Students are heading back to school around the country in the next couple of weeks. The first few weeks of school are always reserved for getting “back to the basics.” Children aren’t the only ones who could benefit from reviewing the basics. Adults should take time this fall to get “back to the basics” in their own lives.
Only a quarter of Americans feel well enough informed to successfully manage their household finances. Getting “back to the budgeting basics” will help with managing your finances. Creating a budget can be a daunting task, but we offer these simple steps to help you get started:
Identifying your goals. Determine your short-term and long-term goals. Do you want to purchase a home next year, take a vacation, pay off your student loans, or become debt free in less than five years? What is it that you want most? Identifying your financial goals will help you determine how much money to set aside each month in order to achieve your goals within your desired time-frame.
Determine your monthly income. Make sure net (after taxes) income is used, and don’t forget income can come in many forms. Some frequently forgotten sources of income include rental income, investment dividends, and child support or alimony. Can you think of any other sources of income you receive every month? If you have an income source that is not paid monthly, total how much you receive over the course of the year and divide it by 12. This will give you a monthly net income figure to use in your budget.
Always pay yourself first. Set a savings goal of at least 3% to 5% of your gross income. Put this amount into your company’s 401(k) or a savings account every time you are paid and include this amount as a fixed expense in your budget.
Track all your expenses for a month. Keep a little notebook in your purse or pocket to record all transactions.
While keeping track of expenses, remember that there are two different kinds. Fixed expenses don’t change from month-to-month, like mortgage payments, rent and vehicle payments. Variable expenses are different amounts every month, like food, utilities, and entertainment expenses. As you list your expenses identify each as fixed or variable.
Remember to include your periodic expenses. These are expenses you do not pay every month. Vehicle registration and licensing, health and car insurance, and medical co-pays are all examples of periodic expenses. Figure out how much you pay for these periodic expenses over the course of the year and divide that number by 12. This will provide you with the total amount needed to save every month in order to pay for these periodic expenses when they arise. Consider putting this money into a savings account until you must make the payment.
Subtract your total monthly expenses from your total net income. Do you have a positive amount (in the black) or a negative amount (in the red) left over at the end of the month?
Analyze and make adjustments to your budget. Even if your budget is “in the black” try to reduce or eliminate your expenses.
Look for black holes in your budget from your expense tracking list. Black holes are unnecessary expenses or high amounts you did not realize you were spending. Some examples are: cable television, car washes, cigarettes, cell phones, coffeehouse coffee, lunches out, alcohol, vending machines, bottled water, interest charges on credit cards, manicures, and memberships that go unused. Try to reduce or eliminate these black holes.
Another way to save money is to decrease the amount you spend on your variable expenses every month. Variable expenses are the easiest expense to adjust. Can you turn the thermostat up or down to save money on your utilities? Can you carpool to spend less on gas every month? Be creative as you work to decrease your variable expenses.
Include everyone in your household on the budget creation process. Your children and/or spouse may know of additional monthly expenses. They also can help you think of ways to adjust the family budget. When the entire family works together on budget development, everyone gains a better understanding of what it takes to manage the family’s finances.
A budget can always be adjusted. The best way is to track your daily transactions and compare them with your budget. If you find you are always spending more than you expected in an area, review your priorities and goals to determine if the additional funds are justified. You can budget more money for that item if you make certain you subtract the same amount from another category to maintain a balanced budget.
Now, all it takes is perseverance to follow your budget. Remember to always look towards your goals for motivation. If you find you have extra money at the end of the month, consider putting it towards your debt management program. Call your Account Manager and tell them how much extra you would like to contribute. They will help you decide what account would benefit most from the extra payment. Making an extra payment will help you pay off your creditors sooner, saving you money on interest charges and getting you closer to your goals. For more budgeting tips and tricks visit our web site at www.creditadvisors.org or find us on Twitter or Facebook. You can also call one of our Certified Credit Counselors or your Account Manager at 800-942-9027; they would be happy to help you “get back to the budgeting basics.”
