An indispensable term in finance is expenses. A concept that many people would like not to talk about or prefer not to, but which is essential for the organization and proper functioning of our personal economy or our company.

Let’s see what an expense is and what expenses exist, based on this information you can establish which of them are part of your economy and, therefore, which ones can be reduced to achieve your financial goals.

 

What is an expense?

 

Simply put, expenses are the disbursements or outflows of money to meet acquired commitments. The basic dictionary definition of the word spend means to use money on something. In our personal finances, therefore, an expense is all that money that we consume in the acquisition of services or products.

Regarding the definition in the business field, expenses are those that as a company we make to carry out our processes, including distribution, sales processes, elements that are not part of providing the service or manufacturing the product, but that are necessary for the operation of the company.

In this sense, is there a difference between expenses and costs? Yes there is, we will explain it to you. The costs are expenses that you make to acquire assets in your company, including labor, in case of applying for the manufacture of the product or in the generation of a service. Costs are therefore recovered from the sale of those products or services.

The difference between expense and cost is that the cost is synonymous with investment, it means that it will return, while the expense does not, since it is made without expecting a return on it.

In this article we will focus on the expenses that are more related to personal finances and not those related to companies or businesses.

 

Why is it important to know the expenses I have?

 

Many of the expenses we generate can go unnoticed, but when we add them up, we realize that they are as insignificant as they seem. The importance of knowing where our money goes is to make us aware of what we consume and in the same way, it helps us make decisions and better plan our economy.

For example, you are thinking about making a strong financial decision in your life: buy a house, buy a car, invest or some other. How can you make the decision without knowing exactly your finances? Being clear about your expenses gives you the opportunity to make a decision regarding your financial goals, much more informed and more secure.

What types of expenses are there?

In our everyday language, we surely make use of different expenses that we make, so much so that we have decided to call them differently: by taste, need, whim, impulse, etc. Let’s see what types of expenses there are and which ones are more relevant to pay more attention to:

Fixed costs

These are expenses that have a periodicity and have an established amount. Generally they are those that you cannot stop paying. For example, the rent of your house is a fixed expense, since we do it every month and you know exactly the amount you must pay.

In your budget you can set them from:

  • Gasoline
  • Services
  • Credit payments
  • tuition fees
  • Insurance
  • Food, among others

Variable expends

On the other hand, variable expenses are those that both the amount and the time in which they occur can vary. They are unforeseen and constantly changing. For example:

  • Repair of your house
  • some recreational activity
  • a medical appointment
  • The purchase of a good or service

We could also call this category flexible expenses, since they are modified according to the activities or commitments you have in a certain period of time.

Emergency expenses

They are part of the variable expenses, but they have the characteristic of being presented by an emergency, such as:

  • A car accident
  • a health issue
  • An unplanned visit to the vet
  • repairs in your house

Ant spending

Ant expenses can be defined as “small consumptions that without realizing it and when accumulated end up affecting our finances and can even lead us to unnecessary indebtedness.”

A very recent example of ant spending is digital platform services. You may pay for more than one subscription and not use them or provide the same functionality. Some other products that can generate ant spending are:

  • fried foods
  • Candies
  • Coffee or any other drink
  • cigars

Discretionary expenses

They are expenses that we make for pleasure, they are not essential. They are characterized by being unnecessary, we can forget them and they do not increase the quality of life, however, they do affect the pocket.

Knowing your expenses will help you understand your consumption habits and have a broader vision of your financial situation, it helps to know how and what you spend your money on, so it can be a first step to better organize your economy and set goals as for her.