Live on a Budget

Setting up a budget is the first step to organizing and tracking where you spend your money. For instance, a certain amount needs to be set aside every month for utilities, phone bills, groceries, rent or mortgage payments...the list seems endless, doesn't it! In the meantime, you still need to be saving for those annual or semi-annual bills, like insurance, not to mention special expenses expenses like buying a car! To avoid a financial crunch when all these bills arrive together, a spending plan or a budget will help your spending become much more efficient. Here are some tips on getting started with a budget.

• Step 1: Identifying Goals
  • Short-Term Goals -- Less than 1 year
  • Intermediate Goals -- From 1 to 5 years
  • Long-Term Goals -- More than 5 years

• Step 2: Setting Goals
  • During this stage of the budgeting process, you will prioritize your goals. Which one of your goals is the most important to you_

• Step 3: Recording Income
  • This step of developing a spending/savings plan involves knowing how much income you have.

• Step 4: Determining Expenses
  • Recording Expenses -- Just remember that small steps will pay large dividends. Make it a habit to record weekly expenses on an expense chart.
  • Recording Periodic Expenses -- These are the bills that can kill a budget. A budget MUST take into account monthly, periodic, and annual costs. Make sure that your monthly budget has room for these expenses.

• Step 5: Developing Your Savings Plan
  The outcome of Step 5 is to have Income=Expenses+Savings. If income does not equal expenses plus savings, consider some changes. Perhaps you can decrease some monthly expenses that change each month (ex: food, clothing, entertainment, etc.). Keep in mind that any adjustments need to be realistic. You might also look at expenses that don't change every month (ex: rent, insurance premiums). These might be more difficult to change immediately. On the other hand you might want to reexamine your goals and see if any might be changed or eliminated. Whatever changes you make, make sure your budget is balanced!

• Step 6: Using the Plan
  The final step of developing a spending/savings plan is to implement this plan. Keep saving your receipts, and keep on top of saving the money you need to reach your goals. Also, each month, save the monthly amount needed for your periodic expenses so that when a periodic expense occurs, the money will be available. If you find that you are overspending it might mean that your plan doesn't fit your values. If you continually spend more than you plan, you might want to reexamine your spending habits.

Be Accountable

• Try our interactive budget
• Financial Calendar
• Some Ground Rules (Money Mechanics -- Record Keeping, Iowa State University)

  Choose one place to keep your records. The family finance center may be as elaborate as a home office or as simple as a cardboard box under the bed or a file cabinet in the family room. The important thing is you find a place where all the papers you'll need to manage finances can be stored.

  Decide who will take major responsibility for record keeping in your family. Of course, all family members need to know and understand how the filing system works.

  Develop a regular schedule for bookkeeping and resolve to stick to it. A routine will reduce the amount of time you spend on record keeping.

• Write it down! There are different ways to keep track of your money -- here are a few suggestions. Try them out and see for yourself how much easier your personal financial management will become!

(Source: "Developing a Spending/Savings Plan - A Six Step Plan," Univeristy of New Hampshire)

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