• Listing income and expenses.
• Evaluating where changes need to be made in the event the budget doesn´t balance.
• Following through to maintain the budget.

Before beginning the budgeting process, you will need to have certain financial records available including:

• Recent pay stubs (if your employed) and/or records of other sources of income.
• Copies of household bills such as utility statements.
• Records of all of your debts- a credit report may be the best source for this information. You can get a free copy at www.annualcreditreport.com one time a year.

Income is typically the first category in the budget. Gross income (earnings before taxes) should be used as opposed to net income (earnings after taxes) so you can see the effect taxes have on your take home pay.

This category should also include any other monies coming into the household, be it from rental property, interest and dividend income, alimony or child support, social security, tax refunds or help from a relative or friend.

Taxes are typically the first of five expense categories in the monthly budget, and include federal and state income tax (some states there are no state income taxes), as well as Social Security taxes and Medicare. Some of you may have additional monies deducted automatically from your pay, such as for health or life insurance, union dues, or retirement contributions. If you have been consistently receiving a relatively large yearly tax refund, we would suggest advising you to readjust your withholding taxes from your paychecks so more money flows into your monthly budget.

Monthly variable expenses are expenses that occur monthly, but the amount varies. Food, payments on variable interest rate debt, phone bills (including cell phones), electric bills, laundry, dry cleaning, gasoline and heating oil make up the majority of these expenses. Please understand that some of these expenses can fluctuate dramatically.

Monthly fixed expenses are expenses that are the same every month. What falls into this category? Rent/mortgage, car payments, childcare costs, home medical care, child support, alimony, cable TV and Internet bills. You should also include any regular contributions to savings here as well. The suggested amount is 10 percent of your gross monthly income.

Periodic expenses occur regularly, though not necessarily monthly. Due to the fact that they are not monthly, these are the bills that can present the greatest difficulty when formulating a budget. We all know our car insurance has to be paid, but often forgot about until the bill comes. Medical insurance as well as life insurance premiums also fall into this category (note; be sure not to double count these if they have already been listed with payroll deductions or elsewhere.) The best way to deal with these expenses is to save for them. You should set the money aside for those bills in a savings account until the bills need to be paid. Other expenses that fall into this category are home and car repairs and medical co-payments.

Discretionary expenses are what we call the “I want” as opposed to the “I need”. When faced with limited financial resources, these are the first items that should be cut. Nonetheless, it´s important to include them in a budget because we all need to have a little fun every once in a while. Discretionary expenses include travel, gifts, personal care (e.g. going to the hairdresser or barber), entertainment, charity, newspaper and magazine subscriptions and clothing. Be sure to include other incidental expenses in this section that may not fit in other categories such as cigarettes, lottery tickets and pet care.

Now, add up the worksheet columns. If the resulting number is positive then not only do you have a balanced budget, but even some extra money to either pay down debt or save more. If the number is negative, look over the entries and see if you can find areas where you can realistically cut back or look at the possibilities of increasing income. It is also possible that you are eligible for the Earned Income Tax Credit (EITC), a federal income tax credit for low-income working families and individuals. www.irs.gov will help you determine if you are eligible.

Keep in mind that monthly fixed debt payments (mortgage or rent NOT included) and variable debt payments should be less than 20 percent of your monthly gross income. These payments are not total outstanding balances, just the monthly payments you are making. Always remember that the choices you make must be realistic, or they will not be long lasting.

Keep in mind that monthly fixed debt payments (mortgage or rent NOT included) and variable debt payments should be less than 20 percent of your monthly gross income. These payments are not total outstanding balances, just the monthly payments you are making. Always remember that the choices you make must be realistic, or they will not be long lasting.

Net Worth Analysis may be a good tool to have available. Using the worksheet provided, add up your financial assets (anything owned that has monetary value-investments such as real estate, antiques, jewelry-you get the picture) and subtract your financial liabilities (any money owed to anyone- family, friend, bank or creditor). The result is your net worth. This analysis becomes especially helpful when you are trying to rebuild an asset base. The larger the number, the greater the one´s net worth. You should review your net worth annually so you can monitor and determine if it´s growing. For many people, this will be the basis of their retirement planning so it´s important to watch it regularity.

