Budgeting Articles

Cheat Sheet / Updated 01-12-2023

How can you save for retirement when you need all your income to make ends meet now? What do you do when college loans come due and money is tight? How can you trim back household expenses? When the economy is down, you can still save money without sacrificing your quality of life. Every little change you make to your finances can help. Here, you get some tips on saving on energy costs, shopping smart, and making a budget.

Article / Updated 12-14-2022

You probably hate the idea of a household budget. However, a budget is a basic and important money-management tool for getting out — and staying out — of debt. So, if you’re serious about improving the state of your finances and avoiding future problems, you need to lose your antibudget bias. A budget is nothing more than a written plan for how you intend to spend your money each month, how much you’ll contribute to savings and retirement, and so on. A budget helps you live within your means. It doesn’t have to be scary. When you’re drowning in debt, a budget is your financial life raft. Over time, if you stick to your budget and work on reducing your debt, your financial situation will improve. But even when your financial outlook is rosier, you should continue to manage your money by using a budget. Otherwise, you may get careless about your spending or begin using credit too much, and your debt may creep up to dangerous levels again. Living on a budget also makes it easier for you to Build up your savings so you have money to fall back on if you’re hit with a big unexpected expense, if you lose your job, or if you have to take a pay cut. Purchase big-ticket items with minimal use of credit. Help make your family’s financial dreams come true: a new home, a great vacation, college educations for kids, a comfortable retirement. Creating a monthly budget for your household is not a complicated process, but it can be time consuming. Simply stated, you need to do this: Compare your current total monthly spending to your current total monthly income. Reduce your spending as necessary so that it’s less than your income. Allocate your dollars appropriately so that you are able to pay all your living expenses and debts. Categorizing your expenses Creating an annual spending and income worksheet, like the one below, will help you organize your spending and income information and make sure that you don’t overlook anything. This worksheet will also come into play later in this budgeting process. The worksheet divides your spending into three categories: Fixed expenses: These expenses stay the same from month to month. Examples are your rent or mortgage, car loan, home equity loan, and insurance. Variable expenses: These expenses tend to vary from month to month. Examples are your groceries, gas, utilities, restaurant meals, movies, and books. Periodic expenses: These expenses may be fixed or variable. You pay them just once in a while, such as quarterly, every six months, or annually. Tuition, some kinds of insurance, property taxes, and dues are examples. Some expenses listed as fixed on the worksheet may actually be periodic expenses for you. For example, instead of paying your auto insurance every month, you may pay it every quarter. After you’ve calculated total annual amounts for each of your debts and for all your living expenses, enter them on the appropriate worksheet lines. Annual Income and Spending Worksheet Annual Income Your household take-home pay $_______________ Child support income $_______________ Alimony income $_______________ Other income (specify the source) $_______________ Other income (specify the source) $_______________ Other income (specify the source) $_______________ Total Annual Income $_________________ Annual Spending Fixed Spending Rent $_______________ Mortgage $_______________ Home equity loan $_______________ Condo or homeowners’ association fee $_______________ Car payment $_______________ Other loans $_______________ Homeowner’s insurance $_______________ Renter’s insurance $_______________ Health insurance $_______________ Auto insurance $_______________ Life insurance $_______________ Other insurance $_______________ Childcare $_______________ Dues and fees $_______________ Cable/satellite/streaming services $_______________ Internet access $_______________ Child support obligation $_______________ Alimony obligation $_______________ Other fixed expenses (specify type) $_______________ Other fixed expenses (specify type) $_______________ Other fixed expenses (specify type) $_______________ Other fixed expenses (specify type) $_______________ Total Annual Fixed Spending $_________________ Variable Spending Groceries $_______________ Cigarettes $_______________ Alcohol $_______________ Utilities $_______________ Cell phone $_______________ Gas for car $_______________ Public transportation $_______________ Tolls and parking $_______________ Newspapers, books, and magazines $_______________ Allowances $_______________ After-school activities for kids $_______________ Baby-sitting $_______________ Entertainment $_______________ Restaurant meals $_______________ Personal care products $_______________ Clothing $_______________ Body care (haircuts, manicures, massages) $_______________ Laundry and dry cleaning $_______________ Out-of-pocket medical expenses $_______________ Lawn care $_______________ Home repair and maintenance $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Total Variable Fixed Spending $_________________ Periodic Spending Insurance $_______________ Auto registration and inspection $_______________ Subscriptions $_______________ Charitable donations $_______________ Tuition $_______________ Dues and fees $_______________ Income taxes $_______________ Property taxes $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Total Annual Periodic Spending $_________________ Total Annual Spending $_________________ Total Annual Income $_______________ minus – Total Annual Spending $_______________ equals = Your Bottom Line $________________ Comparing monthly spending and income Now that you've completed the worksheet above, you can move on to comparing your monthly spending and income using the worksheet below: Divide each of the annual dollar amounts in the annual worksheet above by 12 to come up with monthly amounts. Make photocopies of the monthly spending and income worksheet below (so you can use it multiple times). Record each monthly amount in the appropriate worksheet spaces below. Review the dollar amounts and adjust them up or down as necessary so they’re as accurate as possible. For example, the cost of your auto insurance may be about to increase, your child’s tuition may be increasing next month, or your income may be decreasing. Always assume the worst scenario so that you build in a potential cushion. If your annual totals don’t include living expenses and debts that you should be paying but aren’t because you don’t have enough money, add them to your annual totals before you divide by 12. For budget-building purposes, you must have an accurate picture of all your living expenses and debts. Subtract your total monthly spending from your total monthly income. Record that amount on the worksheet; it can be a negative number. Monthly Spending and Income Worksheet Monthly Income Your household take-home pay $_______________ Child support income $_______________ Alimony income $_______________ Other income (specify the source) $_______________ Other income (specify the source) $_______________ Other income (specify the source) $_______________ Total Monthly Income $_________________ Monthly Spending Fixed Spending Rent $_______________ Mortgage $_______________ Home equity loan $_______________ Condo or homeowners’ association fee $_______________ Car payment $_______________ Other loans $_______________ Homeowner’s insurance $_______________ Renter’s insurance $_______________ Health insurance $_______________ Auto insurance $_______________ Life insurance $_______________ Other insurance $_______________ Childcare $_______________ Dues and fees $_______________ Cable/satellite/streaming services $_______________ Internet access $_______________ Child support obligation $_______________ Alimony obligation $_______________ Other fixed expenses (specify type) $_______________ Other fixed expenses (specify type) $_______________ Other fixed expenses (specify type) $_______________ Other fixed expenses (specify type) $_______________ Total Monthly Fixed Spending $_________________ Variable Spending Groceries $_______________ Cigarettes $_______________ Alcohol $_______________ Utilities $_______________ Cell phone $_______________ Gas for car $_______________ Public transportation $_______________ Tolls and parking $_______________ Newspapers, books, and magazines $_______________ Allowances $_______________ After-school activities for kids $_______________ Baby-sitting $_______________ Entertainment $_______________ Restaurant meals $_______________ Personal care products $_______________ Clothing $_______________ Body care (haircuts, manicures, massages) $_______________ Laundry and dry cleaning $_______________ Out-of-pocket medical expenses $_______________ Lawn care $_______________ Home repair and maintenance $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Total Monthly Variable Spending $_________________ Periodic Spending Insurance $_______________ Auto registration and inspection $_______________ Subscriptions $_______________ Charitable donations $_______________ Tuition $_______________ Dues and fees $_______________ Income taxes $_______________ Property taxes $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Total Monthly Periodic Spending $_________________ Monthly Contributions Savings $_______________ Retirement $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Other (specify type) $_______________ Total Contributions $_________________ Total Monthly Spending and Contributions $_________________ Total Monthly Income $_______________ (minus) – Total Monthly Spending and Contributions $_______________ (equals) = Your Bottom Line $_________________

