||Ask the Dollar Diva
Dear Dollar Diva,
What is a budget?
The deadly "B" word: Budget. Often euphemized as "Spending
Plan" or "Cash-Flow Report," it conjures up the image of a wizened
miser, pencil stub in hand, dropping numbers on a ledger sheet.
Grow up. An actual budget is simply the amounts that
currently come in and go out; a projected budget is an expectation
of future ins and outs.
Everybody who has money coming in and going out, has
an actual budget; in most cases, it's just not in writing. And it's
that "in writing" part that separates the financially savvy adult
(FSA) from the clueless masses (CMs).
What kind of an image does an FSA conjure up? To the
Diva he is a confident, generous human being who knows what he has,
what he wants to have and how he's going to get it. The CMs, on
the other hand, wander about the world, shrugging their wee shoulders
as they ponder the mystery of making so much and having so little.
The written budget
A written budget is a piece of paper that has
income and expense numbers on it. It's used by the FSA to keep him
apprised of what comes in and what goes out each month. It works
best when it's short, sweet and done on the computer.
The software that many FSAs use to keep track of their
money is Microsoft's Money or Intuit's Quicken. Either program will
give you a huge bang for your buck.
How do I start?
Take out your goal sheet (if you don't have one,
start it now) and put this on the top of the list: "I will know
how much comes in and how much goes out each month." This information
is pivotal to your financial success: you cannot reach your financial
goals without it.
The "estimate" budget
To have some fun with this, the Diva is going to walk you through
an exercise, and then direct you to Bankrate.com's budgeting calculator
so you can compare your numbers against the national averages. Before
you start, print three copies of this page to use as worksheets
for an estimated budget, an actual budget and a projected budget.
The income part is easy. Take a look at your most
recent pay stub and fill in the income boxes.
Note: Monthly numbers are usually used in budgeting,
however biweekly is used here to jibe with Bankrate.com calculator
you'll be using later on.
|(If you don't get paid biweekly,
convert as follows: for a weekly check, multiply the numbers
on your pay stub by 2; for monthly, multiply by .92)
Next, you're going to guess where your money goes;
no peeking at checkbooks or credit card statements. Write your guesses
in the "Amount" column.
||Groceries, dining-out, alcohol, tobacco,
||Clothing, footwear, children's clothes,
||Personal care, health insurance, medical,
||Student loans, career training
|Insurance/Work retirement plans
||401(k) contributions, life insurance
||Rent, mortgage, utilities, housing insurance
||Car payments, fuel, car insurance, public
||Movies, hobbies, vacations
||All other expenses
Go to your Money or Quicken reports for the numbers;
if you haven't gone high-tech yet, compile the numbers from your
checkbook and credit card statements. Don't strive for perfection.
Round the numbers to the nearest 10, so it's easier to add them
By writing your actual budget down, you elevate yourself
from the ranks of the Clueless Masses to the ranks of the Financially
You know where you are; now think about where
you want to be. Record your target numbers on an expense sheet and
jot a note next to each item indicating how you intend to reach
Let's say you want to cut your food expense by 10
percent; eating in more will help you get there. Get some saving
ideas by reading Bankrate.com's "Cheap
eats" and "Once-a-month
cooking saves cash."
There are many inexpensive books on the market to
help you track your money, such as Judy Lawrence's The
Budget Kit. The sooner you embrace the concept, the sooner
you'll be on the road to a rich life.
-- Posted: June 21, 2000