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The Year of the Budget!

Personal responsibility. Financial discipline. Real-time decision-making. With uncertainties lingering in the economy and question marks surrounding how and when you may get back the money you’re contributing to Social Security, now is the time for virtually everyone to operate financially from a position of knowledge. That means knowing where you are, what you need, and how you’re going to be successful.

Here’s some help:

  1. Know Where You Are. This is the most tedious part of the whole budgeting process, and the good news is it’s not really that bad. First, make a list of your major areas of expense (sample budgeting form). Next, track and tweak these categories for 3 months until most of your expenses have a “home” and the numbers are an accurate representation of what you’re spending.

  2. Know What You Need. Based on your 3-month history, look at your monthly net income. Is the amount left after expenses adequate for you to reach your long-term goals? Some experts today maintain that you need to set aside up to 15% of your income to build a sufficient critical mass to buffer you against the unexpected. So now you need to pick a goal number. If 15% is too high for you to manage now, start at a number you can live with; maybe 7% or 8% of your income. Then be sure to re-visit that number annually. For example: If your annual earnings are $64,000, saving 7% would equal $4,480, or creating a surplus of $373 every month. A 3% goal would translate to a $160 nest egg contribution per month.

  3. Know How You’re Going to Be Successful. This is the part that can be fun and creative. Look for places in your budget where there’s room to improve by being more organized and efficient. Reviewing current contracts (like your data plan, internet provider), carpooling, and limiting the cappuccino to once a week will add up over time.

And remember …

The end result of making and using a budget is to make ends meet. Knowing what you have and living within that boundary may not bring you that new flat screen next month, but it will most certainly make you sleep better at night and help you make informed financial decisions.