Budget Planning & Implementation

The first step in creating a budget is to gather last year’s financial documents to see what you’ve been spending. Grab or download copies of your bank and credit card statements and start categorizing your spending. Create budget categories such as rent, utilities, car, groceries, entertainment, lunch, electronics and coffee -- yes, coffee. Spending $30 on coffee each week adds up to nearly $1,600 per year when you factor in credit card interest. If the two of you cut this in half, you’ve paid for a weekend Vegas getaway.

Have a heart-to-heart and rank your financial priorities. Include retirement savings, house down payment, kids’ college fund, emergency cash, vacation, new car and holiday gift shopping. Calculate how much you’ll need to save each month to meet annual goals. It might be a good idea to meet with a financial adviser to discuss your long-term financial needs. You can also check out free online retirement and mortgage calculators.

Divide a spreadsheet into expense and income categories, entering your anticipated amount of each into monthly columns. Don’t put a monthly average into your spreadsheet for non-monthly recurring expenses such as insurance premiums or other quarterly payments. This will let you see exactly what you’ll owe each month and help you avoid being short of cash during months with more expenses, which averaging amounts sometimes leads to. Create an end-of-year “Total” column after your “December” column to see what you might spend annually in each category and see your total spending for the year.

Once you’ve made your budget document, it’s time to make adjustments to prevent overspending and target your needs and wants. Go back and put an asterisk next to each discretionary spending category, such as entertainment or clothing, so you can see where you can cut back if you need money for other goals. Check your “Total” row running along the bottom of the document to see how you do each month. If you are short cash any month, look at your discretionary categories to see where you’ll have to cut back. If you have extra cash, determine how you’ll use it. Plug your prioritized savings categories into your budget document as expenses. Enter either regular amounts you want to save each month, or make the savings amounts a percentage of your excess income each month.

Update your budget regularly, especially during the first three months. If you wait until the end of the month to enter your expenses, you might find you’ve gone over budget. You also won’t remember every cup of java you’ve bought or each time you hit the drive-through. It might seem like a pain to keep track of this type of spending, but if you don’t, it might cost you your Vegas weekend or delay moving into your dream home. If you feel your budget is cramping your style, re-examine your non-discretionary expenses to determine if you can make some changes. Look at reducing your insurance deductibles, temporarily decreasing your 401(k) or re-thinking your cable or phone spending. Saving on heating, cooling, gas, electricity and water each month can add up to more than $1,000 in savings each year.