The Build-a- BudgeT Book

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1 The Build-a- Budget Book

2 The Build-a-Budget Book County Stamp Prepared by Marilyn Furry, associate professor of financial education and literacy programs, and Judith Ikenberry, former program assistant Special thanks to the publication reviewers: Denise Continenza, extension educator, Penn State Cooperative Extension in Lehigh County; Robin L. Kuleck, extension educator, Penn State Cooperative Extension in Elk County; Janice E. Stoudnour, extension educator, Penn State Cooperative Extension in Bedford County; Robert J. Thee, extension educator, Penn State Cooperative Extension in Chester County. They made significant recommendations for the revision of this publication.

3 1 A budget or spending plan takes six steps for managing your family s money. It will help your family get the things it wants and cut down unplanned spending. Step 1. Set Goals (Needs and Wishes) Decide what your family s biggest money needs are right now. For example, it may be balancing income and spending, paying off an overdue bill, or having money for big expenses that come once or twice yearly. Solving some of these money needs should be your family s goal for the month. Write the goals down. One goal that must guide your family is that spending will not be more than income. Some families start planning by setting a goal of saving a few dollars in the first month (see page 6). Use an automatic savings method such as direct deposit from each paycheck to save money for family goals. In future months, your family should set goals for using money for the whole year. You may want to plan for some big purchase, as well as plan for additional savings (see page 7). Saving part of your income is very important to provide for future needs and wishes. A simple, effective idea is called Pay Yourself First. It is setting aside money, savings, before using any of your income for expenses. Make savings a regular part of your budget; it is a Must Spend (see page 11). Think of Pay Yourself First as a bill you owe to the family to reach goals. Step 2. List Income Now look at how much money your family has to work with this month. Your family gets money one or more ways jobs, child support, public assistance, social security, and food stamps. Add up all the money your family takes home to find your Monthly Take-Home Income (see page 10).

4 2 Step 3. Select Must-Spend Items There are also some big expenses that your family has to pay only once or twice a year taxes, water, loans, insurance, school clothes, holiday expenses, birthday, and others. To get ready for these expenses, list all periodic or occasional items and their amounts in the months they come due (see pages 8 and 9). Add each month s expenses. Then add all these expenses for the year and divide by 12. The answer is the amount your family must set aside every month to get ready for those big expenses (see page 9). Now, when these expenses come up, you will be ready for them and not have to decide which bills to leave unpaid. If a large expense comes up early in your plan, you may not have set aside enough to meet it. This does not mean the plan can t work, only that you didn t have enough time to prepare for this particular expense. If you re lucky, the big expenses are still far enough away to allow you to save up for them. In any case, by sticking to the plan, you will be able to handle all the expenses on your list after a year. Monthly $ Amount to Set Aside 12 months Total Periodic Expenses

5 3 Write the answer Monthly Amount to Set Aside under Must Spend This Month (see page 11). In addition, there are some monthly or regular expenses your family can t change now. These could be housing rent or mortgage payment, child care, prescription medication, and monthly installment payments such as car payments. Write these under Must Spend This Month (see page 11). You may be eligible for food stamps, but the money you get from these sources will not meet all your nutritional needs. Some factors that determine the amount of money spent for food are family size, special health needs, food likes, and ages of household members. Whether or not you are eligible for these programs, you will have Must Spend This Month expenses for basic nutritional needs. If your family has overdue bills, write an amount you can pay under Must Spend This Month. To start working toward a goal, write a small amount to get you started on your goal as Must Spend. Add all your family s Must Spends together for a Must Spend Total (see page 11). Step 4. List Flexible Expenses Now, subtract Must Spend from Income Total. The amount left, called Income Total for Flexible Expenses, is the amount your family has left to spend on everything else (see page 12). In every family s spending plan or budget there are many flexible expenses. These are products and services on which your family can spend a lot or can spend less if it decides to reduce spending. Flexible expenses may include the following costs: 1. Food special foods for holidays, birthdays, etc., and meals bought away from home 2. Household expenses utilities, paper products, cleaning products, furniture, and furnishings 3. Transportation gas, oil, car repairs, parking and insurance, plus bus and taxi fare 4. Clothing clothes, laundry, and drycleaning 5. Personal cosmetics, haircuts, donations, tobacco, and alcohol 6. Entertainment games, sports, movies, gifts, club dues, magazines, school expenses, and vacation 7. Medical doctor, dentist, clinic fees, and medicines 8. Allowances for children and adults 9. Other such as pet expenses

