Building a Budget that Works
We all know what a budget is and why it's important. But creating one that succeeds is not so simple. First, get help. Investing in good budget-tracking software is invaluable when it comes to managing your family's finances. Here are some more suggestions for sorting out your expenses.
Research by Ronnie Brooks and Cleo Hayes,
- Get organized. Use the tools in your financial software to schedule and set calendar reminders for known expenses. This will help you incorporate other expenditures into your overall plan.
- Be proactive. Online payments save time and help make a manageable system. The fewer last minute surprises, the more likely you are to succeed.
- Be realistic. Your "must do" expenses such as taxes, rent, groceries and insurance, will probably account for 60 percent of your total income. (Perhaps a little higher or lower.) Don't forget to include the less obvious expenses such as music lessons for a child or gifts you need to buy.
- Prepare for the unexpected. Set aside 10 percent of your income to cover irregular expenses, such as car repairs, replacement for a broken washing machine, or patching a hole in your roof. Deposit this money into a separate savings account and withdraw it only when needed.
- Save for major purchases. Put aside another 10 percent in either a money market account or a certificate of deposit, which pay higher interest. Buying a new car, couch, or furnace with cash can save hundreds of dollars in interest.
- Don't forget the future. Another 10 percent goes directly into an IRA, 401(K), or similar tax-deferred retirement account. Or, if you have debts, put five percent in a retirement account and use the remaining five percent to pay down your debt.
- Reward yourself. The final 10 percent is "fun money." It's yours to spend on life's little extras, such as dining out and entertainment.
University of Memphis