MAKING LIFE BETTER: Making a budget part of your New Year’s resolution
The number one New Year’s Resolution is to “Get Healthy,” including losing weight and getting fit. How about trying to get financially healthy for this new year?
What is financial health? Financial health is a term used to describe one’s personal financial situation. There are many dimensions to financial health, including the amount of savings you have, how much you are setting away for future goals and how much of your income you are spending on expenses.
Creating a budget can be a very important tool when you are trying to meet your financial goals. It can help you and your family see where your money is going and helps you determine where you can cut back, if needed.
Why create a budget? A budget can help families see where their money goes. Most people find that that 5 to 10 percent of the money they are spending each month is on stuff that they do not need.
For example, if you get a coffee at a local coffee shop each morning, you can be spending up to $550 a year and not realize it. Using a budget can help you and your family set goals such as saving for a home, paying down debt, paying for education or planning for retirement.
Decide what your family’s biggest money needs are right now. For example, it may be balancing income and spending or paying off an overdue bill. Solving some of these money needs should be your family’s goal for the month. As a family, write the goals down. One goal that must guide your family is that spending will not be more than income. Some families start planning by setting a goal of saving a certain amount of money each month.
Most budgets include the following categories:
– Income: any money coming into the family from employment, social security, support payments.
– Housing (usually the largest expense): mortgage or rent, taxes, home/rental insurance, utilities (gas, electric, oil, water, sewer).
– Transportation: car loans, car insurance, fuel, maintenance/repairs, public transportation, parking.
– Family/personal care: health insurance, vet expense, over the counter medications, child care.
– Living Expenses: food, clothing, education supplies, home living supplies.
– Recreation: dining out, movies, vacation.
– Obligation: credit card payments, student loans payments, child support.
– Savings: 401K, investments, retirement plans.
Saving part of your income is very important to provide for future needs and wishes. A simple, effective idea is called “Pay Yourself First.” It is setting aside money as savings, before using any of your income for expenses. Make savings a regular part of your budget.
By planning together, your family can choose the ways it wants to spend and cut down. Your family must make the hard choices between where to spend and where to cut down spending, or not spend at all. After the plan is developed, you must try it out. The whole family needs to work together to try spending only what is planned. A plan is useless unless it is put into action.
Try the plan for a 2-3 month and see if it working to help your family to meet its goals. A plan can be modified often to keep everyone on track for the New Year!
Laurie Welch is a nutrition and family issues educator with Penn State Cooperative Extension, 570-726-0022.