More Budgeting

The worksheets below are a good place to start. They are based on a period of one month, but can be easily adapted for any of the other periods of time. However, the items of wealth and expenses to consider will change and the budgeting process will become more complicated, the longer the period of time being measured. In fact, once you have for example, constructed your monthly budget you might want to think about how you would budget for a longer period such as a part of your life; duration of time in school, time of your career up to retirement and/or after retirement, or you entire lifetime or if you want to leave an inheritance to your children or a foundation, even longer.

While budgeting for these long periods of time the same basic principles apply but an additional element of uncertainty or the unknown requires that predictions or forecasting about your future be made. These types of budgets must be modified as more certainty about your predictions of spending or earnings, for example are discovered.

So let’s get started on your first budget. We’ll discuss budgeting for a month for our example. What is the amount you have to spend for a typical month? We can call this your income for simplicity. Does your income come from more than one source? What are your typical expenses? Can we itemize each expense and use something like averages per month for each item for our monthly budget? What about unknown expenses? Can we budget for these? We start by listing all these items and assigning a monthly dollar amount (average, estimated or known) to each.

To start with, let’s take a look at the Monthly Spending Worksheet and the Monthly Budget Worksheet. The spending worksheet will give you some ideas on the items which make up the expense section of your budget. The budget worksheet then combines these expenses with your income to determine the answer to the first question asked above – “a way of seeing if what you have to spend is (hopefully) greater than or equal to what you spend”.

Income

If your income is primarily from earnings, your pay check stub may have these items already itemized for you. Gross earnings are what you earn per hour times the number of hours worked or it may be a flat amount of money for the period of time you are paid for, regardless of the number of hours worked. That same pay check stub will usually list deduction amounts which are subtracted from your gross income. The typical ones are federal, state and local income tax, FICA (federal retirement - Social Security and Medicare contributions), group medical, dental, prescription individual contributions and personal retirement investment deduction. Your spendable income is your gross income minus these deductions and contributions. We will refer to spendable income as simply income for the rest of this document.

You may have additional income items other than earnings. You may have no earnings but are instead living off student loans combined with investment earnings, a monthly savings account withdrawal, inheritance, allowance, etc. Whatever money is available for spending, add it all up or divide it into monthly amounts to determine your total monthly income.

Expenses

Expenses may be more challenging to manage. Examples can be found on the Monthly Spending Worksheet. They can be classified as:

Fixed Expenses - such as rent and mortgage
Variable Expenses - such as food and groceries, and utilities and repair bills
Periodic Expenses - such as yearly or bi-annual car insurance
Emergency or unplanned for expenses

You need to identify your expenses. Where does the money really go? Saving receipts for a month or longer will help you keep track of your expenses. If you categorize your expenses, you may notice that some of these "expenses" are not critical. They are more of a "want" than a "need". Your emergency or unplanned expenses may be an item on your budget such as a monthly savings account amount which you can accumulate to be used in case or when the unplanned expense occurs. Don’t forget items that require payments annually or semi-annually such as car insurance or registration, for example. Count the equivalent monthly portion of these in your budget.

It is extremely important for you to track all items of both income and expenses, whether it be by collecting everything in a shoe box, or by using computer software. To begin the process use the examples given in the worksheets, add or remove items as they apply to your situation. Think about what you spent money on last year to remember expenses which may not show up in one months saved receipts. Remember any other money you can count as income such as tax refunds and divide it into monthly portions. At the end of this process, you will know how much you money you have for discretionary spending each month. If you spend too much one month, you know that you will need to make it up in another. You will now have the security in knowing where your money goes and how much you can spend on extras without breaking the your bank.

* This and other templates are available on the Microsoft Office Online web site.