Budget for YOUR Life

If you want to manage your money effectively, you absolutely must have a budget. Fortunately, developing a workable budget isn’t difficult. I personally recommend creating a yearly budget first, then narrowing it to a monthly breakdown (i.e., if your annual clothing budget is $700, do you want to divide that up by month, or would you rather do a major shopping a few times per year?)

No two households will have the same budget, because no two households have the same priorities. The key is to decide what works best for you through careful thought and experimentation. There’s no such thing as a budget that’s written in stone. Some expenses obviously can’t be changed—your mortgage payment is your mortgage payment, no matter how much you would like it to be lower! However, your discretionary categories, like entertainment and family vacation money, offer a great deal of flexibility. You can also get really creative and think of ways to lower your utility bills, freeing up more money for fun things. I provide lots of tips for lowering your monthly expenses on this site, so be sure to look around.

There’s only one aspect of budgeting in which I recommend you be absolutely inflexible, and that's savings. Regular saving is essential to building a secure financial future. I suggest setting aside 10% of your net income before spending so much as a dime. In especially lean times, this may not be possible, in which case I still recommend putting away something—even if it’s only $5 per paycheck. “Found” money, such as bonuses, gifts, or a tax refund higher than anticipated can help bolster your savings during times of greater financial hardship. If your employer matches contributions to your 401(k) up to a certain percentage (usually 6-10%), take advantage of the free money and sign up for the maximum matched payroll deduction.

In addition to savings, basic budget categories include:

• Taxes – real estate; per capita; local, state, and federal income; capital gains (it's best to see a tax professional to plan for these)


• Food – meals, snacks, and party foods prepared at home


• Housing expenses – mortgage or rent, homeowners' association fees, homeowners' or renters' insurance


• Utilities – electric, water, heat, phone


• Transportation – car payments, bus or train fares, car insurance, vehicle registration fees


• Insurance – health, life, and disability


• Personal items and toiletries – non-food expenses like diapers, feminine products, toothpaste, shampoo, and toilet paper


• Healthcare expenses – prescriptions, over the counter medications, co-pays, deductibles, vision care, braces, diabetes supplies


• Charitable contributions – tithes, monetary donations, or major gifts to benevolent organizations


• Household purchases – furniture, home décor, appliances, supplies for renovation projects, fees for paid services (such as professional painting or landscaping)


• Education – tuition, books, tutoring, school supplies, after-school activity fees


• Clothing – outfits for school, work, and weekends; uniforms; shoes; coats


• Personal care – barber, beauty shop, and spa expenses; gym memberships


• Entertainment – cable, high-speed internet, movie rentals, DVDs, books, games, children’s toys, sports equipment, restaurant meals, day trips


• Holiday expenses – holiday gifts, decorations, activities, party supplies


• Vacation money – airline or train tickets; hotel, motel, or campground fees; theme park tickets; souvenirs; meals

Balancing these household expenses in a way that makes sense for you is the secret to good budgeting. Trimming excess where you can, without feeling deprived, is the key to being frugal fabulous. Fortunately, there are many ways to cut corners without feeling pinched, freeing up more of your hard-earned income for the things you really want!

Originally published November 27, 2007.