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Budgeting

Getting the Most Value from Your Income

Budgeting is the cornerstone of good money management. It involves creating a plan for how you will spend your money each month. This plan helps you ensure that you have enough funds for necessary expenses while also setting aside money for savings and investments. This may require you to adjust your lifestyle a bit but will go a long way towards having money in the future.

One concept that is difficult to adopt, but it very powerful, is to learn to live on 80% of your income. Put the remaining 20% into solid long-term investments that will grow your money over time so that inflation does not erode its real future value.

Begin by tracking all sources of income and all your expenses. This includes fixed costs like rent or mortgage payments, utilities, and transportation, as well as variable expenses like groceries, entertainment, and dining out.

Divide your expenses into categories such as housing, food, transportation, healthcare, entertainment, and savings. This helps you see where your money is going and identify areas where you can cut back if necessary.

Set short-term and long-term financial goals. This could include paying off debt, saving for a vacation, building an emergency fund, or investing for retirement. Having specific goals can motivate you to stick to your budget.

A budget is a plan you write down to decide how you’ll spend your money each month. Use it to help pay your bills and expenses as well as save for goals or emergencies.

A budget shows you:

• How much money you make

• How you spend your money

You might see that you can spend less money on some things and more money on other things. You also might see ways to save money.

Start to make a budget by gathering your bills and pay stubs (or bank deposits). Use the Budget Worksheet below to help you.

Step 1: Make a list of your bills and other expenses and the amounts. Bills include things like rent, electricity, water, or telephone service. Expenses are things you spend money on, like food, gas, clothes, and entertainment.

Step 2: Use your pay stubs (or bank deposits) to write down how much money you make each month. This is called income. Also include any other money you get, like child support.

Some people don’t get paid every month. If you don’t get paid every month, use your income from last year to estimate your monthly income. Add all your income last year. Then divide that number by 12 to find a monthly income estimate.

Step 3: Subtract your monthly bills and expenses from how much money you make in a month. This number should be more than zero. If the number is less than zero, you’re spending more money than you make. Look for things in your budget you can change.

A budget is something you use every month. At the beginning of the month, make a plan for how you’ll spend your money that month. Then each day, write down what you spent. At the end of the month, see if you spent what you planned.

Use this information to help you plan next month’s budget. Are there things you want to spend less money on next month? Be mindful of Wants vs. Needs discussed earlier in this book.

You can put leftover money into savings every month -- maybe an account at a bank or credit union. Saving money can help you during an emergency, or if you need to pay for something bigger, like a car or trip. You can even make savings one of the expenses you include in your budget.

There are software programs that can help you manage money and even create and manage a budget. Keep in mind that technology does not solve issues, it can only make managing them easier.

Use the worksheet below (or a similar worksheet you create) to make a budget. Fill in how much money you make. Then fill in your expenses. Subtract your expenses from how much money you make.

If your income is more than your expenses, then you have money left to save or spend. On the other hand, if your expenses are more than your income, look at your budget to find expenses to cut.

Total Income ___ (minus) Total Expenses ___ (equals) Remainder ___

Sample Budget Worksheet

Income this month

Income	Monthly Total
Wages after taxes and/or Social Security	$
Other income (like child support)	$
Total monthly income	$

Expenses this month

	Bills and Expenses	Monthly Total
Housing	Rent or mortgage	$
	Rent or mortgage	$
	Utilities (electricity, gas, water)	$
	Internet and phone	$
	Other housing expenses (property taxes, condo fees)	$
Food	Groceries and household supplies	$
	Eating out/food delivery	$
Auto	Public transportation	$
	Taxis/rideshares	$
	Gas for car	$
	Parking and tolls	$
	Car maintenance (oil changes)	$
	Car insurance	$
	Car payment	$
Health	Health insurance	$
	Prescriptions	$
	Co-pays for doctors’ appointments	$
Personal & Family	Childcare (daycare, babysitting)	$
	Child support you pay	$
	Money you send to family	$
	Clothing and shoes	$
	Entertainment (subscriptions, movies, concerts)	$
	Other personal & family expenses (laundry, haircuts)	$
Edu.	Student loan payment	$
	Tuition payment	$
	Other school expenses (books, supplies)	$
Other	Bank account or credit card fees	$
	Credit card or other debt payments	$
	Savings deposits	$
	Investment contributions	$
	Other expenses this month	$
	Total Monthly Expenses	$

 

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