Chapter 68: Personal Budget
Erika Torgeson
Budgeting can be a scary word for some people and create strong emotions such as saving for the future or feeling too restricted. Budgeting involves analyzing your income and expenses so you can see where your money is going and making adjustments when needed to avoid debt. At first budgeting can seem complex or time consuming, but once you have gone through the basics, you will find it gets easier and it can be a very valuable tool for controlling your personal finances and increasing your wealth.
Let’s cover some basic information that seem to come up through social media or conversations with friends and family:
- Debt is not something that is a normal part of life – it just seems that way. The normalizing of debt is misinformation that has been passed down for the last few generations due to the increase in how and where credit can be used.
- Budgeting is not about restricting how you live your life, but how well you can live your life.
- Budgeting can seem daunting at first, but there are many different styles and ways people will budget their money (Personally, I follow a Zero-Based Budget because I absolutely hate tracking every little purchase I make).
- There are several people through social media that opening discuss how they budget, walk you through how they create their budget, along with struggles they have encountered when they blow their budget. Instagram and Pinterest are great places to start and you can just search “budget.”
Think for a moment when the last time you compared your monthly income to your outgoing expenses? Are you confident about your spending habits and established savings goals for purchases you would like to make in the future? Or, do you feel that you run out of money before the end of the month and cannot seem to break the cycle of living paycheck to paycheck? Understanding where you want to be financially in the next few years will take some assessment of where you are today, financially. It is having the “talk” with yourself about where your money is going and being honest about your spending habits.
Activity 68.1: Budgeting
Expenditures Amount in Dollars
| Tuition and fees (1/12 of annual) | |
| Textbooks and supplies (1/12 of annual) | |
| Housing: monthly mortgage, rent, or room and board | |
| Home repairs | |
| Renter’s insurance | |
| Property tax | |
| Average monthly utilities (electricity, water, gas, oil) | |
| Optional utilities (cell phone, Internet service, cable television) | |
| Dependent care, babysitting | |
| Child support, alimony | |
| Groceries | |
| Meals and snacks out (including coffee, water, etc.) | |
| Personal expenses (toiletries, cosmetics, haircuts, etc.) | |
| Auto expenses (payments, gas, tolls) plus 1/12 of annual insurance premium—or public transportation costs | |
| Loan repayments, credit card pay-off payments | |
| Health insurance (1/12 of annual) | |
| Prescriptions, medical expenses | |
| Entertainment (movies, concerts, nightlife, sporting events, purchases of CDs, DVDs, video games, etc.) | |
| Bank account fees, ATM withdrawal fees, credit card finance charges | |
| Newspapers, magazines, subscriptions | |
| Travel, day trips | |
| Cigarettes, smokeless tobacco | |
| Beer, wine, liquor | |
| Gifts | |
| Hobbies | |
| Major purchases (computer, home furnishings) (1/12 of annual) | |
| Clothing, dry cleaning | |
| Memberships (health clubs, etc.) | |
| Pet food, veterinary bills, and so on | |
| Other expenditure: | |
| Other expenditure: | |
| Other expenditure: | |
| Other expenditure: | |
| Other expenditure: | |
| Total Monthly Outgoing: |
Input your total monthly income and include expenses that you have throughout the month (fixed expenses like rent/mortgage and variable expenses like food and entertainment costs).
How are you doing with your expenses? This is a great starting place for you to build your financial awareness and incorporate some good money management skills. If you income exceeds your monthly expenses, what type of financial goals would you want to set for yourself such as building your emergency savings, purchasing a car, or going on vacation? If your monthly expenses exceed your monthly income, it is time to identify areas of your life that you will need to adjust a little to ensure you have enough money to cover your expenses. Once you have this information, the next steps are to build a budget.
Why create and manage a budget? Going to college changes your financial situation. There are many new expenses, and you likely do not know yet how your spending needs and habits will work out over the long term. Without a budget, it is just human nature to spend more than you have coming in, as evidenced by the fact that most Americans today are in debt. Debt is a major reason many students drop out of college. So it is worth it to research the different types of budgets out there and start creating one!
To help you start exploring different budgeting styles that will fit your needs, we will cover some common ones that show up on social media quite a bit:
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- Traditional Budget: this is where you will total up your monthly income, expenses, and track all your purchases, down to the penny. At the end of the month, you may move any extra money left over into a savings account or decide to spend it. Some people will track their budget on a spreadsheet with charts indicating spending area percentages.
- Paycheck Budgeting: this method helps to separate out expenses based on the number of paychecks you will receive in a month. For instance, if you get paid twice a month, you may allocate certain expenses to be paid with your first paycheck of the month, and the rest of your expenses with your second paycheck.
- Zero-Based Budgeting: this method helps to identify were every single penny of your paycheck will be allocated before you even get paid, along with using the envelop system. You identify how much your expenses will be, separate out cash to be used in your envelopes (gas, food, entertainment, eating out, fun money, etc) and once your envelope money is used up, you will either go without for the rest of the month or move money from another envelop.
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Things to Think About
As mentioned before, budgeting is a skill – it may take a couple of months or even several months to find a budgeting method that works for you and your busy life. And, if you are unsure about if budgeting is for you, start small with taking one area of your life that you know you overspend in such as entertainment or getting out with friends. If you only allocate $50 per month to eating out or entertainment, your choices will shift to try and extend your $50.
Pin It! Why People Spend Too Much, Even On A Budget
- Old habits die hard. Keep monitoring your spending habits and watch for things you are spending money on without really thinking about it.
- Credit cards. Never use them if at all possible. They make it easy to spend too much or not see how much you are spending. And, credit cards are not for emergencies. That is what an emergency savings fund is for!
- Easy access to cash. Just put your card in an ATM and get some cash! It is so easy to do, and an automatic habit for so many, that it is easy to bust your budget with small amounts daily.
- Temptations are everywhere. Even when we are careful, we are often easily influenced by friends to go out or spend in other ways. Remember why you made your budget in the first place and keep your priorities in mind. The guilt you will feel tomorrow about spending a whole week’s food budget on one expensive dinner out probably is not worth the pleasure of it!
Sometimes we buy things to feel good. If that has been a longtime habit for you, it will be hard to break. Often it is better to find small things that make you feel good rather than trying to go without everything. Rewarding yourself with an ice cream treat for a week’s budgeting success won’t break your budget.
Licenses and Attributions:
Original content: CC BY Attribution:
Introduction to College and Strategies for Success – An Open Educational Resource Publication by College of the Canyons. 6.2 Budgeting 101. Access for free at: https://docs.google.com/document/d/1NHDA1m6eGnbpG9o4u1DSs0rE_xw6bbmr/edit
Torgeson, E. (2020). Budgeting 101. In Introduction to College and Strategies for Success. College of the Canyons.
Modifications: Numbered activity.