Article / Updated 10-26-2021

After you determine your actual spendable income, you can focus on how that remaining money needs to be spent. The first step to creating a budget is to sort expenses into three categories: needs, wants, and luxury items. But how do you distinguish between the three? What qualifies as a need can sometimes be blurry. A person basically has very few true needs: shelter, clean water, food and a way to prepare it, clothing, and warmth. Of course, it isn't realistic to expect a person to thrive with only these items. If you have a job, you need to be able to get there; you and your family need to protect themselves and their health; and you might be legally required to make other payments. But not everything you feel like you need actually is a need. Unless it's required for your job (in which case you ought to be reimbursed or deduct the expenses from your taxes). In order to create a budget for yourself, you first need to take a hard look at what you need versus what you want. Figuring required expenses Your required expenses, or needs, must come first. To figure out what your required expenses are, fill out this Required Monthly Expenses worksheet. If you have a surplus after meeting your required living expenses, go ahead and check out the next section on using your excess money for wants. If you aren’t already doing so, set up automatic monthly withdrawals from your paycheck or your checking account to pay for or fund each of the required expenditures. That way, your requirements are met automatically each and every month, and whatever is left over is yours to spend however you see fit. Wading through your wants Hopefully, you find yourself with some “extra” money after paying for your needs. You can use the Desired Monthly Expenditures worksheet to figure out your wants and how much you’d like to spend on them. After you add all your needs with the list of wants, you will likely discover that you have little or no surplus cash. If you determine that you have negative cash flow, you should prioritize your expenditures so that you don’t plan to spend more than you bring in. Solving for shortfalls If you have a shortfall after you calculate your required expenses, something has to give. Consider the following suggestions when you’re faced with a shortfall: Don’t completely cut out any of your required expenditures. You may be tempted to consider dropping insurance coverage and/or the amount of money you save for a “rainy day” if you don’t have surplus cash flow. You aren’t doing yourself any favors by skipping these items, and the decision will come back to haunt you sooner or later. Review each of the needs categories and consider ways to cut down on necessary expenses. For example, you may be able to obtain less expensive insurance and save money on groceries, clothing, and transportation by shopping around. Consider your employment. Often, the only reasonable option you and your spouse or partner may have is to increase your income by working overtime, taking on a part-time job, or possibly even changing jobs.

Article / Updated 07-02-2021

The federal Food Stamp Program is now called Supplemental Nutrition Assistance Program (SNAP); and instead of issuing paper food stamp coupons, SNAP recipients get an electronic benefit transfer (EBT) card to use in participating stores. When paying for groceries, you just swipe the EBT card in the same card reader that's used for credit and debit cards, put in your PIN number, and that's it! Whether you call it food stamps, a SNAP card, or the EBT card, here are some pointers to remember for using it: At the end of your purchase transaction, you should be able to see how much money is left in your account. You can't debit a higher amount than the cash register total and get cash back. Most participating stores indicate that they are SNAP members by displaying a sign in their window, but if you're not sure, ask the service counter or one of the cashiers. (The sign might say something like "We Accept Food Stamps, EBT, or SNAP Benefits.") You can buy most types of edible items in categories that you'd find in a supermarket: dairy, meats, produce, and so on. (Seeds that will be used to grow edible foods are also eligible.) Items that you can't buy with food stamps include: Alcoholic beverages and cigarettes Vitamins and medicines Any food that will be eaten in the store Any hot food Non-edible items like laundry supplies, paper products, and pet foods Your EBT card is good in all 50 states, even though you may have enrolled in one particular state. (The card doesn't work in Puerto Rico but does in the District of Columbia, Guam, and the U.S. Virgin Islands.) Any food stamp benefits that you don't use in one month will be carried over to the next month. However, if you don't use your SNAP card for a year, you will no longer be entitled to receive benefits. While SNAP is a federal program run by the U.S. Department of Agriculture, eligibility is handled by each state — and each state has its own set of rules. To find out if you're eligible for SNAP benefits, contact your local SNAP office.

