What Happened to All My Money - Budget Basics

Keith Rucinski, Chapter 13, Trustee Akron, OH

man with empty wallet

It is Monday morning and you need to buy gasoline on the way to work.  While pumping gas your stomach reminds you that you did not have breakfast.   You grab a coffee and doughnut (the breakfast of champions) at the gas station convenience store.

At work you get a text.   Your roommate reminds you it is your turn to buy groceries.  Next your co-worker reminds you about the donation you promised to make to the office party.   All of this should not be a problem, you just got paid last Friday. 

Wait a minute.   Rent is due this week.  You log on to your bank and do some quick math.  Once the debit for gasoline and breakfast clears your bank, you will not have enough funds left to buy groceries, donate to the office party, and pay your share of the rent.

You make decent money, you work hard, how can you be in this situation?

When you start living on your own, one of the most important things to learn is that you are now responsible for your own finances.   You need to learn how to allocate your income so that you have money to pay your expenses on time (not paying your expenses on time cannot only be embarrassing, but also financially devasting due to added late charges and high interest rates).

You need to make a budget and allocate your expenses based on your income.   While it is great to use one of the many apps to make a budget, you first need to understand your budget.   Apps are built for speed once you understand your budget.   Apps are not made to help you understand your budget.

Understanding How You Spend Your Money

  • First get a pen and paper.
  • Next look at your bank account and write down every expense you paid for the past month.
  • Break your expenses into categories. Use categories like: rent, car insurance, gasoline, groceries, medicine, health insurance, student loan, etc.
  • Add the amounts in each category separately.
  • Next combine the total in each category.
  • The total is your monthly expenses.
  • The categories help you determine which category is essential (like rent) and which are discretionary (like your coffee and doughnut at the gas station convenience store).

Making Your Budgets

  • Budgets are highly personal. There is no right or wrong answer on how you spend your money. The goal of a budget is to help you make informed decisions to reach your goals.
  • For most people starting out, the goal is to pay their expenses timely and not take on new debt.
  • Use your workpaper to determine which expenses are items you have to pay every month, items such as gasoline, rent, and health insurance.
  • These mandatory reoccurring expenses are the foundation of your budget. You have to pay these items each month.
  • Once you know the total of your reoccurring expenses, the amount left over is the amount you have for discretionary spending (like sports, dining out, movies).

Consider a Savings Account to Help Budget Your Expenses.

  • A savings account tied to your checking account can help you allocate your expenses to your pay cycle.
  • Suppose you get paid every week. Rent is due once a month. If your rent is $1,000 a month, put $250 in the savings account each pay date ($1,000 rent divided by 4 pay weeks).
  • When the rent is due, simply transfer the $1,000 from savings to checking to pay the rent.
  • The same can said for car insurance which most people pay quarterly. Take the car insurance invoice and divide by the number of pay weeks in the quarter and transfer the funds to the savings account. When it is time to pay the car insurance transfer the funds back to the checking account.
  • By not keeping all of your funds in one checking account, helps deter you from spending money that has already been allocated to other expenses.

How You Spend Your Money is Your Decision.

Ultimately, how you spend your money is your decision.   A budget will help you make informed decisions.   Budgeting is a lifelong process that changes as your income and life choices change.   A budget is not set in stone, but it can help you build a good foundation for building a better financial future.

A public education project of the National Association of Chapter Thirteen Trustees

© 2021 BFINE

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