenses. To skimp out on things that are actually and literally keeping you alive would be a fool’s choice. The money that you save on food costs by buying fast food everyday will be paid for later down the road in hospital and medical bills.

These expenses are the cornerstone and the building blocks to your life. They are what keeps you alive and what keeps you being who you are as a person. Do you really want to compromise on the quality of who you are in exchange for a few dollars? It’s going to hurt you much more in the long run.

There’s a reason why there’s only one of you in the world. You are unique. Therefore, you don’t want to cut corners in being the most quality person you can ever be. You literally can’t focus on quantity because there is literally only one of you who exists in this world. Therefore, take your essential expenses seriously.

20 years from now, you want to thank your past self for your choices instead of condemning him or her. Just as people can improve their lives daily, they can worsen their lives daily. The easiest way to worsen your life is to spend less than you should on essential expenses.

They are called essential and necessary for a reason. If you enjoy where you are living with a great landlord in a great location, why move somewhere 20 miles away? The extra $100 that you save will be offset by the additional hours you spend driving plus additional costs in depreciation and gas.

Don’t be a penny wise and a dollar foolish. One day, it’s going to catch up to you. Spend as much as is necessary on essential expenses.

Share With Your Friends!

Shares

4 Replies to “Essential Expenses Budget by Order of Importance”

  1. Your expenses (even with fun and entertainment built in) are relatively low! I’m very impressed – with your high NW and low expenses, you’ll achieve FIRE in no time! Thank you for making me stop and think about which expenses are truly essential.

    1. Thank YOU for stopping by and reading my story, Tyler! I appreciate it.

      To be honest, I thought I would be able to unleash my pent up demand by now but with the spike in COVID cases that doesn’t seem as likely, ha. Time will tell if my essential expenses will change.

  2. Not bad reading, but I see quite a few items that are essentials not listed there.. to name a few is rent covering all the utilities bill? Is clothing including in food/water? What about retirement is the point of not including it and not saving for it part of what the nest egg will take care…
    I had the opportunity to live with a big spender ( my wife) and there was always confrontation because I was the frugal one so my list of essentials was always under scrutiny.. Happy to report that compromise worked in may instances and we are debt free, home owners

Leave a Reply

Your email address will not be published. Required fields are marked *