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BUDGETING 101

60 Second Guide to Getting Out of Dept | 60 Seconds Guide to Short Term Savings | Budgeting 101 | Getting Out of Dept | How to Budget | Loans to Friends and Family | Pay Off Student Loan or Invest | Values Inventory

1. KEEP IT SIMPLE (AT FIRST)
The best way to get started is to put together a very basic list of your monthly income (i.e. your paycheck) and expenses. Just give it your best guess. Stick to listing things you can easily identify: rent, car payment, insurance, utilities (you get the picture). As time goes by you can add more detail.

2. DETERMINE YOUR MONTHLY INCOME (after tax how much can you spend)
To be effective, you must determine how much you make each month. This is not as straightforward as it seems. If you get paid once a month, it's easy -- just use the amount from the check. If you get paid on a different schedule use the chart below:

Monthly Salary Calculation

Payment Interval Multiply By Divide By
each week 52 12
every 2 weeks 26 12
twice a month 24 12
every 3 weeks 17.34 12

If you have other sources of income other than your paycheck that you use for expenses each month (i.e. interest income, alimony, child support, other), you will want to include these sources as well. You can use the chart above to determine the monthly income from these sources as well.

3. EXPENSES
This will be the difficult part. It will be more difficult than income sources because you will have many more expenses than income. You will also most likely have hidden expenses or expenses you currently do not realize exist. Group these expenses into categories as best you can -- you can always re-categorize later. Just prepare your list for now, don't worry about estimating the amount spent each month.

4. RECORDING REVENUES AND EXPENSES IN PERIOD INCURRED
You need to select your time period. I suggest selecting a month (I have been referring to the month time period throughout this paper). You need to match all your revenues for one month against all your expenses. I recommend recording revenues when you recieve the money and record the expenses when you spend the money.

5. ESTABLISH ESTIMATES FOR MONTHLY EXPENSES
Make your best guess for some those items that are not reoccurring. It may take you a couple of months to get good at estimating the more difficult expense categories. If you find you have a large amount of money in any one category, consider breaking it down into more detail.

6. TRACKING ACTUAL EXPENSES
You need to keep track of your actual expenses incurred during the month and group them into these categories. It will be easy for things like rent, phone (stuff you get a bill for and write one check). The tough part will be those cash expenses (lunches, sodas, movies, etc.). If you don't have a memory like a steel trap, carry a small pocket size note book with you and write them down as they are incurred. Or if you find that to be a big pain, you can take the easy, but much less accurate, way out and each time you withdraw cash, guess which categories these cash expenses will fit into and record them. You can always adjust them later. This way, you will at least have something recorded and are less likely to forget that $5 purchase of lottery tickets the other night.

7. AUTOMATE THE PROCESS
You are welcome to use the budgeting forms I have e-mailed you to help keep track of all of this data each month. Having information in the computer is helpful for analysis purposes as well.

Dr. Jerry Basford - The University of Utah
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