A budget is a spending plan. Like all other plans, it’s possible to make bad ones. To create a budget that gets you more of what you want, it’s important to look at it as an evolving plan.
Review it regularly and make changes when necessary. (Read my last column about how to start budgeting at http://bit.ly/BudgetToBanishWorry.)
IncomeAdd up your gross annual income – that’s what you make before taxes and deductions. When it comes to household earnings, the magic number is $75,000 for happiness. If your income is less than $75,000, make a plan to grow it over time.
GroceriesHow much did you budget for groceries? If you are spending more than $100 for you and your partner, plus $25 per child, each week, try cutting back. Apply your savings to paying down debt or to other financial goals.
Rent/mortgageMortgage lenders say you should spend no more than 28 percent of your gross income on housing. To make sure you’re not overspending, multiply your monthly gross income by 0.28 and compare the result to your monthly housing payment.
If you are over the 28 percent benchmark, consider moving to a less expensive housing option or getting creative. How about a roommate?
Consumer debtPay it off to eliminate stress and risk. Add up all of your consumer debt. Divide the total by 12. That’s the amount you’ll need to pay each month to be debt-free next year. If that number seems too much for your budget, try 18 or 24 months.
Student loansSome people call student loans “good debt.” Debt is neither good nor bad. All debt carries risk – if you don’t pay, there will be consequences. Pay off your student loans as quickly as possible.
Car paymentIf you can pay off your car in the next 24 months, if you love it and if want to drive it as long as you can, then keep it. If any of those three statements isn’t true, sell it, take the cash and buy a used car.
Less-than-monthly expensesWhile you have debt to pay off, limit the items in this category to necessities and things that if left unattended will become emergencies, such as car tires and repairs, insurance and medical care.
Don’t save for nice-to-have items like vacations yet.
When you are out of debt and have a fully-funded emergency fund, you’ll allocate about 25 percent of your take-home pay here.
By listening to these seven areas of your budget and making changes to your spending, you may feel like you got a raise, too.
Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance. www.personalfinancecoaching.com. Contact him at email@example.com.