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"THERE WAS A TIME WHEN A FOOL AND HIS MONEY WERE SOON PARTED...BUT NOW IT HAPPENS TO EVERYBODY." Adlai E. Stevenson
The latest Retail Sales numbers showed the consumer is still out there spending...but many of our expenditures have gone up right under our noses, without us getting any extra enjoyment out of them. Rising gas prices, increased interest rates for borrowed money, higher minimum monthly credit card payments...expenses are getting higher every day, and it may be crimping our normal monthly spending style. And not knowing where your money is going each month often gives you a general sense of unease when your head hits the pillow at night...and may eventually cause you a major financial hardship.
There are many phenomenal budget programs available for your computer, such as "Quicken" or "Money", but starting with even a little simple planning can put your mind at ease and allow you to spend, knowing that you have control of your monthly income and expenses. Don't worry if the word "budget" gets you feeling uneasy and makes your palms sweat - hey, relax. Just think of a budget as you would a healthy diet. You don't have to starve, but you may just have to cut back on a few tasty expenses to accomplish your goals. And who knows...you may actually be better off than you thought, and can splurge a little. Let's take a look.
A good budget is written down and includes as much information as possible. Start by determining your current monthly income. Use the net income (amount received after taxes and any insurance benefits are deducted) and anything additional such as part time work, interest, rental, or bonus income. Next, determine your monthly expenses. Obtain and keep a receipt for every item purchased, especially if you frequently use cash for purchases. Receipts should include everything from groceries to Starbucks coffee...even minor purchases can add up quickly. Although you usually need to have some pocket cash on hand, many people choose to use debit or credit cards more often than cash, purely to have a better record of money spent. At the end of the month grab the receipts, your checkbook, and any credit card statements and start categorizing your expenses.
Expenses should be classified into the following categories:
· Household - this would include rent or mortgage, utilities (gas, electric, water, etc.), cable television, Internet, phone, and any additional items such as a housecleaning service or pool service. This category could also include the many things you frequently buy for your home such as paper towels, cleaning products, plastic baggies, lawn and garden supplies and the like.
· Food - separate food expenses by groceries and dining. Dining out would include lunch and dinner expenses for every member of the family.
· Transportation - this would include all expenses related to an auto (e.g., auto payment, insurance, fuel, and maintenance). Additionally, include public transportation, tolls, and parking expenses.
· Healthcare - include monthly health care fees such as medical, dental, prescriptions, and insurance co-pays.
· Looking good - all of the items that make you, you. Clothing, shoes, dry cleaning, toiletries, haircuts, manicures, etc.?
· Entertainment - include all of the "just for fun" items. Movies, concerts, vacations, subscriptions, sporting event tickets, and hobbies.
· Miscellaneous - include all additional monthly expenses such as banking fees, credit cards, savings, education, gifts, donations...and don't forget pet expenses.
It is important to note, some expenses will vary on a monthly basis and an average will need to be calculated. For example, utilities can change each and every month. To come up with the average, simply add the actual amount paid for twelve months and divide the total by twelve to create a monthly average - and adjust as needed over time. Additionally, any expenses such as insurance premiums that are paid annually should be divided by twelve to create a monthly average as well.
Once all items have been categorized and listed, simply total the income and subtract all of the expenses. The remaining number will clearly determine if you are coming up short, breaking even, or have money left over. If you have money left over, meet with your financial planner and discuss investment strategies that will maximize those extra dollars.
If you come up short or barely break even, it is important to determine areas that you can trim expenses. Look at trimming dining out, entertainment, or looking good expenses. Although it may sting a little in the short run, you'll know that you are on the path to a great financial future.
If cutting expenses still does not provide enough cash flow to help you sleep better at night, contact me for a complimentary loan and financial analysis. We can work together and decide if a referral to a great financial planner who can help you with your budget is a good fit right now, and there are also many great loan options available, which may help provide the cash flow plan that will put your mind at ease and allow you to build your financial future. |