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Things to keep in mind as you fill out the Budget Analysis Worksheet
NET INCOME: Use your monthly take home pay (net pay). Avoid using overtime. We don’t always know what the future holds, so we should not include income that is subject to change. If taxes were owed last year, you may need to decrease your claimed exemptions. Check with your tax advisor. Net income truly needs to be net.
If your pay is not received on a set schedule, use your last 2 or 3 year net income average. To determine that, add together the number of years you are using, divided by the number of months in those years. (i.e., 2 year’s total income divided by 24 months) We’re trying to get a “picture” of how much life costs us as we live it and if our income is adequate. Don’t forget to include all your income; child support, a second job, etc. Any other source of income if regularly received may be added to the total.
MONTHLY EXPENSES: Gas and Electric tend to fluctuate during the year. You may want to contact your utility company to find out what your monthly average is or simply add up your last 12 months total paid to each utility company and then divide by 12 months to get your average. If your utility bills are paid up to date, now is a wonderful time to enroll in their “budget program”. They will let you know the amount you’ll be billed each month. List those amounts on your analysis.
Property Taxes: If your taxes are included in your mortgage payment (escrowed), you won’t need to save to pay for them. If not, add the total paid last year, divide by 12 and save this amount each month.
Repairs and Improvements are things like wallpaper, paint, carpeting, a new front door, furniture, TV, stereo, a new mattress, etc. And what about a new washer or dryer, stove or even a new furnace and roof? You may think there is no need now, that may be so. Eventually though there will be a need. If we wish to avoid financing such items we need to plan ahead. It’s essential we budget and save for such expenses now. Remember, the amount budgeted won’t be spent each month. It’s a cash reserve so that when the need does arrive, funds will be there and we won’t be forced to lean on credit. It’s been suggested a “rock bottom” figure to save for both repairs and improvements should be 2% of the value of your home per year. Divide this amount by 12 months and save that amount each month. Apartment dwellers could start off saving $30 a month and adjust as appropriate.
Household Expenses are items such as replacement towels, rugs, sheets, small appliances or anything else that can break or wear out when least expected. It is recommended that $20 to $25 per month be saved and used as needed, but not necessarily each month. If you make it through the year and haven’t used much of this savings, put it towards something larger or add it to an improvement item.
Auto Repairs and Maintenance is probably one of your most expensive budget categories. Based on the mileage of your vehicle, plan to set aside at least the following:
- A new car up to 48,000 miles, save $25 monthly. ($300 year)
- After 48,000 miles, save $50 monthly. ($600 year)
- Over 90,000 miles, $75 per month. ($900 per year)
Remember, you won’t spend this money each month. This is your cash reserve for when auto repairs are needed. Don’t forget about the yearly cost of vehicle registration.
Insurance: Auto and home insurance is not always paid each month but should be saved monthly. As explained on other categories, divide last year’s total paid by 12 and set this amount aside each year.
Savings: Plan ahead for Christmas by starting a Christmas Club as soon as possible. It’s never too late to start saving, even if just to give a “jump start” to the holiday shopping season. Use the attached Family Christmas Budget form to project all your holiday expenses.
Vacations: If you regularly plan 1 or 2 trips a year, or even just long weekends away, be sure to plan and budget for them.
Emergency: Establish a fund for times when you have no income, perhaps because of injury, illness or job loss. Financial planners recommend that we put aside 3 month’s salary for a two-income family or 6 month’s salary for a one-income family. Doing this can greatly reduce stress in an emergency. Aim for 1 month’s salary for the first year, putting away a little each month. At least you will have a “cushion” if something should happen. Divide one month’s salary by 12 and pay yourself this amount each month into an emergency fund.
Professional Expenses: Perhaps your profession requires you to maintain a license. Will you need to cover these expenses?
PERSONAL EXPENSES
The next portion of the Budget Analysis is a list of IRREGULAR EXPENSES that very from month to month.
