Michael Killian

What Constitutes a Good Budget?



Posted: Tuesday, December 02, 2008

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http://learncreditmanagement.com/

What makes up a good budget? What expenses should you include in the budget? What can you do about variable expenses in your budget? How can you personalize a budget?

Where are you going?

The key to a good budget or spending plan is knowing where you have been and where you want to go. Knowing where you have been is done by insuring you have written down where all you money has been going. You can find this information by categorizing and reviewing your last 6 months of check registers or other accounting methods you have been employing. If you have no such method in place, you have just uncovered your main budgeting problem which is the first item to be corrected.

If on the other hand you use a check register or other means but have numerous general entries such as "cash" or "miscellaneous" or other unidentifiable labels, this too must be corrected. You MUST know where your money is going before you can divert it. I recommend carrying a small spiral notebook for at least 2 weeks (longer is far better) and recording every cash transaction. I have never had a client or student do this who has not come back to me amazed by what they had learned from this experience.

Budget Labels

Once you have a record of all your expenses for a decent period of time, the remainder of the budgeting process is relatively easy. The following labels can be used to guide you in listing what debts and expenses go where in organizing your finances. Nothing from the list below is written in concrete. So adjust the labels to suit your particular needs. Where an entry is variable, enter a monthly average based upon past history and expected futures.

Here is a suggested list of budget items:

Income:

Your Income

Spouse's Income

Other Income

Expenses:

Fixed Expense

Rent (not mortgage)

Other Housing

Child Care

Child Support

Alimony

House insurance

Car Insurance

Medical/Dental Insurance

Life Insurance

Other Insurance

Variable Expenses:

Utilities

Phone

Cell

Cable

Internet

Other Utility

Transportation

Food

Clothing

Medical Expense

Personal

Entertainment

Savings

Other Variable Expenses

Secured Debt - Those bills/debts which have a tangible asset (Mortgage, Auto, etc)

Un-secured Debt - Those debts which offer nothing tangible that can be taken from you for non-payment (credit cards, medical bills, etc.)

Federal Guidelines For Household Budgets

The following are recommended percentages for household expenses. They are offered by the federal government in bankruptcy counseling nationwide. They should be used only as guidelines.

Housing 25%

Transportation 15%

Utilities 10%

Food 10%

Clothing 5%

Medical 10%

Personal 5%

Other 5%

Savings 10%

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Readers will probably be interested to know Mike, the author of this article, also offers a free debt elimination mini-course via e-mail.

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