6 4 Now list what your family thinks it will spend on the Flexible Expenses. Any records your family has about past spending can help with the decision of the amount to plan. If there aren t any records, think about what your family spends and guess. Add all the amounts planned to get a Plan Total (see page 12). Step 5. Check Plan Compare Income Total for Flexible Expenses and Plan Total for Flexible Expenses (see page 13). Check to be sure your family s Plan Total is either equal to or less than Income Total for Flexible Expenses good planning. If the Plan Total is too much, your family will need to change its plan and spend less. First, look at Periodic Expenses (see page 8) for items such as birthdays, holiday expenses, and similar big expenses where you may be able to cut back spending. Taxes, sewer charges, loans, and insurance premiums are expenses you probably cannot reduce now. There are a lot of ways to save money and spend less. Check to see if advertised brand names cost more than other brands. When they do, buy the cheaper product. Buy specials. Buy in quantity if the product is cheaper and can be stored. Do more of your own work rather than paying for services like repairs, haircuts, sewing, and preparing food. You can shop in different stores that have better prices, for example, discount stores. Give each family member an allowance and stick to it so they can learn to manage it themselves. Make use of free or inexpensive recreation like family hikes and picnics. Turn the thermostat down in the winter to save on heating costs. Prepare snacks instead of buying them. Repair clothing or shop at thrift stores rather than buying new. Stop buying things your family really doesn t need or have to have. By planning together, your family can choose the ways it wants to spend and cut down. Your family must make the hard choices between where to spend and where to cut down spending, or not spend at all. Your family must keep at cutting spending until the Plan Total is not higher than the Income Total for Flexible Expenses (see page 13). Now try your family s plan. The whole family needs to work together to try spending only what is planned. A plan is useless unless it is put into action.

7 5 Step 6. Keep Records At the bottom of the Spending Record (pages 14 and 15), write the amount your family planned to spend for each flexible expense. During the month, check your spending with the plan. If your family is spending more than the planned amount, cut back and try cost-cutting ideas. Now your family has managed its money for the first month. If you ve never followed your spending before, you may be in for some surprises. You probably guessed too low for some things and too high for others. You probably forgot about still other expenses. In the next months, use what your family has learned about planning and spending and repeat the same steps on the following pages (pages 16 through 27). Each month s plan will change as your family learns where it can save and where it must plan to spend more, and you will be reaching the goals of having the goods and services your family really needs and wants.

8 6 Step 1 Family Goals 30 days from today, we hope we have done the following with our money:

9 7 Family Goals One year from today, we hope we have done the following with our money:

10 January February March April May June July August September List Items and Amount Due month Total 8Periodic Expenses

11 9 October November December Monthly $ Amount to Set Aside 12 months Total Periodic Expenses For example: $120 to be set aside each month 12 $1440 Total Periodic Expenses = 12

12 10 Step 2 plan for month of Take-Home Income Take-Home Income List Sources of Income (Paychecks, Assistance, Social Security, Food Stamps, Child Support, Unemployment, Relatives) income from Income from Income from Income from source #1 Source #2 Source #3 Source #4 Total Week 1 $ $ $ $ $ Week 2 $ $ $ $ $ Week 3 $ $ $ $ $ Week 4 $ $ $ $ $ Week 5 $ $ $ $ $ Add for Monthly Take-Home Income Total $

