If you’re like many, this January has been busy with all the aspects of your normal, everyday life, as well as trying to set a new/revised/updated tone for 2014. This can be very overwhelming, and depending on the goals or resolutions you set for yourself this year, very time consuming.
In this second installment of our budget series, Jennis Watson (2004, Xi Epsilon Chapter) provides some helpful tips to get you prepared to tackle the daunting task of creating your budget. If you haven’t yet started on your financial plan for the year, don’t worry. Today is the start of the Lunar New Year, so hit reset and get going!
Creating a budget will allow you to refine your goals, establish your game plan for spending, and help you make decisions about expenses. But, before you dig into the details, consider the following questions:
What fiscal period works best for you?
What are your goals?
What are your funding sources and actual expenses?
What fiscal period works best for you? For many people, the easiest answer to this question is to use the calendar year. So, your budget term would run from January 1 to December 31 in a given year. If you naturally operate on a different schedule—for instance, if you are a student, it may be easier to manage with an academic year schedule.
What are your goals? As with most areas of life, when you are considering how you will create your budget, you will want to determine your goals. Do you need to pay down outstanding debt? Would you like to increase your monthly mortgage payment and reach the end faster? Are you saving for something important?
What are your funding sources and actual expenses? If you nail this critical step, your overall budgeting process will be much easier. To do this, pull together all of your revenues and expenses for a period of time. Ideally, you will be able to review information for the prior 12 month period. If you do not have records going back this far, you can either select a more recent starting point or you can begin now to collect these records and create your budget in the future.
When you consider your income, keep in mind the taxes and withholdings coming out of your paycheck are expenses that reduce your buying power. Sources of revenue to note include, but are not limited to, your gross income from working, investment income, and expected gifts.
Your expenses will typically be more complex than your revenues, and it is important to achieve a very detailed picture of what you have actually been spending. It is pretty common to learn that you spend more than you think you do.
To give you a head start, here is a list of possible expenses you may be incurring:
- Paycheck Taxes & Withholdings
- Mortgage/Rent, Maintenance & Property Tax
- Car Payment, Maintenance & Ad Valorem Tax
- Utilities: Phone, Electric, Water, Gas, Cable, Internet
- Entertainment: Movies, Amusement Parks
- Dining: Groceries, Restaurants, Coffee Shops
- Insurance: Renters/Homeowner, Car, Health, Life
- Travel: Gas, Tolls, Parking, Wear & Tear, Air, Public
- Personal: Clothing, Hygiene
- Household: Paper Products, Small Repairs, Services
- Theta Nu Xi Dues & Registration Fees for Special Events
Remember that your expenses will be both regular (like food and gas) and irregular (like renewing your driver’s license). Irregular expense should be included in your budget, so that you can actively saving up for them.
A final note about the budgeting process that will save you a lot of wasted energy and frustration: Be honest with yourself. If you know you love to shop, shopping should be a line item on your budget. Doing so will allow you to take control of your spending while enjoying your favorite activities stress-free.
Written by: Jennis Watson (Xi Epsilon, 2004)