I get a lot of posts and emails from people who are hurting financially. Part of the issue is that we need to get more jobs created in the United States. For those people who are out of work, they are doing what they can to hang onto whatever cash they have and make it last till they are employed again. It isn’t easy in a lot of cases especially when business is bad and you still need to pay bills.
For those people who are working and in debt, you need to start budgeting in case you get laid off and to start getting rid of some of that debt. Here we go:
Regardless of what kind of money you make,everybody can make a budget since it is set to what your income is and set for your current lifestyle and what your future lifestyle is.
So what is the definition of a budget? A budget is an allocation of resources that you have or can reasonably expect to have during the time frame (day, week, month, year, decade, etc) covered by the budget. Your budget is done at your scale while the government each year does a budget based on their scale. With me so far? Great.
Monthly budgets should be restricted to basic needs.
The need for a salary is important here because your monthly salary is what pays for your monthly budget. It can include any regularly included income like dividend checks or pension checks if you are lucky to be getting them. Social security payments are included in this section as well.
A budget can also include available credit from a credit card line or credit line but only if this is paid back within the frame work of your budget. If you are in debt because of credit card problems, please don’t look at a credit card line as part of your budget other than as a debt that you need to pay off for now.
An annual budget allocates for big purchases and special cases.
If you are lucky to get bonuses, or other one time gifts like dividends from investments, holiday cash gifts etc, that would be in this category. Money that you really can’t count on. In your budget you need to account for cash you can count on. In this current economy, it isn’t wise to rely on one time bonuses since some companies have frozen them and in some cases may be removing them all together.
Budgets are prepared in two flavors:
1. You take your income, live within it it and base your outgoing fixed expenses and ongoing varying expenses within your means.
2. The way most people live with it – they start with expenses and work backwards based on their income to make it fit.
That is not the way to do things and the Federal and state governments are trying to get back to the first way of allocating expenses and so should you.
Fixed expenses are things like food,mortgage, rent, transportation, utilities (gas/power/water), credit card repayments (yep, you have to take care of debt here), any taxes or loans you owe, school tuition, retirement plan savings, medical plans, alimony or child support.
Varying expenses are vacation, the new car you just bought, your new furniture, your entertainment, gifts, club memberships, charitable contributions and elective medical procedures.
Take your fixed income (the salary you get, any dividends, bonuses, pensions, social security, alimony, child support, royalties, etc) and subtract it from your fixed expenses. Whatever is less you take for varying expenses. If there is no overage, if you have a shortfall or if you want a greater overage for purchasing other expenses, etc then you must make changes to your budget.
More on changing your budget in other posts.
Oct 05 2009
Kim Isaac Greenblatt
How To Start Budgeting