Setting up a budget workbook

Page 1

There are no shortcuts when it comes to getting out of debt. -Dave Ramsey

If you don’t figure out what to do with your money, someone else will--and probably not to your benefit. -Bob Brown

You have to be as intentional about your money as you are about your freedom. -GF Beckmann

You’ve got to tell your money what to do or it will leave. -Dave Ramsey

You can do it. We can help!

Financial Workbook No. 1 Setting Up a Budget

1313 Portage St. Kalamazoo, MI 49001 Hours: Monday - Friday 4-7 p.m. (269) 459-1777 Services available in Spanish. www.CommunityPromiseFCU.org Twitter: @CommPromiseFCU Facebook: Community Promise Federal Credit Union


Step 1 – Budget Analysis or Where the Money Goes Average Monthly Expenses Housing:

Monthly/Weekly

Rent/Mortgage

$

Heat (Average)*

$

Electric

$

Water

$

Phone/Internet

$

Property Taxes

$

Household Expenses/Furnishings

$

Repair/Improvements*

$

Home Insurance

$

Food: Groceries

$

Paper/Cleaning Supplies

$

Mid-week Shopping

$

Meals Out

$

Transport: Gas/Fares

$

Maintenance

$

Parking

$

Car Insurance

$

Personal: Clothing

$

Medical/Dental/Vision

$

Education*

$

Life Insurance

$

Gifts

$

Donations

$

Entertainment**

$

Child Care

$

Vacations*

$

Grooming Supplies

$

Haircuts/Laundry

$

Cable/Satellite TV/Netflix

$

Pets

$

Other

$

Expense Subtotal

$

Savings

$

Emergency Fund

$

Other

$

Monthly Living Expenses

$

Setting Up A Budget… Do you sometimes feel like no matter how much you earn there’s never enough? If you dread the thought of setting up a budget, take heart. Those who have succeeded in organizing their finances will tell you that working with a flexible budget actually reduces the stress of feeling like you never have enough. To get a handle on your finances, start by getting your income and expenses down on paper. Use the following directions and two forms provided and you’ll have a clearer picture of your money situation. (Note: you may want to copy these forms first, or use a pencil so you can make changes easily.)

Step 1

Step 1 is finding out where your money goes. A budget, like a road map, helps you get where you want to go. However, you can’t plan the best route to your destination until you figure out exactly where you are now. Using the budget analysis form provided, fill in each line by averaging out your basic monthly living expenses. You can use this form as a planning tool when considering what life will be like in the next 12 months. Your Total Monthly Expenses gives you a picture of what it typically costs to live. Next, write down the amount of your take home pay plus any other predictable sources of income. Subtract the total of your average monthly living expenses from your monthly take home pay to see the Amount Available for Debt and other goals. Now go to the next section of this form and make a list of all debts (i.e. home equity loans, car loans, credit cards, medical bills etc.) by creditor name, balance owed and required monthly payment. Tally up the balances and the monthly payments. Subtract the total of your Monthly Debt Payments from the Amount Available for Debt. The answer is your own “bottom line”. If you end up with a negative number, you will clearly see why there is “never enough”. Now that you have defined what is “enough”, you can decide how to solve the shortage. Start by looking at your basic monthly living expenses to see where you can spend less, and then find ways to earn the difference.

*Take year’s estimated total and divide by 12 for the average monthly expenses. **Entertainment includes: Reading, Videos, Music, Hobbies, Going Out, and Sports.


Step 2–A Monthly Plan for Spending, Bill Paying & Saving Average Monthly Income Step 2

Now that you’ve taken a look at where the money goes, you’re ready for Step 2: A Monthly Plan for Spending, Bill Paying & Saving. Using the form provided, list what bills (creditors) must be paid this month. Add these up to get your bill-paying total. Next, fill in the amount you want to save for long term goals, precautionary savings and short term goals. It is always easier to save when you have something concrete in mind. Start by setting up three savings accounts: •

Retirement: open a Roth IRA of your own. What you are saving through your job and the social security income you anticipate may not be enough. Emergency: Establish a fund for times when your income stops, perhaps because of injury, illness or job loss. Aim for one month’s rent, and then expand that to one month’s take home pay, putting away a little each month. This fund tides you over until you can get disability pay, unemployment benefits, another job, etc. Set Aside: Begin a separate account for basic living expenses that don’t hit every month, like car and house repairs, furnishings, holidays, travel, annual insurance premiums, etc. (For example, if you estimate the yearly cost of your car repairs to be $600, set aside $50 each month to be used anytime you need to fix your car.)

