Budgeting, Part IV

Having spent some time tracking your cash spending, you now have a lot of information on how you spend your money. Now it's time to start fitting the pieces together.

I'm assuming you're putting together a budget at least in part because you aren't happy with your current financial situation. Maybe you're getting deeper and deeper in debt and you're need to know why. Maybe you're just coming up a bit short every month and you'd rather break even. Or maybe you have enough to live on, but you'd like to put some money into savings. A budget is a great tool to help you towards your specific goals. I'm going give you suggestions on what you should do with all this information, but feel free to do things differently if that better fits your situation.

I suggested at the beginning of this series that you start by putting your income and your checking and credit card expenses on a monthly basis. Do the same with your cash purchases. Months vary in length, so a good formula is to count an average month as 4.3 weeks.

Add your reliable income sources up to create a monthly total. Is it what you expected? Are you sure you've included everything? Did you leave out income that you can't really count on, such as certain types of bonuses and commissions?

Then add up your "must pay" and unalterable expenses, which basically are income and property taxes, plus any court-mandated payments such as alimony, child support or judgements you must pay. These are checks you must write each month.

Next comes what I call "semi-discretionary" expenses. These are items that are difficult but not impossible to change. Mortgage or rent payments, basic utilties (this does not include cable or satellite TV!) Health, life and car insurance, car payments, landline phones, day care expenses, credit card payments, car maintenance and so forth.

Next comes "discretionary expenses." These are things you can change relatively easily. Food,clothing, entertainment, vacations, furniture....

When you've placed everything in a category, add up all your monthly totals and compare that to your income. Hopefully, subtracting your expenses from your income leaves a postitive number. If not, and increasing income is not an option, it's time to start looking at how you can cut your expenses. How big is the deficit? A few bucks short each month is an easy fix, but a significant amount will require some serious changes. Again, only you can determine what your needs are.

This is why I suggested you sort your expenses into the categories above. If, for example, you need to cut expenses by less than 10%, its time to start looking at ways to ease off on your discretionary spending. (You'll find some suggestions on this blog.) For example, you might start checking out books and videos from the library instead of buying them, or drop to a lower tier on your cable. If you find that you're spending a lot of money dining out, start eating at home more often or taking lunch to work. If you have a lot of overcharges on your cell phone, check for a better "unlimited" deal...or figure out a way to use your phone less! The savings from a few changes like this might be enough to get you back into the black.

If you're in real trouble, though, you may need to go to the "semi-discretionary" items. It may be time to trade your gas guzzler for a good, used gas-sipper, or if you have two cars, see if you can get by with one car and public transport. (Remember, one less car also means less insurance and maintenance costs.) If deeper cuts are necessary, can you move to a cheaper apartment or smaller house? (Check what expenses may be involved before making this decision.)

Talk with your family to come up with ideas. It's best not to play the "blame game" but instead work together to see who can cut what. If everyone can pitch in, it will be much easier to reach your goals. Good luck!