Article / Updated 05-29-2020

You don’t have to sweat out the dog days of summer, even when cutting back on your awesome, home-cooling air conditioning to save money. You can stay cool, even when it’s hot outside. Add insulation to your home. First insulate your attic floor, and then when time and money allow, add insulation to your basement, exterior walls, floors, and crawl spaces (in that order). Improve attic ventilation. Adequate ventilation under the eaves allows cooler air to enter and circulate throughout the attic. If you don’t have a permanent exhaust fan, you can set a box fan with the airflow pointed outward to pull the hot air out of the house. Shade your house from the sun. If your house isn’t shaded by trees, install awnings over any windows that are exposed to direct sun during the day. Cover your windows. Windows are a major source of heat during the summer. Reduce the heat coming in through your windows by closing the drapes during the day, adding reflective window tint to southern windows, and hanging old-fashioned bamboo shades outside. Make your air conditioner work less. If you use an air conditioner to cool your house, turn the thermostat up a bit higher than the temperature you usually set. Also, set the temperature higher for times when you’re not there. Use fans to circulate air. Moving air feels several degrees cooler than still air. Reduce how much heat you create inside your house. Use appliances other than the stove and oven to cook (such as the microwave, slow cooker, electric skillet, or toaster oven). Don’t use the heat setting on your clothes dryer.

Article / Updated 03-26-2016

Does the word budget send chills up your spine? It shouldn’t. Budgets allow you to have some control over what you spend. A monthly budget can help you to decide how to spend your money, plan for your future, pay off existing debt, and save a few pennies each month by reducing wasteful and impulsive purchases. To create your monthly budget Categorize your expenses. When you begin setting up a monthly budget, start with big categories before breaking your budget down into smaller expense categories. From your list of expenses, develop two separate budget lists, one for essentials and the other for extras. Within each general budget category, some items are essential (the mortgage or rent payment, electric bill, and groceries); others are extra (new furniture, gifts, and pizza delivery). Look through these lists to find flexible budget expenses where you can cut back. Put a star next to these flexible items so you can identify them. Estimate what you spend. Go through your checkbook and any other receipts or records you’ve kept over the past few months so you can track how much you actually spend on both essentials and extras. Add up your budget essentials list and the extras list separately. By keeping the lists separate, you can make cuts more easily, if you need to. Subtract the essentials total from your monthly income and, if you have money left over, subtract the extras total from that amount. If you still have money left over, great! Look into a savings or investing plan (talk to your bank or a certified financial planner for help setting up a plan). If your extras list takes you into negative numbers, start looking for places to cut back. You can also trim from the extras list to put more money toward debt repayment if that’s a high priority in your financial picture.

Article / Updated 03-26-2016

Your financial plan should involve the dreams, goals, resources, and responsibilities of the entire family. If you have a spouse, partner, or children, you may need to provide guidance as your family develops a financial plan. The success of any financial plan is dependent on the support, persistence, and dedication of all people involved. Without the participation of the entire household, you’ll face a continual uphill battle when it comes to your finances. Your spouse, partner, or children can be a help or a hindrance. As a family, you will face many challenges along your financial journey. But if family members are truly on board, they will work to help find solutions and not create additional challenges for you. How do you get your family on board with your financial goals? You must inspire them, just like a coach might. A coach needs the cooperation and coordination of each player on his team. In order to get teams to pull together, great coaches lead by example and command the utmost respect from each and every team member. Their team members strive to perform at their very best each and every game, not only for themselves, but also for their coach and their team. Great coaches inspire greatness. So how can you inspire your family when it comes to your personal finances? Share your vision, in living color, with your family members — your team. When you present your vision, make sure that you include the vivid details of why a goal is important to you and your family, and what accomplishing this goal will enable you all to enjoy. Elaborate on the payoff for putting in the hard work, compromise, or sacrifices that may be required to achieve these goals. The example shown here points out the objective and provides a few suggestions to help family members design creative solutions instead of just focusing on problems. Now you must figure out how to inspire your own family. On a sheet of paper, write down what you’d like to say to your family as you seek to bring them on board with your financial future. What subjects are near and dear to your spouse’s or children’s hearts? Start there — they’ll be highly motivated to help you help them get what they want.

