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Budgeting

In theory, setting up a budget is as simple as 1-2-3. List your monthly income and total up your monthly expenses. Now, live within those parameters. In reality, it requires a great deal of discipline and some sacrifice to make it work. The following article serves as a guideline.

Having a budget allows you to choose what you spend your money on, or save it for. Rather than being a punishment foisted on you, a financial plan allows more freedom to do with your disposable income what you really want to do. Budgeting can help you achieve your goals by setting priorities, tracking where you money comes from and goes to and how it is moving toward achieving your financial goals. 

Keeping a budget can also assist you at tax time since budgeting involves a system of record keeping. The annual record of all expenditures, some of which may be deductible, will be documented and easily entered into your tax forms.

To make record keeping easier you should first group your expenses. Begin by breaking down your expenditures, based on your records, into several categories such as food, clothing, shelter, utilities, personal care, entertainment, transportation, and savings. You may need to add other categories such as vacations or contributions. You may want to condense some categories such as putting all housing related expenses in one category.

Another option is to purchase a budget book or a computer program that will track expenses as you enter them into the book or program. You can find all kinds of budget books, publications, or computer programs that will make the task of budgeting easier. Of course, since every family is different, some categories may not pertain to you while you may need to add other categories

The suggested classifications usually include a savings and investment category, which is the foundation of any budget. If you don't budget for savings and deposit the amounts budgeted, you will probably find it difficult to save. It takes discipline to save for things you want such as a new rug or your children's college education. Failure to save leads to doing without or borrowing money and making interest payments that cut into what you can spend on other things.

Whichever system of record keeping you use, budget tracking book, computer program, or plain paper and pencil, your system should classify your expenses, and observe a few basic guidelines.

• Keep similar expenses in the same category. 

• Set up enough different categories so that you have a meaningful record for your expenses. 

• Do not group too many different expenses into a catchall category. 

• Keep the number of categories small enough to make booking simple. 

As mentioned previously, some budget categories may not fit your family, but here is a list to get you started.

1. Food (food eaten at home, food away from home, snacks, coffee breaks, school lunches, home food production)

2. Housing (house payments or rent)

3. Utilities (gas, electricity, garbage pickup, water, television cable, telephone, cell phone, internet connection)

4. Housing operation or Household Expenditures (laundry supplies, storage rental, paper goods, stationery, postage, cleaning supplies, pest control, safe deposit box rent, home insurance, property taxes, yard care, hired help)

5. Household Repairs (roof, painting, plumbing)

6. Health (medical and hospital insurance premiums, doctor and dentist bills, medicine, eyeglasses, hearing aids, first aid supplies, treatments or therapy, transportation to receive medical care)

7. Equipment and Furnishings (furniture, rugs, curtains, pictures, vases, mirror, appliances, kitchen utensils, bedding, linens, china, silver, glass ware, equipment repair)

8. Transportation (car purchase, car expenses -- gas, oil, repairs, tires, licenses, insurance, maintenance, taxes -- parking fees, bus, plane or train tickets, taxi fares or rentals)

9. Clothing (ready-to-wear, footwear, cleaning and repair, sewing supplies, accessories, alterations)

10. Personal Care (haircuts, beauty shop, allowances, cosmetics, toiletries, shaving supplies and other personal care items)

11. Gifts (to include wrapping paper, flowers, cards)

12. Contributions (charitable donations, i.e. church, civic and educational organizations)

13. Education (school supplies, books and supplies, magazines, newspapers, lessons)

14. Business related expenses (union dues, professional dues, business licenses and insurance, tools required for the job)

15. Child Care (babysitting, daycare)

16. Recreation (social club dues, sports, admission, equipment, movies, records, tapes, tobacco, liquor, hobby supplies)

17. Pet (food, licenses, supplies, veterinarian fees)

18. Banking & Credit Cost (fees for service and interest charged on any credit purchase)

19. Insurance (life, disability, liability -- insurance not included in other categories)

20. Savings and Investments (might include savings for emergency fund as well as for goals or could have a separate category)

21. Miscellaneous (legal fees, income taxes) 

The most important thing to remember is that a budget won’t work by itself. Just putting it on paper isn’t good enough. You have to plan the budget then work the plan. Set aside at least one hour each week when you devote your self to financial matters; open the bills, write checks, enter the budget categories into your program, and congratulate yourself on getting closer to your financial goals.

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