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The Power of Paycheck Planning:

Springboard

Building a Budget That Works

START RIGHT NOW
The time to stop overspending and get control of your finances is right now. Before you construct a budget, there are some things you should do first: • Stop incurring new debt. Borrowing money for consumer spending is no way to make your budget work. You’ve got to put away those credit cards to live successfully on a spending plan. • Live on a cash basis. Get used to buying with cash; there is a place for credit cards in your financial life, but for now, don’t use them while you’re getting used to living on a budget. • Get a handle on your situation. Sit down with your monthly bills, statements, checkbook register, and everything you have relating to your household finances. Look at your regular bills; when are they due each month? What do your utilities typically cost in a month? What do you spend every week at the grocery store? We’re going to advise you to thoroughly track your spending as you begin your budget, but it’s helpful to have some idea of your household spending at the outset. • Relax. Take it one day at a time. You’re not going to build the perfect budget right out of the gate. It will take some adjusting to get things right.

TRACKING YOUR SPENDING
We recommend that you track all of your spending for at least 90 days. It takes some work, but it’s a good habit to get into and it’s easier as you do it more and more. There are a variety of methods you can use to track your spending: • • • • • Use the forms we provide on our web site Use a day planner or calendar Carry a small notebook Keep your receipts in a separate envelope for each day Use software or a website like Mint.com

Use whatever method works for you; the main objective is to track where your money is going. But remember, tracking will only work if you include every single expense. Every time you drop 75¢ in a vending machine, you have to make note of it. This process may be tedious at first, but stick with it. Eventually you’ll be recording your spending automatically, like recording checks in your register or brushing your teeth every morning. Here’s a guarantee: if you track your spending faithfully, there will be some surprises. You’ll learn that you are spending money in ways you never realized. Once you are armed with this information, you can construct a new, more effective budget.

CALCULATE YOUR INCOME
You need to know 3 things to create a budget: • Your Income • Your Expenses • Your Goals You’ve already seen the importance of tracking your expenses before creating a budget. The important thing to remember about assessing your income is that you must include every source of income you have, not just your primary job and its accompanying paycheck. Use a chart like this one to track all of your sources of income:

Monthly Income Source
Job Spouse’s Job Part-Time Job Rental, Room & Board Received Commissions, Bonuses Tax Refund Government Benefits Child Support/Alimony Support from Family/Friends Personal Loans Collected Other

$

Gross

Net

Total Monthly Income

SETTING GOALS
This is why we create budgets in the first place. An essential part of achieving financial freedom is setting clear goals and employing some intelligent joint planning. You need to know what your financial goal is, and in what time period you hope to achieve your goal.
A short-term goal should be accomplished within one year. Say you plan to take a vacation that will cost $1200 next year. You’ll need to save $100 per month to reach that goal in time. A mid-range goal takes between 2 and 5 years to accomplish. Saving for a car might be a good mid range goal. Long-term goals take over 5 years to achieve. Saving for retirement, college, or to purchase a home are common long-term goals.

Financial Goals Target Date

Total Needed Current Savings Additional Savings Needed $20,650 $6,250 $14,400

Number of pay Savings periods until Needed target date Per Pay Period 72 $200

Savings Needed Month $400

Example: A new car Short-Term Goals Mid-Range Goals Long-Term Goals

36 Months

Total:

ADDING IT ALL UP
Now it’s time to put everything together and make your budget work. If your expenses exceed your income, you will have to work to find solutions if you are going to avoid falling deeper into debt. Credit counseling can help if you have high debt payments that are upsetting your budget. You may also tighten your belt in some areas to balance your finances. Whatever you do, don’t cut into the 10% - 15% you should be saving; you need to save up to three – six months’ income to get through an emergency before you can start saving for anything else. For now, set reasonable, attainable goals; you can also push a goal’s deadline back and give yourself more time to save money. Re-evaluate your budget periodically, especially when your income or needs change. A budget is simply a guideline, a tool to help you save to buy the things you want. With smart money management and clearly defined goals, consumers can come to rely on credit cards less and less.

First, determine your total monthly expenses: Total Necessary Expenses Total Discretionary Expenses Total Debt Payments Total Monthly Expenses And then see if your budget balances: Total Monthly Net Income Minus Total Monthly Expenses Balance (+/-)

EVALUATE YOUR SPENDING
The ranges indicated here will vary with income levels, family size, and personal choice. Work with these figures to establish your own guidelines. If you are unable to bring your spending in line, check out our other materials or call us for free, confidential credit counseling.
Housing Auto & Transportation Miscellaneous

3545%

Mortgage, rent, property taxes, insurance, repairs and improvements.

15%-25%

Purchase and installment payments, gas & oil, repairs, insurance, parking & public transportation.

5%-10%

Miscellaneous Club dues, admissions, hobbies, postage, tobacco, cosmetics, hair cuts and cable TV.

