KASL

WESTON COUNTY EXTENSION REPORT

BILL TAYLOR
11/2/10

DETERMINING A BUDGET (Part 2 of 2)

Last time we talked about the fact that you must recognize your spending habits and how much

you are spending on “needs” and how much on “wants.” I explained that needs are the bare

necessities of life and must be attended to before we spend money on the wants. Wants often

cause daily spending leaks that drain the change from our pockets.

Secondly, I told you how to track your spending for two or three months to determine your

spending habits and determine how much you are spending on needs and wants.

Now, you can look at your spending record and make some judgments about how much you

are spending on needs versus wants and whether you should make some adjustments. Do you

need to move some of your spending from entertainment to food or clothing? Do you need to

cut back on travel so you have more money available for medical expenses? It is extremely

difficult to develop a good spending plan until you have an accurate idea of what you are

spending in various categories and how much is necessary.

Once you have analyzed your spending patterns, it is now time to write down some personal or

family financial goals. Goals give us direction and shape our thinking. Without them we just
continue to work at making ends meet and letting our expenses rise to meet our income. Goals

help us be constructive in improving our financial situation.

Goal setting is a unique process in itself. Vague goals do little to shape our progress – goals

need to be specific and contain a time reference and cost. Assume we need another vehicle.

Just saying we need one is not enough. Do we need a sedan or a station wagon or a pickup?

When you we need it? Now? In six months? A year? Will it be a $1000 vehicle to get to work, a

$10,000 family vehicle or a $50,000 work truck? All these things make a difference.

In addition goals need to be written down and reviewed on a regular basis. The majority of

those who write down their goals and look at them on a regular basis accomplish them. Vague

goals floating around in the back of our mind do little to give us direction or shape our lives.

Finally, determine which goals are a priority. We seldom have the resources to address all our

goals at one time and need to determine which ones we need to address first – these will often

be “needs” instead of “wants.”

Now, you are finally ready to develop a spending plan or budget. First, list your expected

income for the month. Then, looking at your three month spending record and your prioritized

list of goals, determine and list your needs first. Start with your fixed expenses, those that are

the same every month and list and total them. Afterwards, list the variable or flexible categories

that you spent money on in the last three months and put a projected amount down for each
category. Lastly, subtract all your expenses from your total income for the month and see if you

have any funds left or whether you budgeted too much for your expenses.

If the budget doesn’t balance out, go over the expense items and see where you might cut until

you are within your spendable income. If you can’t cut enough to make the budget balance,

then you will have to find additional sources of income. Can you work overtime, have a garage

sale, or rent out a room? Consider your true needs – enough for you and your family to survive.

All the rest are wants and need to come after your needs are met.

The last step is to put your spending plan into operation. Keep track of what you are spending

in each category throughout the month and adjust accordingly. If it doesn’t look like you are

going to make it to the end of the month, find things to do without, either in that category or

some other. At the end of the month, analyze how you did and continue to adjust as needed

until you have a budget that works and meets your goals.

Bill Taylor
Weston County Extension Office

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