Creating a Budget
Reviewing a Sample Budget
What is a Budget?
A budget is a planning tool that helps you keep track of how you spend your money. It includes an estimate of your expenses and the way you expect to pay for them. A budget is based on your:
• Income - the money you earn and/or receive.
• Expenses - the money you spend for food, utilities, etc.
A Sample Budget
Let's look at how Vanessa creates her budget:
Vanessa's monthly student worker paycheck earnings after taxes is $412. She also has a part-time waitress job on the weekends and earns $168 per month after taxes. Her parents supplement her earnings with $200 a month. She adds that to her monthly paycheck earnings to get a total monthly income of $780.
Next, Vanessa adds up her fixed expenses: rent (she shares an apartment with two others and pays 1/3 of the rent) $200, and she is responsible for her car insurance which is $128 per month. She has a car that her parents have given her, so she does not have a car note. She is very lucky in that her parents pay her tuition and fees for school each semester. She is also on her parent’s health insurance and that takes care of any doctor visits when she gets sick as well as visits to the dentist.
Variable expenses include things like utilities, cell phone, groceries, entertainment, car maintenance etc. Her share of utilities is usually $100 per month and that includes cable. She spends about $40 per month on her cell phone calls. Groceries average around $80 per month, Gasoline is another $40 per month. And she figures she’ll be able to spend $40 per month on clothing, movies and going out with her friends. She adds all these up and sees that her variable expenses total $300 per month.
Vanessa subtracts her expenses of $628 from her income of $780 to get $152. Vanessa knows that she will need probably about $20 per week for snacks, incidental school supplies, etc. That leaves $72. Since Vanessa will have some money left over after taking care of her expenses, she decides to put at least $60 per month into savings for unexpected expenses, e.g., repairs to car, additional materials required for class, etc.
Following a Budget
Is Vanessa’s spending within the budget guidelines below? After reviewing the sample budget above, compare the budget to the guidelines below.
Be a Wise Consumer
Being a wise consumer can help you stay within your budget. Here are some cost-cutting tips:
• Look for ways to reduce spending. Consider a less costly telephone plan, use coupons when you shop, or eat out less.
• Search for the best buy. Sometimes it's better to spend time than money.
• Be aware of where your money is going and plan ahead to better handle unexpected expenses.
• Look for free items. Borrow books, CDs, and videotapes from the library versus buying (or renting) them. Workout at home or use the Pennington Center instead of getting an expensive health club membership.
• Consider shopping at thrift shops, consignments shops and other places that sell used items.
• Don't pay for services you can do yourself.
• Say no to impulse shopping. Ask yourself if you really need this item or if there something else you want more.
• If you can, avoid using credit cards since buying on credit ties up future income.
• Watch out for money drainers - items that you buy on a regular basis that can eat up a sizable part of your income. For example, $1 a day for a can of soda between classes can add up to more than $250 a year. Think about things you buy regularly that may be money drainers (such as snacks, magazines, etc.) Consider saving that money for something else.