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Budgeting Essentials

Assess Your Financial Situation

To start your self-assessment and motivate yourself to do better, ask yourself the following questions.

As a rule, do you:

  • Pay the rent/mortgage payment and utility bills on time?
  • Save 10 percent of your net income?
  • Keep three months of your net income in reserve for emergencies?
  • Plan ahead for large expenses such as taxes and insurance?
  • Set goals and keep a budget for your net income?
  • Spend no more than 20 percent of your net income for credit payments, excluding home mortgage?
  • Comparison shop for the purchase of most items?
  • Use credit only for expensive purchases or when you have the money in the bank to cover the charge?
  • Maintain a checking account register and balance it every month?
  • Keep yourself financially updated by reading consumer articles?

If you answered mostly:

Never. Indicates a need to take control of your finances. Develop and practice better money management skills.

Sometimes. Reflects good effort to manage your money effectively. Determine what changes can be made to improve your financial well-being.

Always. Demonstrates ability to manage your finances successfully. Continue to make money management a priority in your household.

Set Financial Goals

Developing specific financial goals and writing them down is a key step in the money management process. Establishing goals will help you determine where you want to go financially, and recording your goals will motivate you to make the changes necessary to achieve them. Because each family member has a different perspective on what they consider a financial priority, it is important to make goal-setting a family affair. Create a list of financial priorities with your family and discuss the similarities and differences of these priorities. Then, decide together which items will become your goals. It is essential for every family member to commit to the agreed-upon goals.

Create a Budget

Now that you have established your financial destination by setting goals, you are faced with the task of getting there. Creating a realistic monthly budget or spending plan provides you with the vehicle to get you on your way. To create a budget, you need to know how much money is available, where the money is being spent and what adjustments need to be made.

The Budget Process

  • Record monthly income
  • Record monthly expenses
    • Fixed expenses usually do not fluctuate and require a set payment on a weekly or monthly basis. Fixed expenses are generally the most difficult to change. These include expenses like rent or mortgage payment, insurance premiums and child care.
    • Variable expenses vary from week to week or month to month. They are the most flexible and can be a multitude of things.
    • Periodic expenses generally occur once or twice a year and can be unpredictable. They include items such as car repair, large gifts, taxes and home maintenance.
  • Compare income to expenses

A successful budget should:

  • Help increase savings
  • Prevent impulsive spending
  • Determine what you can afford
  • Identify expenses that can be reduced
  • Help repay debt

There is no single "budget formula" that is successful for all households. Every household chooses to spend money in its own way, to meet its own needs. The secret to successful budgeting is to develop a realistic plan that is workable for your family and unique circumstances, and then follow it.

Use Credit Wisely

Having the use of credit can be a great financial advantage and can be a real benefit in emergency situations. It increases financial flexibility and can help you obtain some of the luxuries that improve the quality of life. Even though there are all positive aspects of credit, you must guard against poor credit management. Mismanagement can negatively impact your credit history, and lead to financial hardship and severe stress.

Avoid Credit Dilemmas

  • Shop around for the best interest rates by comparing the rates of various lenders and make sure to check for hidden fees and charges
  • Make your payment on time, every time.
  • Keep balances low on credit cards and revolving credit accounts.
  • Strive to pay more each month than just the minimum on credit card balances.
  • Contact creditors immediately if you cannot make a scheduled payment.
  • Avoid borrowing money to cover basic expenses such as housing or food.
  • Refrain from using credit to buy things you do not really need.
  • Don't take on monthly payments that you cannot afford, and don't borrow to make payments on existing debts.
  • Don't let your credit card limit trick you into spending what you can't afford.

Before applying for new or additional credit, review your current financial situation and consider future financial plans. Then ask yourself the important question, "How much debt can I comfortably handle?"

Remember: Credit is not an extension of income.

Commit to a Savings Plan

Savings by regularly setting aside part of your income is an essential part of any money management plan. In addition to the money set aside, saving provides the opportunity to earn money through compound interest. Savings can provide the money needed to manage regular financial obligations and increase financial security and a sense of well-being. Develop and commit to a savings plan that includes money for these situations:

  • Periodic living expenses - each pay period, set aside the amount that is budgeted for an expense but not actually spent during that period. Use a savings account or interest-bearing checking account in which funds can be easily deposited and withdrawn, and will yield some interest.
  • An emergency fund - each pay period, set aside the amount that is budgeted until the goal of a 3 - 6 month living expense cushion is achieved. Put into a short-term Share Certificates or Money Market account.
  • Short-, mid-, and long-term goals - set aside money each month to fund financial goals. Select an interest bearing account for the short range goals, and a savings instrument, such as a CD for saving between 9 months and two years. If saving for more than two years, consult an investment advisor for more options.

Financial awareness is defined as understanding where you are, where you want to go, and what you want to do with your money.

Understanding how to manage money and credit, and developing the discipline to do it well, can make a real difference in your life.

Financial Education

Austin Telco wants to ensure that all members receive the proper tools they need to learn everything about their personal finances. Whether you are a financial pro or just beginning your financial journey, visit the U.S. Financial Literacy and Education Commission's page at www.mymoney.gov.

As described on their website, MyMoney.gov is "the U.S. government's website dedicated to teaching all Americans the basics about financial education. Whether you are buying a home, balancing your checkbook, or investing in your 401(k), the resources on MyMoney.gov can help you maximize your financial decisions."