April Is National Financial Literacy Month: Week # 1 Topic - The Dreaded 'B' Word....Budget

The basic cornerstone to any family's financial success is having, and adhering to, a working monthly budget.  A budget is a plan, an outline of your future income and expenditures that you can use as a guideline for spending and saving.

Only 40 percent of Americans use a budget to plan their spending. But 60 percent of Americans routinely spend more than they can afford. A budget can help you pay your bills on time, cover unexpected emergencies, and reach your financial goals—now and in the future. Most of the information you need is already at your fingertips.

Start by following the simple steps outlined below to get a clear picture of your monthly finances.

1. Add Up Your Income
To set a monthly budget, you need to determine how much income you have. Make sure you include all sources of income such as salaries, interest, pension, and any other income sources, including a spouse’s income if you’re married. Using the worksheet below, write a dollar figure next to each relevant income source. Make sure that the figure you write down is the amount you receive from each income source on a monthly basis.

If you get a salary, be sure to use your take-home pay, not your gross pay. Taxes are usually taken out automatically, but if they’re not, remember to include them as another expense. If you receive money from somewhere not listed, enter the source of that money along with the amount under "other income."

2. Estimate Expenses
The best way to do this is to keep track of how much you spend each month. The worksheet should divide spending into two categories:

• Non-Discretionary - includes all mandatory expenses for the month (e.g. mortgage, food, utilities) 
• Discretionary - includes all non-mandatory expenses for the month (e.g. dining out, gym memberships)

If some of your expenses for one or more category change significantly each month, take a three-month average for your total.

3. Figure Out The Difference
Once you’ve totaled up your monthly income and your monthly expenses (both discretionary and non-), subtract the expense total from the income total to get the difference. A positive number indicates that you’re spending less than you earn – well done! A negative number indicates that your expenses are greater than your income and gives you an idea of where you need to trim expenses and by how much. 

It is during this exercise that you need to clearly define and understand the concept of  'wants' vs. 'needs'.  If you're running into negative net cash flow each month, look at your expenses and see if some of your expenses are merely wants disguised as needs.  If you are getting every cable channel under the sun, try going to just basic cable for a few months.  If you have unlimited texting with your cell phones each month, look at reducing the number of texts allowed each month to free up some money (much to the chagrin of your teenager, I'm sure!).  After going a few months without some of the luxury 'needs', you may just surprise yourself and realized that life isn't so bad without them!

Well done - you’ve created a budget. The next step is to track your budget over time and make sure you are still on target to achieving your financial goals.