Budgeting Basics Page 1 of 4

Budgeting Basics
By Amerix Corporation Reprinted with Permission.
Last Reviewed: January 2004

Budgeting Basics

Reprinted with permission of AMERIX Corporation. Posted January 2002.

Have you laid a foundation for good financial health? Budgeting can help you do just that. Creating and managing a budget is the cornerstone of good
financial health. It's a step-by-step process that puts you in control and allows you to better manage your finances.

If thinking about a budget makes you cringe, consider it as creating and managing a personal financial planning system instead. Whichever term you use,
it's essential to have a plan when it comes to your money.

Where Does Your Money Go?

There's no way to create a budget without first looking at where your money goes each month. This can be a daunting task, so it's a good idea to break it up
into manageable pieces. First, examine your expenses over the past two or three months. The best way to do this is to look at your:

„ checkbook register
„ receipts
„ statements

Second, list your monthly expenses by category. If an expense is not monthly, be sure to convert it to a monthly expense. For example,
if you pay insurance quarterly, divide your quarterly bill by three to get the monthly rate. To meet your specific household needs, you
may need to add or delete categories to the list below:

„ cable or satellite
„ car payment
„ child care or support
„ clothing
„ credit card payments
„ donations
„ eating out
„ education
„ electric and/or gas

https://www.liveandworkwell.com/member/articles/printArticle.asp?ArticleID=7551 7/22/2004
Budgeting Basics Page 2 of 4

„ entertainment
„ gasoline and tolls
„ groceries
„ heating oil
„ household products
„ insurance
„ internet service
„ loan payments
„ medical
„ mortgage or rent
„ pet care
„ savings
„ storage
„ telephone
„ trash removal
„ water and sewage

Third, track your current expenses for one month. Use a notebook and write down every penny you spend over the next 30 days. If you
buy a cup of coffee on your way to work, write it down. If you buy a candy bar for a late afternoon snack, write it down. This can be
somewhat cumbersome, but you'll learn valuable information about where your money goes. You may not even realize how much
money you're spending. You'll probably have ideas on how to reduce your spending just from looking at this information.

Understanding Your Income –

Budgets not only include monthly expense information, they also include your monthly income. For the purposes of a budget, you
should look at your take-home pay (net pay) instead of your actual salary (gross pay). If you get paid every other week, multiply your
take home pay by 26 and divide by 12 to get a monthly rate. If you get paid every week, multiply your take home pay by 52 and divide
by 12 to get a monthly rate. Sources of income include:

„ salary and wages

„ bonuses, tips, and commission
„ child support and alimony
„ interest and dividends
„ social security
„ pensions and profit sharing
„ rental income
„ public assistance

https://www.liveandworkwell.com/member/articles/printArticle.asp?ArticleID=7551 7/22/2004
Budgeting Basics Page 3 of 4

„ unemployment and disability

What's Next?
You now have the basic information necessary to create your budget. Add up your monthly income and add up your monthly expenses.
If your income is greater than your expenses, you have a surplus that can be used to pay down existing debt or used for savings. If your
income is less than your expenses, you have a deficit. Don't be alarmed. The other articles in this series will help you explore options
for reducing expenses and building a realistic budget.

Remember, creating and managing a budget plays a crucial part in assuring your financial health and seeing that all of your financial
goals are met.

Budgeting Guidelines –
Do you know how much of your income should be spent on things such as housing and food? Creating and maintaining a budget is
easier if you follow some basic guidelines.

„ Format —Some people prefer to use pencil and paper to create a budget, but you may find it easier to use our online budget worksheet. You'll save
time and effort by following the instructions there. Having your income and expense information handy will make completing the budget faster and
easier.
„ Budget allocations —While it's true that your budget is specific to your situation, it's useful to review basic guidelines for budget allocations. Keep
in mind that you should tailor your budget to fit your needs. Many financial professionals agree that, in a typical budget, you might see income
allocated as follows:
z Housing, including insurance, 30% —35%
z Food, 15% —20%
z Transportation, including insurance, 10% —20%
z Debt, other than mortgage, 10%
z Savings, 5% —10%
z Clothing, 5%
z Health Care, 5%
z Utilities, 5%
z Other, 10% —15%
„ Pay yourself first —When allocating money in your budget, it's a good idea to remember to pay yourself first. This means that the savings portion
of your budget should be fulfilled first. It can be difficult to put money in savings if it's the last thing you do with your money each month. You may
want to include an emergency fund as part of your savings. Typically, an emergency fund is a readily accessible, interest-bearing account where you
keep two —three months' living expenses. It may not be a good idea to use a checking account for this type of savings, as you may be tempted to
use the money for other things. Instead, you could use a savings account or short-term certificate of deposit.

https://www.liveandworkwell.com/member/articles/printArticle.asp?ArticleID=7551 7/22/2004
Budgeting Basics Page 4 of 4

Is It Working?
Keep in mind that the information above serves as a guideline to help you create your budget. Don't worry if you need to make changes.
Your budget or personal financial plan should be used as a living document that reflects your current circumstances. If you run into
difficulty sticking with your budget, take a look at your:

„ Goals —Did you set realistic, measurable goals? Remember that realistic goals can be achieved in a specified timeframe and measurable goals can
be quantified.
„ Spending —At the end of the month, are you out of cash? You may want to track your expenses over a 30-day period to see exactly where your
money is going. In this way, you'll be able to see exactly where you can make changes. A cup of coffee purchased each day on the way to work, for
example, will cost you $260.00 a year. Wouldn't you rather use that money to pay down your debt or start saving for a vacation?
„ Expectations —Did you think creating a budget would solve your financial problems? It's true this is an important first step in creating financial
health, but it's also important to maintain the budget and make it work for you. It's not a punishment; it's a way to have control and continued
financial success.

Don't despair if it's somewhat difficult at first. It will get easier with practice. For some ideas on budgeting tips, read the related articles
in our library. Remember that creating and managing a budget plays a crucial part in your financial he

Copyright 2002 - 2004 All Rights Reserved

https://www.liveandworkwell.com/member/articles/printArticle.asp?ArticleID=7551 7/22/2004