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Build a budget that works

By LAURA T. COFFEY
Published February 6, 2005

It's one of those things everyone knows should be done but many of us are loath to do: Set up a personal or family budget. A root canal might sound more enjoyable, but it's important to map out your expenses and purchases so you can see just where your money is going.

1. OPT FOR SIMPLICITY. You can use Excel spreadsheets, Quicken and other software programs, but there's nothing wrong with using pencil and paper. The main objective is to figure out whether you need or want to redirect your money toward priorities - or, better yet, dreams - you consider important.

2. HAVE A GOAL. Whatever your goal may be - a home purchase, a remodeling project, an exotic vacation - it can help you find the discipline you need to squirrel away money by a certain deadline. Reflect on a goal you truly want to meet and resolve to do it.

3. SEPARATE FIXED AND DISCRETIONARY SPENDING. Divvy up your fixed expenses, such as rent, utilities and car insurance, from your discretionary expenses. To arrive at real tallies, analyze your credit card and checking account statements carefully.

4. CREATE DISCRETIONARY SUBCATEGORIES. Many people have no idea how much they spend on dining out, travel, gifts, clothing, shoes and personal care. Track such expenses in specific ways, then establish realistic monthly allotments for each category.

5. PAY OFF DEBT. If you're reeling from the weight of credit card bills, student loans or other debt, a budget can help you see how to dig your way out. Always allot enough money to pay more than the minimum due. Depending on the seriousness of your debt problem, you may want to get help from the nonprofit National Foundation for Credit Counseling (www.nfcc.org toll-free 1-800-388-2227.

6. GIVE YOURSELF A BUFFER. What's the most you ever spent on your utility bill? Build that highest number into your monthly budget. Also build in set amounts for emergencies and for "mad money" you can spend any way you want. With those contingencies covered, you'll feel more comfortable investing a designated amount monthly.

7. PAY IN PERSON WITH CASH. Many budgeting experts recommend labeling envelopes for categories of face-to-face purchases - such as groceries, gas or pet supplies - and stuffing cash into them each month. Why? Because it forces you to see what you're spending and increases your likelihood to show more restraint.

8. ANTICIPATE YOUR EXPENSES. At the beginning of the month, try predicting all your expenses for the next 30 days. Then you can make real-time adjustments as needed by shifting money from one category to another.

9. BILLING CYCLES CAN BE CHANGED. If your budgeting process reveals that you're getting hit with one bill right after another, you can ask to change your billing cycles to space out the due dates. Most creditors are willing to make such adjustments.

10. TRY A KIT. If you sense that you need a little outside help to get started, the Quick & Easy Budget Kit by Jennifer Openshaw ($24.99, Family Financial Network) is recommended as manageable and practical. The kit comes with a CD and workbook.

Sources: Kiplinger's Personal Finance magazine (www.kiplinger.com) American Express Co. (www.americanexpress.com)

[Last modified February 6, 2005, 00:21:17]