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The Power of Paycheck Planning:

Building a Budget That Works

 START RIGHT NOW

The time to stop overspending and get control of your finances is right now.

Before you construct a budget, there are some things you should do first:

• Stop incurring new debt.

Borrowing money for consumer spending is no way to make your budget
work. You’ve got to put away those credit cards to live successfully on a
spending plan.

• Live on a cash basis.

Get used to buying with cash; there is a place for credit cards in your financial
life, but for now, don’t use them while you’re getting used to living on a
budget.

• Get a handle on your situation.

Sit down with your monthly bills, statements, checkbook register, and
everything you have relating to your household finances. Look at your regular
bills; when are they due each month? What do your utilities typically cost in a
month? What do you spend every week at the grocery store?
We’re going to advise you to thoroughly track your spending as you begin
your budget, but it’s helpful to have some idea of your household spending at
the outset.

• Relax.
Take it one day at a time. You’re not going to build the perfect budget right
out of the gate. It will take some adjusting to get things right.
TRACKING YOUR SPENDING

We recommend that you track all of your spending for at least 90

days. It takes some work, but it’s a good habit to get into and it’s
easier as you do it more and more. There are a variety of methods
you can use to track your spending:

• Use the forms we provide on our web site

• Use a day planner or calendar
• Carry a small notebook
• Keep your receipts in a separate envelope for each day
• Use software or a website like Mint.com

Use whatever method works for you; the main objective is to track
where your money is going. But remember, tracking will only work
if you include every single expense. Every time you drop 75¢ in a
vending machine, you have to make note of it.

This process may be tedious at first, but stick with it. Eventually
you’ll be recording your spending automatically, like recording
checks in your register or brushing your teeth every morning.

Here’s a guarantee: if you track your spending faithfully, there will

be some surprises. You’ll learn that you are spending money in
ways you never realized. Once you are armed with this
information, you can construct a new, more effective budget.
 CALCULATE YOUR INCOME

You need to know 3 things to create a budget:

• Your Income
• Your Expenses
$
• Your Goals

You’ve already seen the importance of tracking your expenses

before creating a budget. The important thing to remember about
assessing your income is that you must include every source of
income you have, not just your primary job and its accompanying
paycheck.
Use a chart like this one to track all of your sources of income:

Monthly Income Source Gross Net

Job
Spouse’s Job
Part-Time Job
Rental, Room & Board Received
Commissions, Bonuses
Tax Refund
Government Benefits
Child Support/Alimony
Support from Family/Friends
Personal Loans Collected
Other
Total Monthly Income
 SETTING GOALS

This is why we create budgets in the first place.

An essential part of achieving financial freedom is setting clear

goals and employing some intelligent joint planning. You need to
know what your financial goal is, and in what time period you
hope to achieve your goal.
A short-term goal should be accomplished within one year. Say you plan to take a vacation
that will cost $1200 next year. You’ll need to save $100 per month to reach that goal in time.

A mid-range goal takes between 2 and 5 years to accomplish. Saving for a car might be a
good mid range goal.

Long-term goals take over 5 years to achieve. Saving for retirement, college, or to purchase
a home are common long-term goals.

Financial Goals Target Date Total Needed Current Savings Additional Number of pay Savings Savings
Savings periods until Needed Needed
Needed target date Per Pay Period Month

Example: A new 36 Months $20,650 $6,250 $14,400 72 $200 $400

car

Short-Term Goals

Mid-Range Goals

Long-Term Goals

Total:
 ADDING IT ALL UP

Now it’s time to put everything together and

make your budget work. If your expenses
exceed your income, you will have to work to
find solutions if you are going to avoid falling
deeper into debt. Credit counseling can help if
First, determine your total monthly expenses: you have high debt payments that are upsetting
Total Necessary
your budget. You may also tighten your belt in
Expenses some areas to balance your finances.

Total Discretionary Whatever you do, don’t cut into the 10% - 15%
Expenses
you should be saving; you need to save up to
Total Debt three – six months’ income to get through an
Payments emergency before you can start saving for
anything else. For now, set reasonable,
Total Monthly attainable goals; you can also push a goal’s
Expenses
deadline back and give yourself more time to
save money.
And then see if your budget balances:
Re-evaluate your budget periodically, especially
Total Monthly Net
Income
when your income or needs change. A budget is
simply a guideline, a tool to help you save to buy
Minus Total Monthly the things you want. With smart money
Expenses management and clearly defined goals,
Balance (+/-)
consumers can come to rely on credit cards less
and less.
 EVALUATE YOUR SPENDING
The ranges indicated here will vary with income levels, family size,
and personal choice. Work with these figures to establish your
own guidelines.

