Q:  I have to admit that I am a person who tends to let my money burn a hole in my pocket.  Sometimes it gets down to the wire and I find that I have to pray that I have enough to pay my bills.  I’d really like to stop living like this but have no idea where to begin.  Any suggestions?

 A:   Living paycheck to paycheck is by no means fun.  Yet the simple practice of budgeting can help one get their finances in line and stop the endless cycle of waiting for that next check to come.  In a day and age where it appears that even the government can’t budget correctly, the following tips will help ensure that you get it right.

Adopt the correct attitude toward budgeting.  Understand that you are trying to free up your time from paying bills and worrying about money.  A budget isn’t a straightjacket for your finances.  It’s a tool that will allow you to see where your money is going, where it could be used more effectively, and alert you to when all is not well.  Using a budget will help you get your financial life under control and begin to realize some of the dreams that you have.  It will take discipline to stay within the guidelines of any budget.  However, if you take the attitude that a budget is a waste of time or some type of constraint, you will more than likely not stick to it. 

Build your budget.   Some people take the approach of building what is referred to as an expense side budget; one that only looks at what one spends.  A more realistic budget is one that encompasses both income and expenses.  This budget allows a person to see how much they bring in and spend during the same period.  If you see that you are overspending routinely you can be sure that you are either eating up your savings or you are creating debt.  If you see that you are spending less than you earn you should be able to see the results in your bank account or in the form of assets that you’ve purchased.  Either way, an income and expense budget will allow you to adequately adjust your spending habits based on the trends you see.

To start you will have to summarize your sources of income and expenses. The things that should be included in income include your after-tax take home pay, interest and dividends, social security benefits, and any other sources that provide you with funds.  Your expenses should include things like your housing cost, utilities, insurance, savings, food and personal items, transportation, entertainment, and charitable contributions.  Once you’ve listed your income and expense items you should subtotal each category and see where you stand.  The budget may indicate that you have a lot more money available than you tend to feel you do.  So what’s the problem?

Perform the reality check.  Illustrated below is an average expense side budget.  The percentages indicate how much each category makes up of the total money spent in a given month.

Personal Savings          10%
Housing expenses, utilities, and food  30-35%
Installment debt and credit cards         15%
Transportation and vehicle maintenance          10%
Charitable organizations          10%
Insurance         5%
Entertainment  5%
Personal care and clothing       5%
Investments     5%
TOTAL            100%
Compare your budget to the one above to see where there are differences.  You may see that you are spending more on housing than the average person or that a majority of your money goes to a category that isn’t even listed above.  Whatever the case may be, wherever your budget is out of line could indicate the source of your money problems.  It is also important to note that you could just be overspending the money that you should be saving.  If this is the case, start a savings plan to keep more of your money with you and of the pockets of the big corporations.

Periodically review and adjust your budget.  Did you recently receive a promotion that translated into a bigger paycheck?  Did you finally pay off that car note?  Just get married or bring a new child into this world?  All of the above are good reasons to revisit your budget and make adjustments.  None of us remain the same for too long and neither should your budget.  Whenever there is a change you should assess the area(s) that will be impacted and make the necessary changes to your income, spending, or both.  For instance, if you were making $2,000 a month you may have been socking away $200 a month into your personal savings.  With your new promotion you now make $2,500 a month and that means that you should be saving $250 a month.  Just because your income changes doesn’t mean that you have to change your budget.  Yet to make sure you are staying in line and well on your way to where you want to go, it’s advisable that you do.