Financial Planning

The “B” word sends a shudder down the spine of many people. It conjures up fears of never being able to do anything with their money. That it is somehow locked up in this budget and cannot be used for anything else. That in fact is not the case. A household budget is simply a way to see where all your money is going. And more importantly to give you a plan that tells your money what it is supposed to be doing, whether that’s paying bills, going into savings or retirement accounts, or to buy groceries.

Every successful business or person has a money plan. This is what a budget is, a plan for your money, telling it what to do instead of it telling you what to do. With a budget you can set and achieve your financial goals. You can also get a better view of what your money can do for you now and in the future.

With a household budget you can create a spending and savings plan that puts aside a certain amount of money each month for known and unexpected expenses. It will also give you a good record of your monthly expenses based on each month’s expenditures.

The first thing you need to do when setting up a budget is figure out what your monthly income is. If you have a salaried job this is easy because it is a set amount each pay period. If you work on commissions or are self employed this may be more of an estimate. Write this number down at the top of your budget sheet.

Now comes the fun part. Start writing down all your monthly expenses and include even the smallest of expenses. There are certain fixed expenses such as mortgage, car payments, insurance that you need to make every month. You will also need to track those expenses that are more fluid, such as groceries, gasoline, clothing, and entertainment.

If you start by subtracting your fixed expenses from your income what you are left with needs to be budgeted to pay for those expenses that seem to change from month to month. Once you are done allocating money to all your expenses what you are left with is either a positive or negative cash flow. The nice thing about a budget is you can quickly scan what you have written down and see exactly where the money is going. This is very helpful if you are living pay check to pay check because chances are you can find some areas that you can easily cut back on or do without to leave you with extra cash at the end of every month.

Here are four quick tips to help get your budget on track.

1. Learn money management – Successfully dealing with money is 80% behavior. Most people work for their money instead of having their money work for them.

2. Make a plan – A budget is a money plan. Most people would never dream of building a house without a plan. In fact most every activity in life involves some sort of plan. But our most important asset, our money, is left plan free and when we run out or are weighed down with debt we don’t know why.

3. Needs and Want – Know the difference. Needs are basic things like a home with a roof, groceries, clothes (in moderation), transportation to get to work. You don’t need a $400 plus car payment to get to work or a pair of $100 designer jeans. You may want them but you don’t need them.

4. Be a little frugal – This doesn’t mean live in a cave. You can still have fun but make sure it fits into you budget.

Creating a household budget is the first step to getting your finances under control. You will have to be patient with the process because chances are it will not work the first 2 to 3 months you do it. But remain diligent and around the third month you will begin to see patterns that will help you refine your budget into a financial plan that will set you on the right path.

Families all over the US are concerned about making ends meet this month. Setting and sticking to your budget is one way to keep your expenditures in line. Most Americans have some idea what their monthly or weekly household budget looks like overall. Usually they start with their income and spend until the money runs out. When times are tight, people start looking to cut items back. To do this you must have a firm grasp on how much money you are spending in each area of the budget.

In order to set your grocery budget, you first have to look at the overall household. Most families break down their monthly income with four simple categories. First, the mortgage or rent payment is in a category by itself. It’s usually the largest one expense that is paid each month. Second, is the household consumables sector, and is second largest. This is where all expenses associated with the people living in the home incur. Groceries are included in this sector. Some other things in this sector include prescriptions, pharmacy items, personal hygiene products, and pet supplies. Third is the household non consumables, including insurance, repairs to the home, furniture, appliances and items that are necessary but not consumed. The fourth includes the discretionary spending, those items that are completely discretionary like satellite TV, entertainment, travel, and dining out. Finally, what most families handle last is savings.

The two categories that are easiest to cut in tough times are the household consumables, and the discretionary spending sectors. The only way to cut is to know what you should be spending in the first place. Most homes spend $50 per week per person in the home. This budget includes $35 on food and groceries, $15 on pharmacy or personal items. A family of four would spend $200 per week, or $800 on the average month on both groceries, and consumables inside the home.

To save 25% of your monthly Grocery budget, you can do several different things. First you can simply not buy, and go without. Or you can shop smarter. One way to shop smarter is to substitute generics for name brands when the generics are cheaper. You can also start using manufacturer coupons or store issued food coupons. This usually saves 20-35% on each item you redeem a coupon. You can also only buy sale priced items when you are at the store. Typically stores mark 50-75 products down each week to entice shoppers into the store. These items will yield a savings of 25%. You will have to refrain from impulse buying and stick to strict list in order to see your savings at the end of the month.