Doctor/Dentist/Medications: Don’t forget co-pays. How often do you or a family member go to the doctor in a year? What about prescriptions? Be sure to include the cost for each member of the family. Do you anticipate any dental work beyond what your insurance covers? Do you wear glasses or contact lenses? (Remember that people usually only need a new prescription every two years. If you only need glasses every two years, divide the cost for vision by 24 months and use this number each month.) Add all of these up and divide by 12 to see how much needs to be set aside for all.
Family Clothing: As you think about next year’s clothing expense for your children, spouse and yourself, think of what you’ll need to spend on each season. Be realistic. Sometimes when we budget we tend to underestimate this area of spending and list less than we are in fact spending. If you have charges, this may be the majority of your charge balances. Pay very close attention to this budget item!
Hair Cuts: If you get your hair cut every 6 weeks, multiply your cost by 8 (that’s your total haircuts per year) and divide by 12 months. Don’t forget to figure in perms, color treatments, spa treatments and artificial nails. How about special shampoos and treatments?
Pet Expenses: Any special expenses for your pet, aside from your normal grocery runs? Do you buy food from pet supply stores? What about vet expenses and licenses?
Education: Do you plan on taking any classes within the next 12 months? 24 months? Why not set aside an amount each month so you won’t be forced to lean on credit? Also plan to save for the kid’s school supplies, pictures, and passes here.
Gifts: Use the attached Gift and Celebration Worksheet. Consider any family or friends you buy gifts for (mom, dad, in-laws, brothers, sisters, children & friends) Save for all occasions for which you give gifts: Birthdays, Baby Showers, Weddings, Funerals, Valentine’s Day, Easter, Halloween (candy & costumes) Anniversaries, etc. Be sure to realistically add up what you’re likely to spend, than divide by 12 months. You may be surprised to find where your money is going!
Entertainment: Tape rentals, CD’s, reading, sports and equipment, kid’s lessons, movies and concerts, collectible, photo finishing, lottery, health club memberships, etc.
NOW FILL IN YOUR CREDITOR INFORMATION SUCH AS CREDIT CARDS, AUTO LOANS, STORE CHARGES, MEDICAL BILLS DUE, AND ANY OTHER OUTSTANDING OBLIGATION OWED. ADD THE TOTAL AMOUNT OWED, AS WELL AS THE TOTAL MONTHLY PAYMENT AMOUNT.
Well, we made it! Now total all your LIVING EXPENSES from the front of the Budget Analysis. Subtract this total from your net income and you’ll have the total left for additional savings or use to payoff creditors. Most likely, you found that your income does NOT adequately cover your monthly and irregular expenses and minimum payments sent to creditors each month.
WHAT TO DO IF YOUR INCOME DOES NOT COVER YOUR EXPENSES:
Begin by making a copy of your original analysis BEFORE you make any adjustments. (you will want a copy of your original to recall where you started) At this point, you must seriously look at where your hard-earned money is going. Try to remain open minded when you explore areas to cut back. Keep in mind your long-term goal to get out of debt or save money. To accomplish that, you may have to sacrifice what your income dictates to be luxuries at this point. Remember, such sacrifices don’t have to be permanent. At some point in the future you may be able to once again enjoy some of the things you are choosing to sacrifice today in order to reach your financial goals.
Start by making adjustments in more flexible areas such as gifts, entertainment, dinner or lunches out. Ask yourself questions such as “Could I skip a few vacations until my debt has been reduced, freeing up cash to pay some debts off?” Perhaps adjustments only call for a less expensive or shorter vacation.
Other Options:
You may find that after reducing expenses, you still find yourself short on funds. What else can be done? Perhaps your analysis will balance if you factor in overtime pay. That’s fine, but remember, you may not always be able to work overtime. Try to bring your lifestyle into balance without the use of overtime pay. Incorporate such change over time.
What about getting a second job? Could you share expenses with a roommate? Or temporarily move to less expensive housing with a friend or family member? Could you buy a less expensive car if current payments are too expensive? Try to stay open minded as you explore your options. | 
