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How does your cash flow?
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It is difficult to manage your finances if you don’t know how much money you have or where it is being spent. That is why budgeting is an important key to successful money management. A budget has two parts — income and expenses. The object is to keep expenses at or below your income. Sounds easy, but as most have experienced, it can get a little tricky at times. Consider these budgeting tips:
Track the small expenses. This can be done by carrying a small notebook in your pocket or purse for a month or so. List those items you purchase for yourself or others that you often forget to budget for, such as soda pop from the machine at work, a treat for the kids or a donation to a co-worker’s retirement gift. These “budget-busters” can make or break a budget if you haven’t planned for them.
List expenses. Look through your checkbook for the past few months and write down all expenses. These expenses can then be categorized into the following areas: housing (this includes mortgage payment or rent, a second mortgage and property taxes); utilities (electricity, water, sewer, garbage, natural gas, basic phone and long distance, cell phone/pager, cable TV and internet connection); necessities (food/household supplies, clothing, school lunch, child care/sitters, diapers/formula and child support payments); transportation (car payment/lease, insurance, fuel, repair allowance and license/registration); monthly debts (student loans, other loans and debt including credit card payments); other expenses (laundry/dry cleaning, health, hair and personal care, pet/veterinarian and dues/memberships); education (tuition, books, paper supplies, uniforms, lessons and sports); entertainment (eating out or take out, entertainment debt payment such as a boat or RV, crafts, computer expenses, sports, hunting, bars, gambling, cigarettes); insurance, if not deducted from your paycheck (medical/dental, life/disability, home/renters, co-pays); gifts (children’s allowances, contributions to church/charity, holidays, birthdays, weddings, 1/12 of total holiday expenses).
Tally expenses. Figure all expenses as a monthly amount. For example, items that are due once a year, such as property taxes, can be divided by 12 to get a monthly figure. Holiday budgeting can be done the same way.
Keep a record. Write down the date(s) you are paid each month. Divide your expenses as evenly as possible among paychecks, taking into consideration due dates. If your largest bills are due at one time, pay several bills early rather than trying to fit them all into the same pay period.
Determine if you need to cut back. Compare your actual expenses to the plan you made. If you overspend in one area, adjust your plan the next month. No spending plan is perfect the first time. If overall expenses are greater than income, it will be necessary to cut expenses somewhere — or increase income. Usually it is easier to cut expenses. Start by determining how much you need to trim. To do this, subtract income from expenses. The figure may seem daunting at first, but if you look hard enough, you can usually find a few items that are easy to cut. Give yourself leeway on one or two things you enjoy. Otherwise you may end up feeling deprived and toss the entire budget.
Consider the envelope system of cash management. Each payday, write a check to yourself to cover food and other out-of-pocket expenses for that pay period. Cash the check and put the cash in an envelope marked for each expense. As you need to buy food, for example, take money from that envelope and from nowhere else. This does several things. It provides you with instantaneous cash management in that you will rarely spend more than allotted. The only way to spend more is to get the money from somewhere else. If you feel it has been a hard week and you deserve to eat out on Friday night, simply pull out the food envelope to see if you can afford it. If you can’t, don’t eat out. You don’t need a complicated bookkeeping system to track your budget. When you spend cash, it hurts a little, so you will end up spending less. It is much easier to sign a check or credit card receipt than it is to lay down cold, hard cash to pay for something.
If possible, set aside a personal allowance each month. For a single person, a personal allowance allows small indulgences within self-imposed limits. Married couples often find a personal allowance tends to cut conflicts. Two people seldom agree completely on how to spend money. Personal allowances allow each partner to exercise complete discretion over an agreed-upon amount of money without having to answer questions about how it was spent. The Family Life Center on the Utah State University campus is available for free financial counseling, including help with budgeting suggestions. Contact the center toll-free at 866-519-7881 for an over-the-phone consultation. Budgeting worksheets are available on the Family Life Center’s Web site at www.usu.edu/flc.
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