B-W: Creating A Budget

          The best way to take charge of your finances is to learn how to budget. This guide helps you do just that. Think of it as a quick course in how to build a healthy financial life—both right now and for the future.
          As a student, you’ll find (perhaps for the first time) that you have many finances to keep track of: tuition, housing, books, food, credit card payments and other bills. Unfortunately, because many students don’t have experience keeping their finances in order, sometimes they make mistakes that can end up damaging their credit record. This is a real problem when it comes to getting approved for a car loan, for example, or renting an apartment.
          One of the best ways to keep your finances on track is to put together a budget. It can help you figure out what you can afford to spend, set goals for saving and determine which expenses are necessary and which can be cut back.

WHAT’S A BUDGET?

A budget is a way to help you organize your finances. Essentially, it tells you what money comes in, what money goes out and where the money goes.
A budget is pretty simple to put together. All you have to know is basic math. Once you set it up, it’s easy to maintain. The hardest part may be organizing and recording all your expenses the first time. But over time, you’ll be able to get more accurate about your expenses. Follow these five easy steps to create your own budget:

STEP 1: GATHER THE TOOLS AND INFORMATION YOU NEED

First, gather up your budget tools:

· The Where Is My Money Going? Worksheet (see below)
· Paper or a notebook
· Calculator

Then pull together the records of all income and expenses:

· Any paycheck stubs (if you have a job)
· Last year’s federal income tax return (if you have one)
· Checkbook registers
· Credit card statements (especially year-end summaries)

STEP 2: DETERMINE YOUR MONTHLY INCOME

Add up any money you take home from jobs, student loans and scholarships, or any regular support you may receive from your family. Remember, a credit card is not a source of income.
For each income source, place the amount you get each year in Part A of the Where Is My Money Going? Worksheet. Once you fill in all the information, add up the numbers. That’s your total yearly income. Then subtract your annual tuition costs (and room and board, if paid annually). Divide the result by 12 to find your effective monthly income. It may sound complicated, but the worksheet has been designed to make it easy for you.

STEP 3: FIGURE OUT HOW MUCH YOU SPEND EACH MONTH

             This is the most time-consuming part. Yet, it’s also the most important. Don’t worry if you don’t know the exact amounts. It’s OK to estimate. You can revise it later. Figure out your expenses. If you’re using the worksheet, you’ll have two totals: a fixed expense total and a variable expense total.
             Fixed expenses are expenses that you have to pay every month, like rent or car payments. These are the expenses that you can’t really change. For quarterly, semiannual or yearly expenses — like car insurance payments — divide by the appropriate number to get the monthly expense. Quarterly (every three months) expenses: divide the quarterly amount by 3. Semiannual (twice a year) expenses: divide the semiannual total by 6. Yearly (once a year) expenses: divide the yearly total by 12.
             Variable expenses are expenses that change from month to month, like books, going out to eat or buying clothes. These expenses are the ones you can vary by changing the way you spend. If you have more than one expense for a given item (e.g., groceries), write each expense on a separate piece of paper. Then, once you’ve listed all the amounts you’ve spent in a month, add them up and enter the total. Don’t worry if the first worksheet is based on rough estimates. It may take a few months to know exactly what you’re spending. But once you enter everything onto the worksheet, you’ll have a good idea of what you’re spending and where you’re spending it.

STEP 4: FIGURE OUT YOUR BOTTOM LINE

Figure out how what you spend each month matches your effective monthly income. Add your total fixed expenses to your total variable expenses. This will give you your total monthly expenses. Subtract your total monthly expenses from your effective monthly income. The result is your bottom line.

STEP 5: DETERMINE IF YOU’RE SPENDING TOO MUCH

A budget doesn’t really change the way you spend. But it will show you where some changes need to be made. If your expenses are greater than your income, you’ll need to cut back. Make sure that you’re paying monthly expenses out of your income — not your credit. Don’t rely on a credit card to cover shortfalls in cash — or your balance will soon snowball into a huge debt. If you do have a shortfall, you should review your budget to see where you can cut expenses. Look at your variable expenses. Which ones can you cut back on?
If you’ve cut your variable expenses to the bone and you’re still having trouble-making ends meet, it’s a good idea to speak to the Financial Aid Office at your school. You may also need to consider certain kinds of student loans.

RESOURCES TO GUIDE YOUR WAY

If you have a computer, there are several software programs available from retailers and on the Internet to make budgeting much easier. If you don’t have a computer, your school or local library may offer free Internet access and a wealth of books and other references on budgeting.

ADDITIONAL RESOURCES

The Consumer Information Center (CIC) is a federal agency with loads of free information. For a catalog of pamphlets call 1-800-8-PUEBLO. Or visit CIC’s Web site at www.catalog.pueblo@gsa.gov there are two books you may find useful: Guide to Personal Budgeting by David L. Scott and The Budget Kit: The Common Cents Money Management Workbook by Judy Lawrence.

REMEMBER

A budget can help you:

· Get control of your finances
· Keep out of financial trouble
· Become a smarter consumer
· Set and achieve financial goals
· Pave the way to a secure future

MORE WAYS TO KEEP BETTER TRACK OF EXPENSES

Start keeping a monthly expense record. Carry a small notebook. Each time you buy something, write it in the notebook. Be sure to record ATM withdrawals and what they’re for. Track every penny you spend. Do it for one month.

Buy some ledger sheets or graph paper. Enter the major expense categories from your budget worksheet across the top. Record all purchases and paid bills underneath.

Add each column up at the end of the month. Then compare it to your initial worksheet. Make adjustments to your estimates as you go along.

The goal is to get a picture of where you’re spending your money. Your budget should be based on what you really spend, not what you think you spend.