Utilities

Medical

Savings

8%-15%

Gas, electricity, water, trash, sewer and telephone (regular & cell).

8%-15% doctor and dentist bills.

Medical insurance premiums, prescriptions,

5%-10%

It’s crucial that you set aside 10% for your goals, starting with an emergency savings fund.

Food

Clothing

Debt Payments

10%-20%

All food items, dining out, pet food.

3%-5%

All clothing purchases, shoes & alterations.

10%-20%

Installments Credit card payments, personal & student loans, any other debt payments.

CREATE YOUR BUDGET
Necessary Expenses Housing Rent/Mortgage 2nd Mortgage Property Taxes Insurance HOA Dues Gas/Electricity Water/Sewer/Trash Telephone Food Groceries Dining Out At work/school Insurance Life Health/Dental Disability Medical Care Doctor Optometrist/Lenses Dental Prescriptions Transportation Car Payment 1 Car Payment 2 Insurance Gas/oil Repairs DMV/Smog Tolls/Parking Public Transportation Child Care Daycare/Sitting Child Support/Alimony Miscellaneous Banking Fees Laundry Other Income Taxes Prior Year Estimated Tax Payments Savings Emergency Goals Total Essential Expenses Current Proposed

Discretionary Expenses Personal Beauty/Barber Clothing/Jewelry Cosmetics Manicure/Other Entertainment Cable Movie/Video Dining Out Sports/Hobbies/Clubs Vacations/Travel Books/Magazines MP3/Concerts Miscellaneous Pet Care/Vet Gifts Cell Phone Postage Cigarettes/Alcohol Donations/Tithing Internet Access Other Total Discretionary Expenses: Debt Payments Creditor Name

Current

Proposed

Monthly Payments

Total Debt Payments:

Remember, your budget should be flexible. Keep adapting and changing it until it fits your lifestle. Check out our blog at www.credit.org/blog for ideas about saving money and making your budget work. Also, check out our full “Power of Paycheck Planning” webinar and online course in our FIT Academy.

A CLOSER LOOK AT SPENDING
It’s hard to say what is “normal” when it comes to spending. TRANSPORTATION Looking at national CLOTHING HEALTHCARE The average household has 2 averages, we can cars, and spends $8350 FOOD Apparel The average get some idea of per year on transportation. expenses household Car payments make up $3550, what a typical Based on USDA amount spends $2664 or roughly $150 per month for each household spends on figures, the average to $1886 on health of the household’s two cars. Gas household spends $38 for the care per costs the average household $2000 various budget items. per year, or $167 per month. Other typical year, or $222 per week per person on Bear in mind that expenses amount to $2350 per year. food. Individual examples houseper month. these figures are a vary widely, of course; a hold, or HOUSING single mother spends an $157 few years old (as The average household spends $15,000 per year on housing. This includes all average of $28 per person per recent as gov’t utilities, household supplies, furnishings, per week for herself and her month. and public services as well as the rent or statistics get) and children, while single men house payment. that a “Household” living alone without children spend $55 per week on food. Breaking things down further, we see equals 2.5 people. that the average annual expenditure So while $38 is the national ENTERTAINMENT That may affect your on shelter is $8,800, or $733 per average, you could get A typical household spends month. Utilities and public services budget numbers if your $2388 per year (or $199 per by spending less; $30 average $3180 per year, or month) on entertainment. This is per week per person household is larger. $265 per month. The an area where most of us could might be a worthy remaining $3020 per year effectively cut back on our These averages can be a spent by households spending. You may not even goal. helpful guide to tell you notice a difference in your lifestyle if covers you make the right kind of spending housekeeping whether your spending is way cuts (renting movies instead of buying supplies, home them, for example). out of line, but they are not furnishings, and other home operations. absolute. Your circumstances may vary from national averages, so don’t put too much stock in USDA statistics.

Accredited by the Council on Accreditation (COA)
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Member of the Association of Independent Consumer Credit Counseling Agencies (AICCCA)

Springboard is a nonprofit organization founded in 1974. We offer personal financial education and assistance with money, credit, and debt management through educational programs and confidential counseling. Our Services Include: • Credit and Debt Counseling • Financial Education Programs (seminars and materials) • Debt Management Plans • Homeowner Assistance (Foreclosure Prevention) • First Time Home Buyer Seminars • Reverse Mortgage Counseling • Pre-Bankruptcy Budget and Credit Counseling • Bankruptcy Pre-Discharge Financial Management Instructional Course

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Certified by the Department of Housing & Urban Development (HUD)

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Member of the National Housing Counseling Association (NHCA)

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Member of the National Foundation of Credit Counseling (NFCC)

Contact Us: 800.431.8456 Email: education@credit.org Twitter: www.twitter.com/CreditDotOrg Facebook: http://www.facebook.com/CreditDotOrg

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