Early on I told you, my readers, I was going to have monthly missions for 2010. January was about finances. In sharing with you about budgets last week, I split up an article I wrote a year ago on the topic. Last week and this week those two articles (Part 1 and 2) were highlighted on a lovely blog entitled, Integrated Mother. The founder, Michele Dortch, wanted to use the material and helped me polish it up a bit. I was very excited to get the articles featured. Below is part 2 “When it comes to Budgets, keep it simple” but I hope you will jump over to Integrated Mother to see it there as well as participate in comments and discussion.
When it comes to budgets, keep it simple
Last week I described the financial mindset you must have before setting a budget. Now it’s time to set the budget! When you think about it, budgeting is simple. You have a set income and what you spend each month shouldn’t exceed that amount. Simple!
But for many, it’s not that simple so I’ve broken down the elements of a budget here with some suggestions for how to allocate your money. For the sake of this illustration, we’ll assume your income is $1,000 per month. Here is how I suggest allocating your expenses:
Charity – 10%: In my personal budget, I take 10% off the top and give it to my church, my charity of choice and something I believe in.
Mortgage/rent – 25%: This is the normally suggested range for housing expenses.
Food – 20%: Include the amount for groceries and prepared foods.
Transportation/gas – 11%: This is money spent for gas, tolls, and car payments. You might need to eliminate a car payment and drive an older, used vehicle.
Child care – 10% This can be expensive, but may be less if you solicit friends or family to help in this area.
Insurance – 2-3%: This includes auto, home, life, and health insurance premiums. Try to combine plans for auto and home to get the best rate.
Health care expenses – 2%: With children you’ll have the occasional co-pay for doctor’s visits as well as the medications (ask for generic)
Utilities – 5%: These differ by the season and/or usage, but an average monthly electric bill and water combined would be about 5%.
Phone, cable, Internet – 6%: Consolidate where possible. Cable is a luxury for many households, as is the Internet. Determine if these are some things you can afford.
Debt payments – 0%: These include credit cards, student loans, leased furniture payments, or anything you have purchased on credit. Being debt free would allow you to leave zero in this section.
Total fixed expenses = 92% of your budget, or $920 in this example.
Use the left-over 8% of your income for the “extras” like clothing, self-care, vacation, entertainment, dining out, home repairs, and landscape maintenance. And be sure that you don’t under-estimate the upkeep for your own home, if you aren’t renting. Prepare for these expenses – trust me. Also, the “extra” 8% should be used to reduce your debt if you have any.
Speaking of debt, you can probably tell that I’m a strong advocate for living within your means and removing “debt required living” from your lifestyle. Train yourself to live within your means and avoid pulling out your credit card for a quick fix. The stress of getting in over your head isn’t worth it.
I suggest having only one credit card for emergency purposes, and then cut up all others. To safeguard against impulse buying, give that one credit card to a friend or secure it in a safe place (not your wallet!) to help you be accountable to your promise not to use it except in the case of an emergency!
Remember, this is a bare bones, basic budget outline. You’ll need to customize it to your unique situation. The important part is to keep your expenses under control. At the end of the day, impulse buying and frivolous spending gets you more things (that you have to figure out how to store). Do things matter most?
———- By Katherine Shinault
Editor’s note: Any financial advice presented on this blog is for your personal information only and cannot substitute professional financial advice. Always seek advice of a competent financial advisor with any questions you may have regarding a financial matter.
Find yourself… keeping it real.