Valerie Vincent, Hurlbert, Deborah L., Fair, Sheri R., Tucker, Jeanette A., Richard, Cynthia C., Cross, Deborah C., Stephens, Cynthia
A budget, or spending plan, is a tool to help families gain an understanding of their money during both good times and challenging times. It can help families spend their hard-earned dollars more effectively, live within their income, reduce the need for consumer credit, save for a home, develop financial management skills and fulfill their goals while living within their means.
Unfortunately, the word budget frightens some consumers as much as the word diet. It makes them think of deprivation and restrictions or loss of freedom — especially during those times when money is tight. Actually, a budget brings more freedom: the freedom to make dreams come true.
Spending plans may range from a very simple list on a blank page to a book of detailed record sheets or a simple electronic document or ledger, but all budgets include two main parts: income and expenses. Households are rarely alike. No spending plan will apply to everyone. Individual needs and family needs, tastes and economic situations vary from one to another — even when they have identical income and the same number of family members.
Build a budget that is realistic and workable for you and your family. Be willing to try new ideas and make adjustments. A spending plan may require many revisions before it fits your needs and works well. If your income drops, it can be downsized by cutting back on flexible or unnecessary expenses. Likewise, it can be adjusted upward when your income increases.
To develop your personal or family spending plan, follow these five simple steps:
Then, adjust the amounts you plan to spend in each expense category and enter the revised amount in your budget worksheet.
Life Saver: When developing your spending plan, always include savings as an expense category. This is often referred to as “paying yourself first.” Remember, emergency savings equal to three months’ take-home pay is ideal. Six months is ideal if your income is based on commission or is seasonal. It may also be helpful to plan to give every family member an “allowance.” Everyone needs a little money to spend without having to account for every cent.
Allocate the extra dollars to debt reduction or savings for future short- and long-term goals, like buying a home, saving for retirement or funding your child’s education
Once you have drafted a spending plan that provides for essential family needs and balances expenses with income, discuss the plan with your family. To make this budget work, it must be developed by the entire family.
Talk with your family about spending and saving money. Review the needs and wants or dreams of each individual and the family as a whole. Separating real needs from wants is the hard part. No family ever has enough to do everything it would like. Be prepared for some healthy discussions and difficult choices.
If family members have a voice when tough choices have to be made, they will be more willing to work together to live within your means and work toward family goals.
Getting the most from your income requires careful planning and wise spending decisions in both good and challenging times. A spending plan based on what your family considers to be the most important can help balance spending with available income and resources. These step-by-step procedures will help you develop your spending plan.
|Periodic expenses are those that don’t occur every month. They can be either fixed, such as car insurance, or predictable, such as changing the oil in the car, or variable, such as car repairs. Remember to plan for periodic expenses. Good money managers look at each month to predict what periodic expenses will occur that month. ||Monthly Total |
|Total annual periodic expenses|
Calculate monthly net income in box 1.
Estimate monthly expenses (sum of fixed [2a], controllable [2b] and monthly portion of periodic expenses [2c])
Compare income and expenses and make adjustments.
|Net* monthly wages of others in home||$______|
|Total net monthly income||$______|
|*After tax withholding and other deductions|
|*Net monthly income ||$______|
Periodic expenses come up once or twice a year. Fill in the estimated costs under the month they are due. Taxes, insurance premiums, car maintenance, tires, licenses, birthdays, holidays, educational costs and vacations are examples. Do not include taxes withheld from your paycheck but do include estimated tax payments you make to the IRS. Add your total yearly periodic expenses and divide by 12 to determine the monthly portion.
Total Periodic Expenses = Monthly portion periodic expenses
|Rent or mortgage ||$|
|Credit card payments|
|Loan/lease payment ||$|
|Boat/RV loan payment ||$|
|Child/elder care ||$|
|Long-term care ||$|
|Other fixed expenses ||$|
|Total monthly estimate of fixed spending ||$|
|Monthly portion of periodic expenses||$|
|Emergency fund ||$|
|Saving for long-term goals ||$|
|Meals at work/school||$|
|Food eaten out ||$|
|Maintenance and cleaning supplies ||$|
|Furnishings and appliances||$|
|Outside upkeep and lawn ||$|
|Auto repairs and upkeep ||$|
|Other transportation costs||$|
|Medical care ||$|
|Health club or other fees ||$|
|Personal care items||$|
|Laundry and dry cleaning ||$|
|Internet service ||$|
|Recreation and entertainment ||$|
|Other monthly controllable expense||$|
|Total monthly estimate of controllable expenses ||$|
Federal Deposit Insurance Corporation. (2008). “Money Matters.” Money Smart. Retrieved April 18, 2008 from http://184.108.40.206/wwMS/english/main.htm
Goetting. M. (2007). Developing a spending plan. Bozeman, Mont. Montana State University Extension. Retrieved April 19, 2008 from http://msuextension.org/ publications/FamilyFinancialManagement/MT199703HR.pdf
Howell, B. ((2005). “Manage Money Successfully.” Starkville, Miss. Mississippi State University Extension. Retrieved April 18, 2008 from http://msucares.com/pubs/ publications/p1738.pdf
Revised by: Valerie Vincent, LSU AgCenter
Developed by: Jeanette Tucker, Ph.D.; Professor and Extension Family Economics Specialist, LSU AgCenter (Retired);
Deborah Hurlbert, Extension Associate, LSU AgCenter (Retired);
Cindy Richard, Extension Agent, LSU AgCenter;
Cynthia Stephens, Extension Agent, LSU AgCenter;
Deborah Cross, Extension Agent, LSU AgCenter (Retired);
Sheri Fair, Extension Agent, LSU AgCenter