Article / Updated 03-26-2016

Tracking your expenses is especially useful when your outgoing cash flow exceeds your income. Fortunately, you don’t need to go back and tally up months’ worth of checking account registers, credit- and debit-card statements, and cash withdrawals. This is a very time-consuming and painful exercise. Just estimate! Use the Cash Flow Monitoring worksheet to help you monitor your spending for the next couple of months. As you pay your bills, complete the worksheet. Click here to download and print the Cash Flow Monitoring worksheet. If you're looking for a simpler method of tracking your expenses, you can use the Expense Tracking Log to track every cent of just the surplus money — after all your taxes, bills, and other necessaries are paid — that you have to spend. Click here to download and print the expense tracking log. Write down every occasion you spend your surplus money, whether you buy your morning coffee, an afternoon soda at work, or gas on the way home. Account for every cent. Also, track whether you paid with cash, check, debit card, or credit card; whom you paid; and whether the expense is a need or a want. Use one log for each pay period. Note at the top of the worksheet how much your beginning surplus is (which you'll need to figure separately) and subtract from that amount each expenditure. By keeping your eye on the “magic number” (your surplus cash flow after meeting your required expenses), you can simply spend your money any way that pleases you — so long as you don’t exceed the “magic number.” No more detailed budget keeping required.

Article / Updated 03-26-2016

Money is something that touches most aspects of your life. You can’t avoid money — just like you can’t avoid food. Making bad decisions about your food intake can ruin your physical health, just as making poor money decisions can devastate your fiscal health. Fortunately, the human body has the ability to withstand a lot more abuse than your bank account or credit report. Maintaining good fiscal health takes an ongoing investment of energy, time, and persistence. Awareness and acknowledgment are the first steps to improving your spending habits. If you become conscious of your own tendency to spend money without thinking, you can make better decisions with that awareness. And most likely, if you knew you were making reckless, thoughtless decisions that could negatively impact your future, you wouldn’t do it either. So take a minute to ask yourself: Do you overspend? Maybe the answer is a resounding “Yes!” Or maybe you feel that you don’t overspend, or at least don’t do it regularly. Care to find out? To figure out whether you’re overspending, take our quiz. Click here to download and print the Are You Overspending Quiz If you answered Yes to questions 1 and 2, you’re probably doing really well. However, if you answered Yes to questions 3, 4, and 5, you or someone in your household has spent a lot more than necessary, and this excess spending may be a chronic problem that is keeping you from achieving your financial goals. Regarding the final question, if your spouse or friends jokingly tell people that you have forwarded your mail to your favorite store, you may be an overspender! If they debate about two or more choices, you may be an overspender! However, if you and your spouse or friends can’t quite figure out which store type would be your favorite, maybe you’re not a shopaholic at all. It can be difficult to change spending habits, even if you're aware that these habits cost you money or are irrational, unhealthy behaviors. But it took a long time to get where you are now with your spending, and it is reasonable (and healthy) to recognize that becoming a healthier consumer will also take time, so don’t get discouraged if you're overspending. In the modern classic, The Millionaire Next Door, the authors profiled dozens of self-made millionaires. These millionaires had several common characteristics. One characteristic trait they all shared is that they were thoughtful spenders. Another word for it is frugal. They saved a portion of every dollar they made. Would you rather look like a millionaire or have the financial security of becoming one? Most people can’t have both. This concept is not living within your means, but rather living beneath your means, which means you have money to save and invest.

Article / Updated 03-26-2016

Saving money can be as simple as 1, 2, 3, as you'll see in these 5 quick and easy approaches to managing your personal finances. 1. Reduce the Amount of Times You Go Out to Eat Going out to eat often can put a major crunch on your budget. By simply cooking a few meals at home, you can save a significant amount of money on a monthly basis and eat healthier. How to Save Money by Cooking at Home 2. Make Some Income from Your Money Make your money do a bit of work for you by opening an account at your local bank and earning interest. The balance in your savings account earns interest because the bank uses your money to fund loans to other people. In other words, the bank pays you to use your money Growing Your Money in Bank Savings Accounts 3. Don’t Be Wasteful in the Kitchen Wasting food adds up to wasting money. Here’s a list of easy ideas to help cut the cost of family meals — and save money in the kitchen. How to Save Money in the Kitchen 4. Save Money on Your Banking Fees Banking fees can be one of the more frustrating aspects of managing your finances. Although the fees you pay to your bank may never go away entirely, a little knowledge and some proper planning can help you to reduce your fees dramatically. How to Save Money on Your Banking Fees 5. Save on Gas by Taking Care of Your Car Tires Taking care of your car’s tires can pay off handsomely by increasing your tires’ longevity, handling, and performance, as well as providing you with a more comfortable ride and better gas mileage. How to Save Money by Taking Care of Your Car’s Tires