Once you have your budget set, and your savings goals in mind, all you need to do is select the method of savings you wish to implement to keep your grocery budget under control.

Definition of a Budget

According to Merrium-Webster’s online dictionary, a budget is “a statement of the financial position of an administration for a definite period of time based on estimates of expenditures during the period and proposals for financing them b: a plan for the coordination of resources and expenditures c: the amount of money that is available for, required for, or assigned to a particular purpose”.

That’s a really long sentence to say that a budget is a list of all your incoming and outgoing money. The big question is why should you have a budget and exactly how complicated it is to make a budget. For me, understanding and completing a budget was simple. For my best friend, it was one of the hardest things she has ever done and I ended up sitting down with her and helping her figure it all out.

It surprises me how many adults have no idea what to do with a budget. I’ve heard so many people talk about how hard it is to make a budget or if they have a budget, how hard it is to keep to it. My philosophy is KEEP IT SIMPLE!!! I have read a few articles and even a few books on budgets and they always start off with telling you to keep tract of every dollar you spend for a week or month. Then they tell you that you need to understand how you spend to know how to make your budget. Some tell you that you have to cut back on all the pleasures in life and not spend a dime more than you absolutely have to. I’m not going to do that. Have you ever heard of KISS – Keep It Sweet & Simple? This is my version!

Guidelines of a Budget

There are a few basic steps of making a budget and a couple of intermediate ones. For anything more complicated I suggest finding an accountant as I have no knowledge beyond the basics.

Step 1: Make a list of all your bills

Do you have credit card bills, house payment or rent, car payment, car insurance, cell phone and house phone bills? How much gas do you use in a month? How much do you spend on food at the grocery store, at a restaurant, in fast food? Do you pay for internet or a gaming site? List anything and everything that you pay for every month. This is your monthly bills.

Example: My Monthly Budget

Rent – $635.00, Car Insurance – $90.00, Car Payment – $100.00, Cell Phone – $40.00, Internet/Cable/House Phone – $150.00, Gas – $100.00 —– TOTAL: $1115.00

I’m lucky in the fact that I have a roommate and she pays the electric, water, food (Food Stamps) and part of the rent. Also, I’m buying my truck from my brother, which makes my car payment really low. That being said my bills for the month total $1115.00.

Step 2: Make a list of all your income

How much money do you bring in a month? Do you have a job, food stamps? Make a list of every way you get money on a monthly basis. If it doesn’t come in every month, don’t list it.

Example: My Monthly Income
Paychecks: $1340

I bring home $1340 every month. This reflects my net pay (after taxes and deductions). Make sure you only use your net pay while making your budget or you will run out of money before getting all your bills paid.

Step 3: Retirement/Saving

In step one, I asked you to list all your outgoing expenses. When you made your list, did you think about your savings account and retirement? Even if you are 18 years old, it is never too early to think about your retirement plans. Saving just ten percent of your paycheck, can mean that you can retire on time and without having to have supplement income (another job). Also, in the immediate future, what happens if your car breaks down, do you have enough money to fix it?

Example: My Retirement/Savings

Savings: $50.00

For my retirement, my job has a 401K that I invest in. That money is taken out of my paycheck before my deductions, including my taxes. So, the $1340.00 you see above doesn’t include my retirement plan. As for my savings, I put $50.00 a month into savings. It doesn’t seem like a lot, but in one year, I have $600.00 enough to get a new tire or battery if necessary for my truck.

Step 4: Anything Else

Have you started thinking about a new hobby or want to have money for a current hobby? How about going to the movies or out to eat? There are a lot of little things that we like to do each month that add up to a lot of money. You can easily afford a few of these if you take them into account now. If you find you don’t have enough money for all of them, then make a fun fund. This way you can pick and choose with the limits of your fun fund, which hobby/movie/dinner for that month.

Example: My Hobbies

Fun Fund: $25.00

I love to make chainmail jewelry. It’s an obsession. I can walk into Michael’s and spend $100.00 or more if I’m not paying attention. My fun fund is $25.00 a month. I only make it $25.00 because I know if I have any money left in my budget, I will be adding it to this fund first.
Of course, by this time all my bills are paid and I have money to make it through the end of month. That money is mine to play with anyway.

You ask why make this fund in the first place. That’s easy, that extra money may end up going to something else because something unexpected happened. This way you still have some fun in your life. That is part of being responsible. You have to think about your mental health as well as your monetary health.

Step 5: Mathematics (Adding and Subtracting Only)

Once you have all your expenses, savings, income figures out, now comes the mathematics. Add up everything that is income, then add up everything that is outgoing (including savings/retirement – it is outgoing because you don’t have it available for this month’s bills). This will give you a balance.

