Budgeting In 12 (not so) Easy Steps

Step One – The Hardest Part Diligently Record Every Penny You Spend At least one month Preferably 2-3 month Cash, check, debit card, credit card, or other Record it WHEN it is spent, not when the bill arrives Include sales tax Don’t rely on your memory There are Apps that can help You are not budgeting (yet), just tracking your spending Ask a friend to hold you accountable

Free Apps to Help Track Spending BillGuard Penny Dollarbird Personal Capital Fudget Wallaby Goodbudget Wally LearnVest Clarity Money Level Money YNAB Mint mvelopes

Step Two – Categorize Your Expenses Categories should be applicable for YOU Group expenses by categories that you can – or can’t control. i.e. Don’t group rent (fixed - you can’t reduce it) with electric bill (variable to some degree – you can reduce it) Separate eating in from eating out Separate drinks from food Don’t include one-time expenses with recurring expenses Separate gas from car repairs Don’t be afraid to create new categories

Step Three – Put it all in a Spreadsheet - Don’t worry about income yet Jun-19 Jul-19 Aug-19 After-Tax Income $ 400   Housing $ 500 Rent Heat Electricity Phone Internet Cable Water Trash Removal Housing Total $ - Car Payment Car Insurance Car Registration Car Repairs Car - Gas Bike Public Transportation Airfare Transportation Total Student Loan Payment Credit Card Payment Total Loan Payments Groceries Clothes Household Supplies Personal Supplies Personal Items Total Dining/Drinks Out Movies, concerts, etc. Other Entertainment Total Set Aside for Saving Total Expense Total Income Difference $ (100)

Step Four – Add Periodic Expenses that Didn’t Occur that Month Car Insurance Doctor’s Visits Dentist Visit Tuition Books Car Repairs Flowers for Mom’s Birthday

Step Five – Calculate a monthly amount for those periodic expenses Take semi-annual car insurance premium and divide by six Calculate expected car repairs for the year and divide by 12 Add these to your spreadsheet (still not worrying about income yet)

Step Six – Calculate Percentages Jun-19 Jul-19 Aug-19 After-Tax Income $ 400   Housing $ 500 100% Rent 0% Heat Electricity Phone Internet Cable Water Trash Removal Housing Total $ - Car Payment Car Insurance Car Registration Car Repairs Car - Gas Bike Public Transportation Airfare Transportation Total Student Loan Payment Credit Card Payment Total Loan Payments Groceries Clothes Household Supplies Personal Supplies Personal Items Total Dining/Drinks Out Movies, concerts, etc. Other Entertainment Total Set Aside for Saving Total Expense Total Income 80% Difference $ (100) -20%

Step Seven – Determine your Monthly After-Tax Income After all deductions – the amount that gets deposited into your checking account If it changes by month due to bonuses or commission, estimate your annual after- tax income and divide by 12. Enter it into the Spreadsheet

Step Eight – Evaluate your Monthly Income vs. your Monthly Expenses Determine if you have a monthly shortage or surplus Be sure you have included ALL your expected expenses and all sources of income Look at your “Savings” category in Expenses Did you include anything? Do you think you can/should include something? Do you already have an automatic savings plan at work? Can’t access it until age 59.5 without a penalty

Step Nine – Set a Budget Make adjustments to what you DID spend money on in the past to reflect what you feel you SHOULD spend money on in the future Important Constraint – Total Expenses should not exceed Total Income This often means making hard choices Talk this over with your spouse, significant other, roommate, parents, or anyone else whom these choices might affect

Step 10 – Continue to Track Expenses and Income As you attempt to follow your budget, continue to record your ACTUAL expenses each month so you will know where you overspent your budgeted amount and where you stayed under budget. Adjust the spreadsheet to show how much you were over/under in each category Determine if you need to make adjustments to your budget. Note that you still need to be sure that Budgeted Income equals Budgeted Expenses

Step 11 – Adjust Budget as Necessary A budget is a plan. Sometimes plans need to be changed A budget doesn’t mean that you CAN’T go out to dinner after you have spent your budgeted “eating out” money for the month It means that you recognize that the money must come from somewhere else Following the budget allows you to know if you are overspending and if you are, where you are overspending Following the budget can keep you out of debt

Step 12 – Make Budgeting a Way of Life Until you get to the point where your income significantly exceeds your expenses every month – without a budget…. You should plan to keep your budget It will give you the freedom to spend money (within the budget) without worrying about overspending It will allow you to evaluate where you can “get the money” for a special one-time expense (vacation – for example) Your budget is your friend