Second Guide to Getting Out of Debt | 60
Seconds Guide to Short Term Savings | Budgeting
101 | Getting Out of Debt
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Inventory | A
Simpler Way to Save: The 60% Solution
Ways to Find the Fat in Your Budget | How
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Financial Plan (PFP)| Teaching Teenagers About Money
By Selena Maranjian
(TMF Selena) March 27, 2002
Q. How should I go about setting up a budget
A. A budget is all about tracking and reporting
all your sources and amounts of income, and all your uses
of income. It should answer the questions "Where's all
my money coming from and how much is there?" and "Where's
it all going?"
Before you get started, and to make the process more suspenseful
and fun, jot down how much you think you're spending on food,
entertainment, travel, clothing, charity, investing, etc.
Then record how much you want to spend on them.
Next, gather information. For one to three months, record
all your financial inflows and outflows. (One month will
do, but a few more will maximize accuracy.) Try to account
for big expenses that occur once or twice a year, such as
car insurance, too. Jot down how much they amount to per
month. During this two- or three-month period, save every
single receipt you get for any expense. If you don't normally
ask for or keep receipts, do so during this period. Also,
carry a small notebook to write down any cash transactions.
If you spend a few dollars for coffee at a local coffee shop
each morning, record each such transaction. If you do some
odd jobs for a few extra dollars now and then, record that
After the information-collecting months are finished, sit
down with all your records -- the big bunch of receipts,
your checkbook, your pay stubs, credit card and bill statements,
and that little notebook of cash transactions. You'll also
want a pad of paper, a pen or pencil, and a calculator. Start
making lists of all the inflows and outflows. Group them
into categories and total the amounts for each item. For
example, you might list all your eating-out expenses and
all your supermarket expenses, and lump them together in
a "Food" category. Then calculate what percentage
of your income is spent on food. (Of course, if you fine-tune
things more, separating supermarket and eating-out expenses,
for example, that's even better.)
Make sure you're accounting for all your expenses. Even
a $12 check written for a magazine subscription should be
counted. As you're classifying expenses, notice that some
of them are fixed, while others are more flexible.
Now, step back and see what you've got. You should be looking
at a fascinating detailed record of where your money comes
from and where it goes. Compare your actual expenses with
your initial estimates and see how close you were. Assess
whether you're saving and investing as much as you want to.
See what changes you need to make in your habits to meet
Perhaps you can hit your savings goal simply by cutting
out HBO and your subscription to People magazine. Buy a water
filter instead of endless jugs of bottled water. Use a fan
sometimes instead of air conditioning. You might be able
to save a tidy sum by giving slightly less-extravagant gifts.
Also, don't assume that fixed expenses are completely fixed.
You might be able to refinance a loan at a lower rate. Or, a little comparison-shopping
might turn up a less-expensive insurance policy.
You might even discover that by spending less on some things
you don't care so much about, you can spend more on things
you care a lot about. For lots of ideas on how to save money,
visit our Living Below Your Means discussion board. To learn
from fellow budgeters, drop in on our Budgeting discussion
To learn more about ways to save money and spend less, check
out our Personal Finance area, which is chock full of guidance
on insurance, buying a car or home, paying for college, banking,
setting up short-term savings, getting out of debt, lowering
your tax bill, and more at www.fool.com/
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