• Invest “extra” paychecks.  If you budget on four weekly paychecks per month, every thirteenth paycheck is an extra.  If you are paid biweekly, there’s an extra check every quarter.  But do not treat this “extra” money as a windfall; either include it in your regular budget or invest it.
• Make impulse buying difficult.  Start leaving your checkbook or credit cards at home.  Deposit savings in a bank that’s hard to reach.
• Pay bills when due—not before.  To make the most of a minimum balance, write out the bill as soon as it comes in, but don’t mail it until its due.
• Treat “windfalls” with care.  Don’t trust unexpected amounts such as bonuses, tax refund, and dividends as windfalls to be spending rather than impulse purchases.
• Make savings a regular “ expense”
• Allow some expenditure that require no accounting for “fun” money or personal allowance.
• Don’t try to keep track of every penny.
• Don’t try to divide a couples paychecks functionally, with one paying the mortgage and the other the auto, and so forth.  Instead, pool the funds and set up a separate expense payment account and an investment account.

Many records eventually can be thrown away—Internal Revenue Service rules will often determine when.  Only the previous three years records can be requested by the IRS for routine audits; six years if income was significantly underreported; indefinitely if fraud is involved.

The more complex your financial affairs, the longer you should keep records.  And any records related to capital improvements on your home should be saved indefinitely.  You’ll need them to establish how much, if anything, you owe in capital gains tax when you sell the house (If you move into a house of equal, or higher, value, the tax is deferred.)

Job Loss    Losing a job ranks high on stress scales.  In the 1970’s and 1980’s, layoffs in major industries and the failure of small businesses accompanied news report of unemployment compensation “running out”.  Even in the midst of the economic recovery of the mid-1980’s, the foreclosure rate on farms throughout the Midwest and South regularly made the headlines.  The economy is cyclical, and in these economically unsettled times, prepare for the possibility that your income source could erode.

If you have included savings as an expense and if you have saved the requisite income, freeze that amount in an account that provides liquidity without instant (and possibly tempting) access.  Where you keep money and how much you need to shield it from your own temptation depend entirely on your own practices.  Treasury bills or certificates of deposit can be used for part of the reserve.  You can earn high interest and pay a penalty for early withdrawal in the event trouble occurs.  The rest can be kept in a September interest bearing account. (more…)

The review provides a chance to see how you have done and to set goals for subsequent years.  You may want to graph debt repayment and savings so that you can actually see the debt line fall and the savings line rise.

Many people use bank accounts to serve two broad budget, categories –current expenses and long term investment.  With a checking account for monthly bills and a money market fund for long term goals, a single individual can do a fairly decent job of budgeting by simply depositing the planned amount to each account.  Then, within the current expense account, moneys can be spent until the next deposit is made. (more…)

The Expenditure Budget

The expenditure budget groups the data you have gathered by broad categories and smaller subcategories so that you can keep track of as much detail as your bookkeeping time will permit.  It resembles the cash flow analysis ledger you set up, but this ledger is for future expense, not past ones.

Whether you lead a relatively simple life with a few major expense categories, or a complicated existence calling for much payment per month, the format of the expenditure budget should be the same are that in table 6-2.  Down the left side of the page, list the expenses as well as your new spending or savings goals.

Across the top, you should have four columns per month.  The first column should indicate the actual or estimated amount spent on this item during this month last year.  The next three columns should reflect the budgeted amount for this year., the amount spent in the current period, and the difference or variance from the budgeted amount. (more…)

Goals should be broad sweeps of the brush—purchasing a home planning for education, trips to Europe, or early retirement: or even just making ends meet.  Every family who spends money should participate.  These goals, once committed to paper, become guide points.  If your goal is to retire in five years, you can analyze your cash flow to see whether sufficient funds are being—or can be set aside to reach the projected amount needed. (more…)

Expenses    List your monthly or annual expenses by category.  If you prefer, you can group these expenses under two subcategories fixed expenses, which remain pretty much the same month to month (such items as mortgage or rent payment, and insurance  premiums); and variable expenses, which change each month ( such items as food expenditures, phone bills and entertainment costs).
 If grouping by fixed and variable expenses is too confusing or unsuitable for you, keep it simple.  Start with major functional categories.  Later refinements can be added when the budget itself is prepared.
 At the top of your expense list will be federal, state, local and Social Security taxes withheld.  These figures appear on your pay statement.  After that, you might employ the categories used by the Department of Commerce in its Personal Consumption Expenditures date reporting.  Although very broad, they are also manageable.  (more…)

STEP ONE CASH FLOW ANALYSIS

The first step in making a budget for future income and expenditures is to look at how past income and expenditures flowed through your pocketbook.  This cash flow analysis—as it is called technically—is not a budget, since it implies no goals and represents no plan.  Rather, it is a financial snapshot that tells you how you presently behave.  Budgeting or planning will come after a thorough cash flow analysis.

To gather about expenditures, start with informations you already have.  Even if you are not particularly well organized, you will have surprisingly good collections of data on hand in the form of canceled checks and credit card receipts.  If your checkbook is up to date, if your bills are organized either by functions, alphabetically or by date paid, and if your tax worksheets are kept with your completed returns, the task of organizing for the budget analysis will be much more quickly. (more…)

A budget is a plan for spending and saving money. The major reason for making a budjet and sticking to it is to save for future goals while meeting present ones. The budget itself serves a number of useful functions in money management. (more…)