Budgeting and Goal-Setting

Handling money is a talent few of us are born with. But it is a skill that can be learned.

Posted by Avail Content
11 months ago

Why budget?

Handling money is a talent few of us are born with. But it is a skill that can easily be learned.
No matter what you call it—a budget, a savings-and-spending plan—there is no better way to precisely determine how much you are spending each month, what you are spending it on, and how much you can actually afford. A budget also helps keep you on track towards your financial goals.

Budget guidelines

A good budget is flexible. Here are some general guidelines to the percentage of your income that should be put towards various categories of expenses. Your particular situation may vary (e.g. housing costs vary widely across the country) and some financial planners are reluctant to put percentages on these categories, but many people find that these percentages are a good reference point. If your situation differs greatly from these averages, be certain that there is good reason for this.

  • 35% Housing. Includes mortgage/rent, taxes, repairs, insurance, and utilities.
  • 20% Transportation. Includes gas, oil, repairs, insurance, parking, public transportation, and monthly car payments.
  • 15% Debt. Includes credit cards, personal loans, student loans and other debts.
  • 20% Other expenses. Includes all other expenses. Food, insurance, prescriptions, doctor/dentist bills, clothing, and personal items.
  • 10% Investments and savings. Includes cash, stocks, bonds, and retirement savings.
  • =100%

About budgeting

You may be surprised at how much you actually spend to live in the manner to which you are accustomed. For example:

  • How much do you spend on a gym membership each month?
  • How much do you spend on car insurance premiums each year?
  • Do you take vacations? How much do these cost you (including all the money you spend while away)?
  • What does your home cost to maintain?
  • If you have pets, how much does their care and feeding cost?
  • How much do you spend on clothes each month?
  • What do you spend on gifts for weddings, birthdays, etc.?
  • Do you have monthly car payments?
  • How much do you spend each month on revolving credit payments (furniture, appliance loans, etc.)?

Step 1: Prepare

There are many ways to budget (e.g. day-to-day, week-to-week, month-to-month). A monthly budget is usually detailed enough. If you get paid every two weeks it may be easiest to let your budget follow your pay schedule.

Do you have a notebook or somewhere to make your budget notations? Use something small that you can carry with you at all times to make notes in and hold receipts. If you use a software program for your budget, you may still need some way to record the information throughout the day before you transfer it to the program. Do not rely on memory—write down all purchases immediately after you make them.

  • Record everything you spend every day for a month. Show the total amount that you paid, including any taxes, and whether you used cash, debit, or credit card (credit card purchases should be recorded at the time of purchase, not when the bill is paid).
  • Save receipts from all purchases. If you don’t usually collect receipts, now is the time to start.
  • Keep track of the costs to make your purchases (e.g. debit card fees, ATM fees).

Note: If your other/miscellaneous column adds up fast, you may need more categories.

Step 2. Calculate your monthly income

When you calculate your monthly income, include your salary (after taxes and deductions), any commissions or bonuses you receive, child support or alimony payments, interest income, investment income, rental income, student loan income, etc. Don’t count overtime pay, tax refunds, or bonuses as regular income. Instead, consider these to be money you can put towards financial goals (e.g. saving for a holiday). It is always best when budgeting to be conservative and err on the side of having more money left over at the end of a month than you expect.

Salary (after taxes and other deductions)……………………………………………………..
Commissions………………………………………………………………………………………..
Contracts…………………………………………………………………………………………….
Child support/alimony……………………………………………………………………………..
Interest income……………………………………………………………………………………..
Investment income…………………………………………………………………………………
Rental income……………………………………………………………………………………….
Student loan income……………………………………………………………………………….
Other income………………………………………………………………………………………..
Total Monthly Income…………………………………………………………………………..

*Note:

Since this is a month-to-month budget, you may have to estimate the value of your income for a one month period. For example, if you receive quarterly student loan payments, calculate how much this income equates to per month. And if you are going to estimate, be conservative. It’s better to underestimate your income than overestimate it. That way, you are more likely to have money left over at the end of the month.

* To calculate your monthly income:

If you are paid weekly, multiple your net pay
(your take-home pay after deductions and taxes)
by 4.333
If you are paid biweekly, multiply your net pay
by 26 then divide by 12

Step 3. Start recording

At the beginning of the month, fill in all of the upcoming fixed expenses that you will have to pay (e.g. pre-authorized payments for rent or mortgage, memberships, etc.).

Each day make a note of what you spend. Be accurate. Make another note of which category of expense each transaction belongs to (e.g. housing, transportation). The budget worksheet that follows may be helpful, or create one that works for you.

At the end of the month, add up your expenses for each category, and the grand total for all categories. Include any expenses that have shown up during the month that you had not recorded (e.g. bank statements listing transaction fees).

Step 4. Calculate your monthly expenses

There are two categories of expenses—fixed and variable.

Fixed expenses are expenses you pay month-to-month or year-to-year that remain relatively the same. These include mortgage or rent, phone, utilities, cable, internet, car payments, insurance, loan payments, credit card payments, savings contributions.

Variable expenses are expenses that vary month-to-month. They include food, clothing, transportation, fees and memberships, vacations, gifts and contributions, recreation, pets, spending money and other miscellaneous purchases.

