The Bottom Line on Budgeting

Managing your money is more than just banking. It's about being in control of your day-to-day finances, and finding ways to save for your goals.

The dreaded "B" word

Trying to get through life without a budget is like trying to drive a car with no steering wheel. You're always at risk of winding up in the debt ditch whenever you encounter a financial pothole.

That's because expenses tend to expand to match your income. Think about what you did with your last raise. You probably incorporated it into your spending and have forgotten what it's like to live on less.

To see if you're proactively managing your money, answer the following questions. The more vague or negative your responses, the more likely you need a budget.

  • Where did you spend the last $100 you took out of a bank machine?
  • Do you know what it costs you to live each month (to the nearest $50)?
  • Are there bills that surprise you when they arrive?
  • Do you have an emergency fund?
  • Have you ever had to resort to your credit card because you underestimated how much you had in the bank?
  • Do you have to check your bank balance often to see how much money is in your account?

Write it down

When you do your budgeting in your head, it's very easy to forget how much you've spent. You're always guessing how much you have left, making it tough to figure out how much you can spend.

Take control of your cash management with these first steps:

  • For the next two weeks, keep a small notebook in your purse or pocket and jot down ALL the items you buy and the amount spent.
  • Grab all your bills for the past two years. Divide your expenses into categories. Now add up how much you've spent in each category and divide the total by 24 to get your monthly costs. Those are your current expenses.
  • For the next two months, make a list whenever you're going into a store. The next time you buy stuff you didn't have on your list, think about your spending patterns.

Drawing the blueprint

Now that you've figured out your expenses, it's time to calculate your income.

Your income is how much you bring in regularly: your salary, dividends, commissions, alimony, child support and/or pension. It doesn't include money you might get. So if your bonus isn't guaranteed, it doesn't count.

Add these figures up and you'll have your total income (i.e.: how much you have to spend each month).

To create the expenses side of your budget, draw up four columns on a piece of paper or a computer spreadsheet. Label them as follows:

Column 1: Expenses. List your categories - everything from your rent or mortgage payment to your clothing, food, utilities and medical costs. Don't forget a category for emergency expenses.

Column 2: Planned. Write in the amounts you're prepared to spend monthly on each expense.

Column 3: Actual. Each month, enter how much you really spent on each expense.

Column 4: Difference. This can be positive (if you didn't spend as much as you thought you would) or negative (if you spent more).


















Coming out even

If your expenses exceed your income or are much higher than you thought they would be, you'll have to look for ways to trim your expenses - or bring in more income. But that's OK - revisions are a necessary part of the budgeting process.

Also remember that a budget isn't carved in stone. It has to be flexible because life is unpredictable. Defunct appliances, a leaky roof, and a root canal all have a way of cropping up and throwing the best-laid plans off track. Having a "rainy-day" fund can come in handy.

It's also a good idea to allocate monthly savings for the bigger purchases you want to make in the future. Interested in buying a new car? Make it a priority to set aside a few dollars each month for a "car fund". You'll be surprised how far it will go.

Stick to the plan and record everything

If you go off track in a particular category in one month, there's no reason to panic or throw the budget in the garbage. Monthly overs and unders are far less important than the annual outcome, because expenses tend to fluctuate from month to month.

What's important is to stick with the process. Your budget shouldn't be painful, but it should make you aware of how much you're spending. Then you can decide if that's really where you want your hard-earned money to go.