Finally, to finish your monthly plan, add what you want to save to the bills that must be paid (your creditors), and subtract this sum from your take home pay for the month. What is left is what is available for spending. Divide that number by 4 to determine your weekly spending allowance for food, gas, haircuts, laundry, donations, entertainment, gifts and clothes.

Monthly Take Home Pay

$

Partner’s Take Home Pay

$

Other Income-(include roommate, second job, child support, alimony, Social Security)

$

Total Monthly Income:

$

Monthly Income:

$

less Monthly Expenses:

-$

Amount Available for Debt:

=$

Debt: (i.e. credit cards, home equity loan, car payments, student loans, medical bills) Creditors

Total Debt Owed:

Monthly Payment

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

Total Monthly Debt Payments

$

Subtract from amount available for debt (see above)

-$

This is your Bottom Line!

=$

Hints: If it seems overwhelming to think about saving anything, start by putting aside small amounts (so small that you would never tap into it – even your loose change can add up).

Congratulations!

You have now developed a bill-paying and saving plan that allows you to relax and enjoy your spending allowance! -Budgeting materials graciously provided by: Kathryn Greiner, AFC, Director of Credit Education & Budget Counselor University of Michigan Credit Union 734-662-8200 ext. 2741, 800-968-8628 kathryng@umcu.org

Balance

Once you get going, it’s easier to manage the three different funds if you establish three different accounts. Start now and start small. Remember, it’s difficult to get out of a rut if you don’t plan ahead.

As you get more financially stable you can increase your savings as you decrease your debt.


11 Things to Remember… Starting is hard

To take charge of your finances, you have to confront them. You have to know how much you have to work with, what you need to pay, and what you want to do. For many of us there is barely, maybe, enough. Do you really want to know how much is not enough? Isn’t it easier to just muddle through and hope for the best? If you just hope for the best and hope things get better, they probably won’t.

You need to act intentionally

Pages 2 & 3 provide simple instructions and a form to help you get started.

Only you can do this

Nobody can do it for you. You are an adult. It is your life. You are the only one who knows your finances. And you have to be honest with yourself about your finances. If you lie about how much you spend on beer (buried under ‘entertainment’) you are only lying to yourself.

You are not alone

While only you can do this, there are tools and methods and resources and people who will help; it is just that none of them can do it for you. The fact that you are not the only person to find themselves desperately bailing in a leaky boat is the reason Dave Ramsey is rich. You should find some comfort in that.

More Ideas for Cutting Costs:

So get started

Reduce phone expenses with fewer services

Keeping on is even harder than starting

Plan weekly menus, to buy what you need, and reduce meals out

Barter to exchange something you can do for a service someone else provides

Use clothes, furniture and toys from second-hand sources. (Recycling is good for the planet too!)

Find inexpensive ways to enjoy holidays and have fun

Treasured gifts from the heart: • Write down a few fond memories; the words to a shared favorite song; or pictures from the past • Offer to help with a chore • Offer free babysitting for an evening • Take a class together or make a date for a walk in the park

Consider cheaper housing and/or transportation

Magazines, books and websites offer articles on more ways to spend less

Work through page 2. Ask for help if you need it. Take your time to do it right…but do it.

After you have worked through page 2, then you can move on to page 3. Here again are instructions and a form to help you plan (intentionally plan) next month’s spending.

Do it

Then you get to do it again the month after that and the month after that and the month after that.....

You are learning

The military says, “ The plan goes out the window when the boots hit the ground.” The point to planning is to be as prepared as possible for what happens and to act intentionally. You are unlikely to get it perfect right out of the gate. You are learning new habits, new disciplines, new ways of looking at your life. Every month you adjust. You do better. The plan becomes more realistic. You become more realistic. Things get better.

More Resources

As you take up this challenge, remember, you are not the first to do so, nor the last. Others have come before you and worked out solutions and methods that are available to you and can help you be more disciplined. You can migrate to a full-blown Dave Ramsey-like program or stick with the time-tested envelope system. We are here to help.

Learning to say NO!

To succeed you will have to learn to say, “No!” to yourself, your family, your friends, merchants and bankers, worthy causes and everybody and everything else that has a hand out asking for or demanding your money. You will have to learn to say “No!” to the immediate gratification of that Mountain Dew (not all the time), but soon should find the longer-lasting gratification of less stress.

Ongoing education

The challenge you are taking on is an ongoing learning process. The challenge Community Promise is taking on is an ongoing learning process as well. Let us know what you learn. Tell us what we are doing well and what we can improve on.

We cannot do this for you. We cannot do it alone. We are in it together.


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