If you are unable to bring your spending in line, check out our
other materials or call us for free, confidential credit counseling.

Housing Auto & Transportation Miscellaneous

35- Mortgage, rent, property

taxes, insurance, repairs
Purchase and installment
payments, gas & oil,
Miscellaneous Club

45% and improvements. 15%-25% repairs, insurance, 5%-10% dues, admissions,

hobbies, postage,
parking & public tobacco, cosmetics,
transportation. hair cuts and cable TV.

Medical Savings
Utilities
Medical insurance It’s crucial that you set
Gas, electricity, water, premiums, prescriptions,
trash, sewer and aside 10% for your
8%-15% telephone (regular & 8%-15% doctor and dentist bills. 5%-10% goals, starting with an
emergency savings
cell).
fund.

Debt Payments
Food Clothing
Installments Credit
All food items, dining All clothing purchases, card payments,
out, pet food. shoes & alterations.
10%-20% 3%-5% 10%-20% personal & student
loans, any other debt
payments.
 CREATE YOUR BUDGET
Necessary Expenses Current Proposed Discretionary Expenses Current Proposed
Housing Rent/Mortgage Personal Beauty/Barber
2nd Mortgage Clothing/Jewelry
Property Taxes Cosmetics
Insurance Manicure/Other
HOA Dues Entertainment
Gas/Electricity Cable
Water/Sewer/Trash
Movie/Video
Telephone
Dining Out
Food
Groceries Sports/Hobbies/Clubs
Dining Out Vacations/Travel
At work/school Books/Magazines
Insurance MP3/Concerts
Life Miscellaneous
Health/Dental Pet Care/Vet
Disability Gifts
Medical Care Cell Phone
Doctor Postage
Optometrist/Lenses Cigarettes/Alcohol
Dental Donations/Tithing
Prescriptions Internet Access
Transportation Other
Car Payment 1 Total Discretionary Expenses:
Car Payment 2
Insurance
Debt Payments
Gas/oil
Repairs Creditor Name Monthly Payments
DMV/Smog
Tolls/Parking
Public Transportation
Child Care
Daycare/Sitting
Child Support/Alimony
Miscellaneous Total Debt Payments:
Banking Fees
Laundry
Other Remember, your budget should be flexible. Keep
Income Taxes adapting and changing it until it fits your lifestle.
Prior Year
Estimated Tax Payments
Check out our blog at www.credit.org/blog for ideas
Savings about saving money and making your budget work.
Emergency Also, check out our full “Power of Paycheck Planning”
Goals webinar and online course in our FIT Academy.
Total Essential Expenses
 A CLOSER LOOK AT SPENDING
TRANSPORTATION
The average
household has 2
cars, and spends $8350
per year on transportation.
Car payments make up $3550,
or roughly $150 per month for each
of the household’s two cars. Gas
costs the average household $2000
per year, or $167 per month. Other
expenses amount to $2350 per year.
HOUSING
The average household spends $15,000
per year on housing. This includes all
utilities, household supplies, furnishings,
and public services as well as the rent or
house payment.
Breaking things down further, we see
that the average annual expenditure
on shelter is $8,800, or $733 per
month. Utilities and public services
average $3180 per year, or
$265 per month. The
remaining $3020 per year
spent by households
covers
housekeeping
supplies, home
furnishings, and other
home operations.
It’s hard to say what
is “normal” when it
comes to spending.
CLOTHING HEALTHCARE Looking at national
averages, we can
Apparel The average FOOD
get some idea of
expenses household
amount spends $2664 Based on USDA what a typical
to $1886 on health figures, the average household spends on
for the care per household spends $38 various budget items.
typical year, or $222 per week per person on
house- per month. food. Individual examples
Bear in mind that
hold, or vary widely, of course; a these figures are a
$157 single mother spends an few years old (as
per average of $28 per person recent as gov’t
month. per week for herself and her
children, while single men statistics get) and
living alone without children that a “Household”
spend $55 per week on food. equals 2.5 people.
So while $38 is the national
ENTERTAINMENT
average, you could get
That may affect your
A typical household spends
$2388 per year (or $199 per by spending less; $30 budget numbers if your
month) on entertainment. This is
an area where most of us could
per week per person household is larger.
effectively cut back on our might be a worthy These averages can be a
spending. You may not even goal.
notice a difference in your lifestyle if helpful guide to tell you
you make the right kind of spending
cuts (renting movies instead of buying
whether your spending is way
them, for example). out of line, but they are not
absolute. Your circumstances
may vary from national
averages, so don’t put too
much stock in USDA statistics.
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