Example: My Math
Paychecks: $1340.00 – (Bills: $1115.00 + Savings: $50.00 + Fun Fund: $25.00) = $150.00

That leaves a balance of $150.00 for me to use however I want. If it is a good month and I don’t have anything unexpected come up, I’ll take it to Michael’s or The Ring Lord (my chainmail ring wholesaler).

Last: The Hard Choices

If for some reason your balance is a negative number, you know you need to cut something down or out. Do you really need the mega cable package? Would drinking less beer each month cut down on your grocery bill? Do you really need to spend that much on your hobbies? Is having three MMORPG subscriptions really necessary or will just one due?

If you have cut your budget as much as possible, and you still have a negative balance, maybe a new job or second job is necessary. That is your decision to make.

So, it’s really simple. Add up expenses, including saving, retirement and fun fund. Subtract that amount from how much you bring in each month. Positive number – Have Fun! Negative number -Cut Expenses!

Personal Finance Tips for You includes twenty-four topics covering an array of areas. The author states in the introduction “it is important to know as much as you can about managing your personal finances in these economic times.” Some of the areas covered are credit card traps, keeping on track to pay your bills, handling your checkbook, the price of gas, identity theft, catching up on retirement planning, what to do if you receive a lay off notice from your job, checking your credit report and talking about finances if you are planning to get married. These are just a few of the topics. There are many more.

The first topic covered is Don’t Get Caught Up in The Credit Card Trap, Stop Yourself Before That Happens. This is a very important chapter for everyone to read because it is so easy for this to happen in tough economic times. The author offers several excellent tips to help anyone who has this problem. It is clearly explained why it is so important for you to pay down the credit card debt.

Another important topic covered is How Do I Keep On Track to Pay My Bills on Time. The author gives the reader some tips on creating a budget and keeping track of your income and expenditures.

How do you survive the high cost of gas? We all know, not long ago the price of gas kept soaring. The author gives us many tips on how to save money by doing some simple things like consolidating trips just to name one of the pointers. There are many tips mentioned that I never thought of myself.

How do you establish your credit if you are young and just starting out on a job? Nocita Carter tells you exactly how to go about doing this.

Do you think you can save any money by just saving your change? This is one of the tips made by the author. I can personally vouch for this one because each day when I purchase an item, I take the change and add it to an old coffee can. After a few months, it gets quite full. I am always surprised by the amount of money I saved from my loose change.

I could go on and on with each chapter because there are so many good points in this book but I think you get the message and would get more out of Personal Finance Tips for You if you purchase it and read it yourself.

There are several aspects of this book that I really liked. It is written in language that is very easy to understand. It is not like some of the other books on finance that require you to have a dictionary by your side as you read. The book is very organized. Each chapter starts with an introduction to explain the topic. Once that is done, the author lists several tips to help the reader accomplish these tasks. Nocita Carter has written this book in a manner that makes the reader feel like they have a personal finance expert right there beside them. Personal Finance Tips For You is recommended for any age. It will be a valuable tool for younger people who are starting their first job. On the other hand, one is never too old to find something they did not know in this book. After reading this book, I learned quite a few tips to help me with my finances. You will find this an excellent resource guide to keep by your side at all times.

Wise money management is essential for a balanced, happy life. Financial stress resulting from poor money management skills can affect our capacity to make good decisions, harm our relationships, affect physical and mental health, and ultimately to function well in life. It is no exaggeration to say that poor money management breaks up marriages and breaks down hope. Yet, money management is a skill which can be learned. Even if financial problems are largely the result of just not earning enough income, good money management skills can reduce the stress of these circumstances and provide a bit more mental room to focus on solutions.

Here are six tips for managing your money wisely, which, if applied, will improve the overall quality of your life:

KNOW WHERE YOUR MONEY IS GOING. It is important to stop the financial leakage. We all know what it is like to have our money dribbling away one coin or one note at a time. It is important to pay attention to our spending. It can be very helpful to record all expenditure for a set period of time just so you know where your money is going. Prepare to be shocked; most people have no idea how much money is being lost to unnecessary expenses. Once you know where your money is going, you can curtail unnecessary expenses.

DESIGN A BUDGET THAT WORKS FOR YOU AND STICK TO IT. You can design your own, or get a free budgeting form off the internet. Make sure at least some of your money goes to debt reduction and savings. Create a budget that will meet your financial obligations and if you have to cut down on certain expenditures to live within your budget then do so. Once you remove the stress of financial insufficiency through good money management, you will find you are able to improve your financial circumstances gradually. This is next to impossible when you are overspending.