BUDGET

QUESTION 1:

What should you do before beginning to design your budget?

QUESTION 2:

Should I establish goals from the beginning?

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Mastering Your Money

In order to manage your money, you need to have a plan. That is why creating a budget and sticking to it, is a critical foundation for financial order and stability. By tracking your income and expenses, you will be better able to distinguish between needs and wants and ensure that you’re living within your means.

Know Your Income

The first step in this process is to know how much you make, including your salary, wages, and tips. Figure out how much you have coming in each month and use the chart below to track your monthly income. Make sure to include only income you can count on no gifts or bonuses.

WHY YOU WANT A BUDGET According to surveys, only around a third of all households live by a strict budget. By deciding to budget, you're joining a select minority and your decision will pay off. Budgeters are almost twice as likely to report no financial worries compared with spenders, and they're less likely to live paycheck to paycheck or struggle with finances. While budgeting is always a great decision, it's good to define goals before you start the process, since the reasons you're budgeting may impact choices you make during the process.

Common reasons to create a budget include:

• Finding a way to save more money

• Reducing overspending on problem areas

• Ending fights about money for couples

• Making sure your spending reflects your goals and values

• Breaking the paycheck-to-paycheck cycle

• Avoiding spending money you don't have

• Getting out of debt

• Staying on track toward long-term financial goals

Your Money Decisions Who is in Control?

Most people make decisions about how to use money every day. It may be to take a bus, or to buy something for lunch, or to put money in a parking meter, or buy a new “app”, or go to a movie, or… Like it or not, we need money to get and do a lot of things. Try and think of the last day when you didn’t spend money or make a decision about how to use money either yours or someone else’s. You probably make many such decisions involving money and you have choices. But what things influence the decisions that you make?

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External Influences

Influences on Choices About Money

Messages about money can be so widespread you do not even realize they are influencing your decisions. Most people are influenced in some way. Influences can be productive or unproductive.

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Introduction To Expenses

Commitments, savings expenses, and spending are the three categories that make up your budget and are vitally important when learning to manage your money properly. When you’ve committed to living on a budget, you must know how to put your plan into action. Once you’ve created your budget and you’re ready to take it off of the paper and play it out, you will need to divide it into three categories. First, learn the difference between fixed, variable, and savings costs, and then grab 3 different colored highlighters and begin going through your budget, line by line.

Commitment Expenses

The commitment expense is “any expense that does not change from period to period," such as mortgage or rent payments, utility bills, and loan payments. The amounts may vary slightly, which may be the case with utilities, but you know they are due on a regular basis.

Here is a list of categories to include in your fixed expenses:

• Mortgage(s)

• Rent

• Property taxes (if paying monthly)

• House / tenant insurance

• Utility bills (cable, cell, electricity, water, etc.)

• Lease / car loan payment

• Vehicle insurance (if paying monthly)

• Life / Disability / Extended health (or other) insurance

• Bank fees

• Debt payments for your debt repayment plan

Saving Expenses

Learning how to save money is as simple as first figuring out what expenses you need to save for, and then simply getting the money out of your hands. There are two types of savings categories that you need to save for, irregular expenses and goal-oriented savings. Irregular Expenses Irregular expenses are costs that come up throughout the year, that you need to budget your money properly for or else you’ll find yourself reaching for a credit card when those expense comes up.

Consider it “planned spending.” Examples of irregular expenses include:

• Property taxes (if paying quarterly or annually)

• House insurance (if paying annually)

• Vehicle insurance (if paying quarterly or annually)

• Clothing & shoes (if you shop once or twice per year)

• Health expenses

• Vet bills

• Gifts

• Vehicle maintenance

Goal-Oriented Savings

If you have a goal of saving for retirement, education, a down payment on a home, a trip or for emergencies (which should absolutely be a goal), make sure you have included these goal-oriented savings in your budget. Simply figure out how much you need to save, when you need to save it by, and divide by the number of months you have left until that date. This will indicate how much you need to save each month. These types of savings are not meant to be touched until that event happens.

The definition of variable costs can differ, but we like to define them as anything you can buy in a store (for example groceries, gas, or coffee) or expenses that are within your control. You can decide how much and if you will spend on these items.

Here is a list of what you can include in your variable expenses category:

• Groceries

• Personal care items (drugstore)

• Fuel / public transportation costs

• Parking

• Clothing & shoes

• Daycare

• Work lunches & snacks

• Eating out

• Entertainment

• Babysitting

• Sports & recreation, other hobbies

• Hair care / salon services

Extra Expenses

If you find an extra expense in your budget and you’re not sure if you should put it under the fixed, savings, or variable costs, simply ask yourself these questions:

1. Does this expense occur often, regularly and not change? (Commitment)

2. Do I buy it from a store? Can I control how much I spend on this? (Saving)

3. Should I be saving for this item in advance? (Spending)

Sometimes expenses will fit into more than one category and if that happens, you can choose where you feel the cost belongs in your budget. Separating your budget into fixed expenses, savings expenses, and variable costs will help you organize your bank accounts and manage your money properly. If you’re ready to start saving, paying all of your bills on time and spending within your means.