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Setting up a Budget

There is no doubt that everyone has bills to pay, mouths to feed, and a number of other things that your money must be spent on. Setting up a budget is key in order to make sure you are spending your money wisely and have enough to cover all your expenses.

When setting up a budget, it is important to remember to set up long-term and short-term financial goals. Where and what are you spending your money on? Keep in mind that expenses add up. Are you stopping for coffee every morning? If yes, are you spending $1 on a cup or $4? It makes a big difference by the end of the month.

Sometimes it's a good idea to document your spending. For a few weeks, keep track of your spending and see where your money is going. Some things are necessary; while others are not. Write down what you're spending your money on on a daily basis, beginning with breakfast and ending at the end of the night. It might seem tedious, but you'll get to see exactly where your money goes day by day. Rank your spending priorities from essential (food, utilities, bills, etc) to luxury (expensive clothes, expensive electronics, etc)

Track your expenses on paper or in a spreadsheet. Separate your spending into daily, weekly, bi-weekly, monthly, and yearly amounts. This is an excellent way to track a variety of expenses including food, rent, car/metro payments, clothing, and internet/television. Doing this will help you see where you can and cannot cut spending. Including a line for savings will help you determine how much you can put away per month into your savings account.

When setting up your budget, include fixed expenses such as insurance payments, food, loan payments, etc. Pay these fixed expenses and bills first and then live off what you have left. It is better to save up for what you want rather than buying it now and paying for it later (with interest).

Points to Remember:

Don't go crazy when documenting your spending on a computer or by hand. It's easy to become obsessed with details. Focus on making the spreadsheet as true to your actual spending as possible. Once this is done, you'll see where you can cut back on spending and concentrate on that aspect.

Try to spend only a certain percentage of your income. Even if you spend 85-90% of it, you'll still have about 10-15% left for savings that you can use later on.

Be careful about using your credit card. By tracking your spending you will see how much you can set aside to pay your credit card bill. Don't spend more than you can afford to pay off. Remember, the interest on credit cards tends to be high. To stop credit card offers from showing up in your mailbox, call 1-888-5OPT-OUT (1-888-567-8688).

Most importantly, remember that budgeting is not just about documenting your spending but setting up financial goals. Documenting your spending alone will not make a big difference in the long run; setting up goals will. Follow these steps and you're on your way to setting up a good budget for you (and your family)!

To avoid the most common problems present in budgeting and savings plans, here are the top ten most important features of a successful budget.

1. Make sure the categories you include in your plan fit your personal situation and spending habits, not somebody else's. Be honest with yourself about what you spend money on so you can be clear on where you can cut back.



2. Make accurate income projections. Don't include money you don't have yet, like a potential year-end work bonus or your projected tax return. Count only the money you know you'll have.



3. Include enough categories to give you a meaningful picture of where your money goes and where you might be able to cut costs, but not so much detail that tracking is a chore that you'll soon tire of.



4. Don't forget miscellaneous expenses that don't occur on a monthly basis, such as auto maintenance, homeowners insurance, personal property taxes, or service contracts. Do your best to estimate these costs and deduct them from your overall total.



5. Regularly review your categories to determine if you need more or less of them, review your expenses in case they have changed, and brainstorm about ways to trim costs in each category.



6. Every once in a while, take the time to track your daily spending. Cash spending is the biggest leak in most budgets. Cash disappears quickly and if you don't write down everything you spend it on, you'll have a distorted look at your spending.



7. Create a line item for savings so you treat a contribution to your savings account just as you would a bill you owe.



8. Create realistic financial goals for yourself, and write them down. Budgeting isn't about tracking your costs, it's about setting goals (such as saving for a down payment on a house, buying a new car, getting out of debt, saving for retirement, putting your kids through college, traveling, etc.) and finding ways to meet them. Without goals, your budget is just a pair of handcuffs.



9. Identify spending patterns you may not have been aware of when you weren't tracking your spending. Look to see how much you actually spent on clothes, food, or going out in the last few months. If the number surprises you, this could be an area for change.



10. Most importantly, maintain your internal motivation and a positive attitude! Remember that making a budget and setting financial goals is one of the best gifts your can give yourself and your family. Celebrate your success and be proud of your hard work.

For a printable sample budget outline, click here

Book Resources:

The Everything Budgeting - Book by Tere Drenth. Includes over 70 worksheets and advice and tips on saving money, setting up budgets, and how to plan for unexpected events

The Family Budget Workbook - by Larry Burkett. Includes plans to keep your spending within a budget.

Online Resources:

Making Money Work! is Women Work!'s six-session financial education program specifically geared towards women. More information, a facilitator's guide, and class outlines are available on our web site: www.womenwork.org

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