Learn More

For more information about financial well-being, the following resources may be helpful.

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Budgeting and Goal-Setting

Last updated 11 months ago

Why budget?

Handling money is a talent few of us are born with. But it is a skill that can easily be learned.
No matter what you call it—a budget, a savings-and-spending plan—there is no better way to precisely determine how much you are spending each month, what you are spending it on, and how much you can actually afford. A budget also helps keep you on track towards your financial goals.

Budget guidelines

A good budget is flexible. Here are some general guidelines to the percentage of your income that should be put towards various categories of expenses. Your particular situation may vary (e.g. housing costs vary widely across the country) and some financial planners are reluctant to put percentages on these categories, but many people find that these percentages are a good reference point. If your situation differs greatly from these averages, be certain that there is good reason for this.

  • 35% Housing. Includes mortgage/rent, taxes, repairs, insurance, and utilities.
  • 20% Transportation. Includes gas, oil, repairs, insurance, parking, public transportation, and monthly car payments.
  • 15% Debt. Includes credit cards, personal loans, student loans and other debts.
  • 20% Other expenses. Includes all other expenses. Food, insurance, prescriptions, doctor/dentist bills, clothing, and personal items.
  • 10% Investments and savings. Includes cash, stocks, bonds, and retirement savings.
  • =100%

About budgeting

You may be surprised at how much you actually spend to live in the manner to which you are accustomed. For example:

  • How much do you spend on a gym membership each month?
  • How much do you spend on car insurance premiums each year?
  • Do you take vacations? How much do these cost you (including all the money you spend while away)?
  • What does your home cost to maintain?
  • If you have pets, how much does their care and feeding cost?
  • How much do you spend on clothes each month?
  • What do you spend on gifts for weddings, birthdays, etc.?
  • Do you have monthly car payments?
  • How much do you spend each month on revolving credit payments (furniture, appliance loans, etc.)?

Step 1: Prepare

There are many ways to budget (e.g. day-to-day, week-to-week, month-to-month). A monthly budget is usually detailed enough. If you get paid every two weeks it may be easiest to let your budget follow your pay schedule.

Do you have a notebook or somewhere to make your budget notations? Use something small that you can carry with you at all times to make notes in and hold receipts. If you use a software program for your budget, you may still need some way to record the information throughout the day before you transfer it to the program. Do not rely on memory—write down all purchases immediately after you make them.

  • Record everything you spend every day for a month. Show the total amount that you paid, including any taxes, and whether you used cash, debit, or credit card (credit card purchases should be recorded at the time of purchase, not when the bill is paid).
  • Save receipts from all purchases. If you don’t usually collect receipts, now is the time to start.
  • Keep track of the costs to make your purchases (e.g. debit card fees, ATM fees).

Note: If your other/miscellaneous column adds up fast, you may need more categories.

Step 2. Calculate your monthly income

When you calculate your monthly income, include your salary (after taxes and deductions), any commissions or bonuses you receive, child support or alimony payments, interest income, investment income, rental income, student loan income, etc. Don’t count overtime pay, tax refunds, or bonuses as regular income. Instead, consider these to be money you can put towards financial goals (e.g. saving for a holiday). It is always best when budgeting to be conservative and err on the side of having more money left over at the end of a month than you expect.

Salary (after taxes and other deductions)……………………………………………………..
Commissions………………………………………………………………………………………..
Contracts…………………………………………………………………………………………….
Child support/alimony……………………………………………………………………………..
Interest income……………………………………………………………………………………..
Investment income…………………………………………………………………………………
Rental income……………………………………………………………………………………….
Student loan income……………………………………………………………………………….
Other income………………………………………………………………………………………..
Total Monthly Income…………………………………………………………………………..

*Note:

Since this is a month-to-month budget, you may have to estimate the value of your income for a one month period. For example, if you receive quarterly student loan payments, calculate how much this income equates to per month. And if you are going to estimate, be conservative. It’s better to underestimate your income than overestimate it. That way, you are more likely to have money left over at the end of the month.

* To calculate your monthly income:

If you are paid weekly, multiple your net pay
(your take-home pay after deductions and taxes)
by 4.333
If you are paid biweekly, multiply your net pay
by 26 then divide by 12

Step 3. Start recording

At the beginning of the month, fill in all of the upcoming fixed expenses that you will have to pay (e.g. pre-authorized payments for rent or mortgage, memberships, etc.).

Each day make a note of what you spend. Be accurate. Make another note of which category of expense each transaction belongs to (e.g. housing, transportation). The budget worksheet that follows may be helpful, or create one that works for you.

At the end of the month, add up your expenses for each category, and the grand total for all categories. Include any expenses that have shown up during the month that you had not recorded (e.g. bank statements listing transaction fees).

Step 4. Calculate your monthly expenses

There are two categories of expenses—fixed and variable.

Fixed expenses are expenses you pay month-to-month or year-to-year that remain relatively the same. These include mortgage or rent, phone, utilities, cable, internet, car payments, insurance, loan payments, credit card payments, savings contributions.

Variable expenses are expenses that vary month-to-month. They include food, clothing, transportation, fees and memberships, vacations, gifts and contributions, recreation, pets, spending money and other miscellaneous purchases.

Learn More

For more information about financial well-being, the following resources may be helpful.