Budget Planning and Monitoring
Every plan needs a place to start, and your financial plan starts with a budget. Of course, it doesn't matter how good a plan you start with if you don't follow through on your intentions. Whether you're having trouble getting all your bills paid or think you're doing pretty well, a solid budgeting process will let you know where your money is going and help you reach your financial goals. Just don't expect it to be easy.
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Track Your Spending
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You need to understand where your money is going. Track your spending for at least a month -- three months would be better -- down to the last dime. Pore over your financial records, such as bank statements and bills. In many areas, you will need to create monthly averages for budgeting purposes, plus you don't want to overlook payments you must make quarterly, every six months or once a year.
Build Your Budget
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Next, plan where you want your money to go. It helps to use a budget worksheet to reduce the chances that you'll forget an expense in building your plan. There are some listed under Resources below. Pay particular attention to less frequent expenses, such as insurance premiums, magazine subscriptions, routine medical checkups and prescription refills. It's not a bad idea to overestimate how much you'll spend on necessities. You know how much your house payment and car payment are, but until you get better at monitoring spending, it doesn't hurt to have a little cushion for things such as groceries and utilities.
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Make Choices
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Decide how you want to plan for future high-expense items: car repairs and replacement, home appliances and repairs, a down payment on a home, retirement, college for your kids. Make sure you include money for vacations, entertainment and gifts. Rate your priorities. You know that eventually your car will wear out or the furnace will need to be fixed. Try to anticipate your needs before you spend money on your "wants." Putting aside money for retirement should rank higher than college for the kids, who can take advantage of scholarships, loans, work-study programs and other financial aids.
Pick Your Categories
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Some expenses are basically fixed and easy to categorize: mortgage or rent, insurance premiums, Internet, cable and trash service, car payments. You'll need to decide how you want to categorize variable expenses. Do you combine groceries with eating out? How do you budget for clothing? Gifts? What about vacation and entertainment? Do you want to list all your utilities separately or pile them together? Have enough categories so that you understand where your money is going, but not so many that it drives you crazy trying to keep track of them.
Stay on Track
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Invest enough time to carefully check your spending against your budget each month. Here's one way, using a computer spreadsheet program, such as Microsoft Office Excel or Apple's Numbers '09: Assign your income each month to the categories according to your budget. Then subtract the money you spend according to the same categories. Of course, you can switch money from a non-essential category to a necessity, but make sure the income you allocate for each budget category is there when you need it. For example, if your budget calls for $50 for car repairs, you don't want to discover when your battery is dead that you accidentally spent that money on front-row concert tickets.
Use Computer Programs
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Many banks provide at no charge a computer program, such as Intuit Quicken, designed to help you track your finances -- even pay your bills. In addition, there are websites with free budget-monitoring programs as well as sites offering help with more sophisticated financial planning and portfolio tracking tools.
Get Help
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If you have big problems building a budget and getting bills paid, the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies are nonprofit groups designed to help you get started (see Resources). If your budget works and you want help planning the next steps for your financial future, consider hiring a financial planner you can pay on an hourly basis for suggestions. The Garrett Planning Network is a national group that includes only hourly fee planners.
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References
Resources
- Kiplinger's: Budget Worksheet
- National Foundation for Credit Counseling: NFCC Budget Worksheet
- Kiplinger's: Best Personal-Finance Web Sites to Track Your Cash
- Smart Money: 9 Sites That Help With Everyday Budgeting
- National Foundation for Credit Counseling
- Association of Independent Consumer Credit Counseling Agencies
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