Thursday, February 3

Budget is foundation for financial security

Gannett News Service

Creating a budget isn't difficult.

But it is important in helping you get a handle on spending.

Spending more than you make is how you get into debt. Cutting spending and whittling down that debt is how you take control of your financial future.

Simply put, a budget itemizes your expenses. When you subtract those expenses from your income after taxes, you learn how much is left over - or how much you need to trim.

First, track your spending for a month. That means everything from rent to that candy bar from the vending machine, whether you've paid with cash, check or credit card. Make sure to keep details on how you spent the $20 from the automated teller machine.

``Stop and buy a newspaper? Write it down. Carry a little notebook,'' says Joe Pennington of Personal Financial Advisors in Tucson, Ariz. ``People should realize that their goal in life is not to spend everything.''

Everyone, young and old, overspends, he says.

Next, categorize your spending. You can use a legal pad, your own computer spreadsheet, or one of several cash-flow calculators or budget tools on the Web. A monthly plan is a good place to start. Allocate yearly expenses, such as taxes or home insurance, by dividing the total by 12, so you set aside a little each month for the big bills.

Here's a sampling of categories of both fixed and variable expenses, courtesy of the Federal Reserve Bank of Chicago, Yahoo! Finance, and Wells Fargo Bank:

Savings

- Emergency fund

- Long-term goals

Housing

- Mortgage or rent

- Property taxes

Utilities

- Cellular phone

- Electricity

- Internet access

- Local phone service

- Long-distance phone service

- Natural gas

- Water, sewer, trash

Transportation

- Auto loan/lease

- Car registration, taxes

- Gasoline

- Maintenance

- Parking

- Public transit

Insurance

- Auto

- Dental

- Disability

- Health

- Homeowners or rental

- Life

- Vision

Loans, lines of credit

- Credit card

- Home equity loan

- Personal loan

- Student loan

Food

- Groceries

- Eating out

Clothing

- New clothes

- Dry cleaning, laundry

- Tailoring, repairs

Personal care

- Cosmetics

- Health club

- Haircuts, color

- Pharmacy

- Toiletries

Entertainment

- Books

- Cable television

- Movies

- Music

- Newspapers, magazines

- Parties

- Sports, recreation

- Vacation

Miscellaneous

- Charitable donations

- Child care

- Gifts

- Pet food, vet visits

Notice that savings is at the top of the list. Try to save at least 10 percent of take-home pay.

Ideally, you should sock away three to six months' salary in an easy-to-access account in case you lose your job or have a medical emergency. Also set aside money for long-term goals such as buying a house or retiring.

``Pay yourself before all those other things (such as mortgages and other bills), and $10,000 is pretty easy to save,'' says Navin Navidomskis, an independent registered investment adviser in El Paso, Texas. ``Everyone always says `I can't afford it.' But I don't believe that. ... It's about priorities.''

If you have money left over after looking at after-tax income vs. expenses, you're probably in good shape. You can increase your savings or pay down any credit card or other debts you have.

If your expenses are higher than your income, you have a negative cash flow. Chances are good the balances on your credit cards have been creeping up.

To get income and expenses back in balance, figure out how you can cut back on luxuries, the variable expenses such as cosmetics or movies. If you can't find ways to trim, step back and evaluate what you consider necessities. Cable TV or cell phone service actually may be luxuries you can live without - or items you can trim back to basics until you're able to free up money elsewhere.

``It's like the Atkins or South Beach diet,'' says certified financial planner James H. Christie, chairman of the Financial Planning Association of New Jersey and founder of Freedom Wealth Management in Basking Ridge, N.J. ``The first couple of months are rough, but you'll adapt to what you need to do and realize you were wasting money on stuff you thought was important but isn't.''

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(Contributing: Polly Higgins, Tucson (Ariz.) Citizen; Erica Molina, El Paso (Texas) Times; Larry Higgs, (Bridgewater, N.J.) Courier News)

On the Web:

Federal Reserve Bank of Chicago. Click on Consumer Information, then Personal Finance Information in the left rail, then How to Budget & Save.

One Economy Corp. Click on Money, then Create a Budget, then Click here to begin.

Wells Fargo & Co. Click on More>> under Loans & Credit, then Using your Credit under Planning Centers on the left rail, then Manage Your Credit, then Create a Budget under Establish Credit.

Yahoo! Finance's expense manager.

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