Budget Planning 101

5-tips-250x166You may be begging to worry about the expenses of the holiday season and even dreading the start of a New Year and the resolutions you know you need to make, but you shouldn’t be. The truth is that there is never a bad time for checking your finances. Now is the time for budgeting and saving.

Most people don’t budget because they simply don’t know where to begin. The best place to start is by outlining categories for your expenses and assigning them a value.

Housing 30-40% — your expenses for rent, a  mortgage, taxes, insurance, and repairs should not exceed 30-40% of your monthly income. Many people forget to calculate the costs of repairs, and while they may not always be monthly, they can certainly put a strain on finances when they occur. Be sure to have some cushion by keeping your actual rent or mortgage closer to the 30% or less, leaving with 10% for those extras and unexpected.

Utilities 10-15%  – expenses for electricity, gas, water, trash and phone lines should all keep within the 15% of your monthly income. Again, remember that these values can change from month to month and vary considerably by season, so don’t max out your expenses in the winter and have no room in your budget for the extra $100 in air conditioning over the heat of the summer.

Food 10-20% — food related expenses include groceries, dining out and pet food. This tends to be one of the most commonly overspent categories each month. Therefore, make sure you have grocery lists and stick to those items only and set rules for dining out for how often per week and how much can be spent. Don’t forget to set aside extra for those special occasions like a birthday or anniversary, which are typically much more than you spend normally.

Transportation 15-25% — these expenses include not just the payment for a vehicle each month, but gas, repairs, insurance and tolls. If you have a car payment keep it around the 15% mark to allow room for the other items in this category. Vehicle repairs can be costly when they do happen, so having a car payment that is closer to 25% could quickly put you over budget.

Medical 10-15% — medical expenses include insurance premiums, prescriptions, doctor copays or bills, and even deductible expenses. Keep in mind that just because you have insurance doesn’t mean all bills are covered, so staying around the 10% mark can be helpful when that unexpected doctor or hospital bill arrives.

Savings 10-15% — rarely do people save the full 10% each month, but having at least three or more months of enough money to cover all the expense categories listed can be the difference between financial insolvency and the need for Phoenix bankruptcy and getting back on your feet the old fashioned way. Although savings  may be listed last, it should be prioritized first!