At this point, you should know what your monthly budget looks like. You should also have a pretty good idea of what your net worth is. Most goals, no matter what they are, cost money. By having your budget and net worth, you have the tools needed to set your goals.

Goals can be whatever you decide they should be. Perhaps it´s a red sports car or a dream vacation to the Caribbean. It could be a new roof on the house or it could just be getting all the bills paid on time.

You need to know that you can affect your destiny by taking control of your personal financial situation. We all want so many things. We want it all and we want it now! You should look at your budget. By cutting back on some discretionary spending, you will likely be able to put money towards one of your goals. By changing your behavior you´ll be surprised how quickly your finances can be reshaped. Ask yourself, what are my goals?

Goals should be divided into two categories: short term (those that can be achieved in one year or less) and long term (those that will take longer than one year to achieve).

Writing down your goals can take you from the “wouldn´t it be nice stage” to achievable results. Once you write your goals down go over them and figure out how to achieve them. (If you need help with this contact a CPFC). Once you have figured out how to achieve them you will need to commit to a plan and follow through it. We call this manifestation- consciously willing an end result.

Using a tool such as the Financial Goal List can help you begin identifying some of your hopes, dreams and goals. A sample financial worksheet is provided in the Resource Guide. Take time to complete it. Write down a few goals and label each one short term and long term. Next, you can prioritize your goals, keeping in mind there is no right or wrong “priority.” The idea behind identifying goals as either short term or long term will demonstrate that goal setting is a process; it is ongoing and lifelong. Here is a sample goal list:

The Financial Goal Action Plan takes the prioritized list of goals that you have put together and identifies the steps needed to make these goals reality. Make sure you take the time to really think about what you need to accomplish in order to meet your goals. The more detailed and refined your action plan is the better chance of accomplishing your goals.

Goal: Buy a car
Description: You should provide a detailed description of the goal. For example: Buy a new car for under $15,000.00 within the next year. Writing the details will help you focus on and manifest the goal.

Resources: What are the financial steps you need to take in order to reach this goal? Perhaps it´s a 20 percent down payment. If so, this section might read: $3,000 for down payment.

Deadline: Here you would write down a time frame for achieving this goal. This should be viewed as a benchmark to measure progress, not as a measure of success or failure. Let´s say you found out that September is a good time to buy a new car from the previous year for five to ten percent less than sticker price. The deadline might then be set for this September.

How Close: Here is where you will use the Net Worth Analysis Worksheet. Perhaps you have $2,000.00 in a savings account that can go towards the car, leaving an additional $1,000.00 needed to meet the goal. Let´s say it´s January, which allows nine months to come up with the balance. Looking back over the monthly budget will help to identify where you can come up with the $111 a month needed to save for the balance. This section might then read: Have $2,000 need to save $111 a month for the next nine months.

As you develop your financial goal action plan, keep in mind the following points:

• Ensure the goals you are working for are things you truly want. Goals should be consistent with an individual´s values and should be implemented to achieve results, not to impress.
• Goals need to be realistic and achievable. One can´t buy a $500,000 house on an income of $50,000.
• Goals should be written in a positive tone so that you are working toward, not against, something (e.g.“ to find a better paying job” vs. “quit my current job because I don´t make enough”).
• Be specific as possible in writing a Financial Goal Action Plan.

• 1) Cash savings- You know we advocate strongly that 10% of monthly gross income should go to savings. From that you should focus on accumulating an emergency stash of three to six months worth of living expenses.
• 2) Retirement- Once the emergency stash has been funded, it is suggested that contributions be made to retirement savings, be it IRAs or 401K plans.
• 3) College- Yes, save for retirement first. Don´t forget, there are student loans and scholarships for college. There are no loans/scholarships for our retirements!
• 4) Prepaying the mortgage- Contrary to popular belief, studies have shown that there are greater benefits to investing extra money in one´s 401K or retirement fund than prepaying one´s mortgage. Age plays a huge factor in this decision. The older a person is, the more sense it may make to prepay the mortgage, especially if the interest is no longer large enough to qualify for the tax write-off. It´s also one less bill to pay when retired.

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