www.americatradesite.com 

Budget Guide

BUDGET GUIDE  

                   BUDGET GUIDE INDEX 

·        What is a budget? 

·        Why do you need a budget? 

·        Principals of budgeting 

·        Budget guidelines 

·        Budget formats 

What is a Budget 

A budget is a “tool” you can use to manage your money. It is especially important if you are facing or have recently been involved in a foreclosure or bankruptcy. It is the only practical way to get a grip on your spending. The budget process requires that you take charge of your cash and understand just where the money is going.  

The budget is a spending plan where you itemize your income and expenses for a time period (usually a month). It will help you prioritize spending and pay bills first and then yourself. If used properly, it will help you reduce your debt and begin a savings program. 

Why do I need a Budget

If you go to credit counseling for any reason, they will require you to develop a budget. Most Americans spend until the checkbook says zero, then they struggle until next payday. Some even go the next step and spend beyond their income by using expensive payday loans or credit cards. This activity will have dire consequences down the road. A budget, and adherence to it, will break this cycle and once again give you some financial freedom. 

A good stringent budget can also help develop good saving habits. You will be surprised at how much you can put away for your children’s education or your own retirement in just a few years.  

Principals of Budgeting

The budgeting process can be divided into 3 sections. 

·        Current situation – what is my current income and expense pattern 

·        Where do I want to be in say 1-3 years (timing depends on the severity of the situation). Set Goals 

·        Income and Expense Tracking 

Current situation – understanding exactly what your current income and expenses are is the first critical step. Make sure you evaluate at least 3 months so you can be sure to include those quarterly expenses. Make assumptions as to where cash was spent to get a reasonable total. Factor in 1/12 of any annual expenses such as personal property taxes, license fees, insurance, etc. You need to be setting that much aside each month to cover the expense when it comes due. Make this a separate section on your tracking report. 

Where do I want to be – establish a “desired” budget that will take the pressure off your finances. This budget should have a 10% tithe to yourself which means you only plan to spend 90% of your income. Also, be sure to factor in savings in the “desired” budget of at least 5%. Do not budget any extra income such as overtime , or tax refunds – let them be a pleasant surprise and a help to get to your goal. 

Income and expense tracking – Develop a monthly tracking report comparing actual expenditures to your budget. You must monitor this closely to ensure you are making headway. Attack any areas out of bounds aggressively to get back on track – even if you have to take cheap lunches to work or stop eating out. 

If you are having difficulty balancing your budget and are looking for ways to reduce spending – here are a few suggestions: 

·        Stop eating out!! Or at least go to cheaper places 

·        Lower insurance deductibles to save on premiums 

·        Stop running out on the spur of the moment for 1 or 2 things – make a list and do multiple errands at one time – GAS is expensive. 

·        Evaluate all your current spending looking for items to eliminate – such as cable, home and cell phones, memberships, subscriptions, and junk food, 

·        Buy your groceries at WalMart or another discount store– they really are cheaper (possibly 10-15%). Watch out for the meat quality – especially steaks 

·        Rent the movie for $4-5 instead of the show & popcorn at $20+ for 2. 

·        Utilize on-line bill paying – stamps are going up again 

·        Make sure you bank where you do not pay fees 

·        Say no to extended warranties – they usually are a waste 

·        STOP SMOKING – the feds are planning on another tax hike of 70 cents a pack. 

·        Look for free community entertainment 

·        Agree to limit the amount spent of gifts with family members 

·        Drink water – notice the prices of all drinks at the restaurants 

·        Do NOT grocery shop on an empty stomach – stick to list 

·        Cut down on meat servings – who will miss 2 ounces 

·        Buy plain label or house brand items at the store – usually 20% lower 

Budget Guidelines 

There are many options as to how much you should spend on each category. Some items will vary based on where you live. As an example, housing will be higher in New England or the West coast. Below, is a generic guideline developed from consumer surveys and from federal guidelines. It is meant to be a reference point only as different situation can alter the percentages. If you already have expensive house or car payments, you have to live with them. However, future expenditures should be closer to these suggestions.                                                               

Housing                     31 % (federal guideline)            

Utilities                     10 (gas, electric, telephone, water, sewer) 

Auto expense                 18   (car payment, insurance, gas & oil) 

Food                        12   (meals and snacks, household items) 

Healthcare                     5   ( insurance, doctors, dentists, meds) 

Entertainment                  5   (movies, eating out, shows, etc) 

Contributions                   5   (church, salvation army, etc)      

Apparel & services               4   (clothing, cleaning, shoes, etc) 

All other                       5   (newspapers, Lattes, cell phones, etc) 

Savings                        5   (401K, college fund, etc) 

Total                        100 %  

Budget Formats

There are many formats options available, but I like the one that lists the items by priority, or, what are fixed expenses and what are variable. The fixed expenses are those committed by contract (housing, utilities, loan or credit card payments, and most of auto expense). Semi fixed would be food, and most of the healthcare items. The rest are primarily variable and can be cut back to balance the budget. The secondary purpose of any budget should be to get rid of all discretionary debt primarily credit cards and loans. If possible you should add another category to the budget of debt retirement where you pay more than the minimum so the debt can be retired within the next 2-3 years. This item may take the place of savings for a while. 

The format printed below is a stand alone document and can be printed and filled out manually. If you have excel on your computer, you can use an automated program. 

You can download a free excel template that operates similar to the one below at www.consumercredit.com/docs/budget 

You may want a more elaborate system that not only creates the monthly budget, but includes a 12 month tracking program and the ability to compare to actual to budget. This program costs $9.95 and can be found at www.simpleplanning.net 

I strongly recommend you track your spending by month as compared to your budget and take immediate action when you overspend budget. This process will take a lot of discipline, but your financial freedom is at stake!  

Budget Format by Priority 

Income – myself                                       $

Income – spouse

Other Income SSI, food stamps, etc                          _________

    Total monthly Income

Mortgage or rent payment                                $

Utilities                               $

-        Gas

-        Electric

-        Telephone

-        Sewer & water                        _______    

-            Total

Auto Expense                            $

-        Car payment

-        Insurance

-        Gas/oil/repairs                         ________

     Total

Debt payments (credit card / loans                                _________

           Total Fixed Expenses                              $

Food

Healthcare

-        Insurance

-        Meds

-        Doctors/dentists                         ________           _________

      Total semi-fixed                                 $

Entertainment                                            $

Contributions

Apparel & services

Other

Savings

     Total Variable                                            ________

                                                          $ ________

Total Expenses                                              $

Net Balance must be zero or a surplus                            $

You should copy this format on a 14 columnar pad if possible. The first column would be budget, then room for the next 12 months actual to track. You might want to use the last column to reference your last 3 months actual average as a reminder of past sins!    

Remember – consistency, patience, frugality are all budget virtues!