How to Set Up a Budget

In an age where consumer spending is high and there's a constant
flux of new products on the market, knowing how to budget properly
is the key to financial stability. Set long-term financial goals and
implement short-term strategies to put you back in control of your
wallet. If you're budgeting for an event, the basic concepts still apply.

Difficulty:

Moderate

Instructions

Create a personal spending plan

1. Learn how and where you spend your money. Stopping for a beer after work and renting a couple of movies on a Friday night doesn't seem like much, but every expense adds up. Get a small notebook and write down every penny you spend for a few weeks, to start seeing your spending patterns and what your expenses actually are (rather than what you think they are).

2. Create an ongoing spreadsheet listing what you spend, where and when. This will help you track patterns and inconsistencies.

3. Rank your spending priorities from the essentials (food, utilities, mortgage payments, medical costs) to the nice-to-haves (home improvement, vacations) and the luxuries (new car, high-end gadgets, designer clothes). Use what you learned from tracking your expenses to prioritize your spending. See 2 Set Priorities.

4. Factor fixed expenses into your budget, such as your mortgage, tuition or car payment, food costs and tuba lessons. Include annual expenses such as insurance payments and taxes.

5. Pay fixed expenses and bills first and live on what's left. Save up for what you want rather than buying it and then paying it back-- with interest. See 15 Live With Less and 227 Get Out of Debt.

Budget for an event

1. Get an estimated head count of attendees and determine how much money you have available to spend.

2. Split the event into components (food, alcohol, entertainment, security, decorations) and prioritize them. Call around and get a range of options and prices for each component.

3. Compare those prices with what you have to spend: If there's a big discrepancy, start slashing low-priority items. Make a cake instead of buying one; hire a DJ rather than a band.

4. Continue paring back until your expenses equal your budget. If you simply can't reconcile the two, make additional cuts or increase the budget and find ways to bring money in.

5. Add money to your kitty by asking for contributions, splitting costs with other people, having volunteers take on critical tasks, or bringing in revenue from outside sources. See 381 Plan a Fund-Raising Event.

Tips & Warnings

• If you keep getting overdraft notices from your bank, it's time to find out why you're not keeping up. Get overdraft protection for your checking account. It's worth a few bucks a month.

• Build up an emergency fund to cover repairs, medical bills--or losing your job.

• Balance your checkbook and credit-card statements each month. Compare the numbers on your credit-card statement with your receipts.

• Notify the credit-card company of any errors as soon as possible. Federal law provides protection from mistakes only if you make notification within 60 days.

• See 228 Design a Savings Plan.

• Kick start your new program with a "paperless budget." Hold back a reasonable portion of every paycheck to pay down your debts and force yourself to live on the balance. Then move toward a real spending plan.

• If you can't religiously pay off your entire credit-card balance every month, high interest rates and poor impulse control will leave you with enormous debt. Charge only what you must. If, however, you have a solid record of paying off the balance every month, use your credit card to rack up frequent-flier miles or other rewards.