Taking control of your personal finances can change more than your relationship with your checkbook; it can change your
Whether you are struggling with debt or have a little extra in the bank, consciously managing your money has the
power to reduce stress, improve relationships and provide financial breathing room to make good choices. Just imagine
for a moment being free of consumer debt and having three to six months of living expenses in the bank for the
Of course, telling your money what to do involves the dreaded B" word - budget. Before I started using a budget, I
thought it would be restrictive and allow for no fun. Now, after living on a budget for 2½ years, I know that it's
possible to make responsible spending decisions that include room for fun, too.
The first step in developing your budget is to determine your total monthly household income after taxes. If your
income varies each month, use the minimum you realistically expect to bring home. A conservative estimate in this
case can prevent overspending later.
Now determine how you are spending money by separating expenses into four categories. For this to be effective, you
must be honest about your spending habits. No fudging the facts here.
Begin by listing your essential items: shelter, groceries, utilities and gasoline. These are your Level 1 expenses.
Next, list and total your monthly payment obligations, such as car payments, credit cards and other loans. These are
your Level 2 expenses.
Level 3 targets your nonmonthly expenses - money that can be easy to lose track of. This includes insurance, car
repairs, clothing and anything else that you pay for on an irregular basis. By saving for these items ahead of time, they won't cause minor financial emergencies. For example, if you want to spend $800 on Christmas, about average for
U.S. families, you will need to save $67 a month starting in January.
Level 4 expenses are the nice to haves." Restaurant meals, lattés, beer, vacations and trips to the movie theater
can all fall into this group.
Now that you've identified expenses in these four categories, compare their total with your monthly income.
Look for places to squeeze each budget item. Make sure to leave free spending money so that you don't feel too
deprived and quit. If you are left with additional income, use that money to pay off debt. No debt? Then save or
Remember, this is not an exercise in deprivation; it is an exercise in empowerment. The goal is to reduce debt more
quickly and allocate more money toward achieving your dreams and pursuing activities that bring you joy.
Your goals may not look like anyone else's. If you have a partner, setting priorities will give you plenty to talk
about, but once you set them together, you will find that the money fights vanish. And that is the best thing about
having a budget.
My next column will focus on how to rein in out-of-control spending. Future topics will include paying off debt, saving for nonmonthly expenses, setting priorities, and money and relationships.
Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance Coaching.