13 11 Step 3 Must Spend This Month Item amount Pay Yourself First goal from page 6 $ Monthly amount set aside from page 9 $ Child care $ Housing payment or rent $ Food $ Utilities $ Loans and overdue bills $ $ $ $ $ $ Prescription medicines $ add for Must Spend Total $

14 12 Step 4 Income Total $ Must Spend Total (Subtract ) Income Total for Flexible Expenses = $ Flexible expenses This Month Item amount Planned Food $ Household Expenses $ Transportation $ Clothing $ Personal $ Entertainment $ Medical $ Allowance $ Other $ Add for Plan Total $

15 13 Step 5 Income Total for Flexible Expenses Plan Total for Flexible Expenses $ = $ Does your INCOME TOTAL for FLEXIBLE EXPENSES equal PLAN TOTAL for FLEXIBLE EXPENSES? If income and outgo are equal, your plan is in great shape. If planned flexible expenses are more than income, you will need to make changes to have income equal outgo. As a family decide where to make cuts to reduce projected spending for the various categories. Have family members be part of a dollar watch. Each person would have a category and would find ways to reduce spending for it. For example, within the food category are there ways to buy fewer prepared foods and to prepare more food at home for holidays and special occasions? Here are some ways to reduce all spending and to keep within your budget: Practice smart shopping. Use lists and don t shop when you are tired or hungry. Buy store or generic brands instead of national brands, especially for food staples. Go on fewer shopping trips. Avoid waste, especially for food, energy, transportation, and household products. Adopt a do-it-yourself philosophy by increasing the number of goods and services you can make or do at home and buying fewer conveniences and services. Find it for free. Get information. There are many sources of information to help you make better choices in the marketplace.

16 14 Step 6 month of Spending Record Food household Expenses transportation Food Total Household Total transportation Total Amount Planned amount Planned amount Planned Difference +/ difference +/ difference +/ How did your family do? Was there money left over at the end of the month? Was spending more than the Amount Planned? Why? What changes can be made to do better next month?

17 15 month of Spending Record Clothing Personal entertainment MedicaL other Clothing Personal entertainment Medical other Total Total Total Total Total Planned Planned Planned Planned Planned Amount Amount Amount Amount Amount Difference Difference Difference Difference Difference +/ +/ +/ +/ +/ How did your family do? Was there money left over at the end of the month? Was spending more than the Amount Planned? Why? What changes can be made to do better next month?

18 16 Step 2 plan for month of Take-Home Income Take-Home Income List Sources of Income (Paychecks, Assistance, Social Security, Food Stamps, Child Support, Unemployment, Relatives) income from Income from Income from Income from source #1 Source #2 Source #3 Source #4 Total Week 1 $ $ $ $ $ Week 2 $ $ $ $ $ Week 3 $ $ $ $ $ Week 4 $ $ $ $ $ Week 5 $ $ $ $ $ Add for Monthly Take-Home Income Total $

19 17 Step 3 Must Spend This Month Item amount Pay Yourself First goal from page 6 $ Monthly amount set aside from page 9 $ Child care $ Housing payment or rent $ Food $ Utilities $ Loans and overdue bills $ $ $ $ $ $ Prescription medicines $ add for Must Spend Total $

20 18 Step 4 Income Total $ Must Spend Total (Subtract ) Income Total for Flexible Expenses = $ Flexible expenses This Month Item amount Planned Food $ Household Expenses $ Transportation $ Clothing $ Personal $ Entertainment $ Medical $ Allowance $ Other $ Add for Plan Total $

21 19 Step 5 Income Total for Flexible Expenses Plan Total for Flexible Expenses $ = $ Does your INCOME TOTAL for FLEXIBLE EXPENSES equal PLAN TOTAL for FLEXIBLE EXPENSES? If income and outgo are equal, your plan is in great shape. If planned flexible expenses are more than income, you will need to make changes to have income equal outgo. As a family decide where to make cuts to reduce projected spending for the various categories. Have family members be part of a dollar watch. Each person would have a category and would find ways to reduce spending for it. For example, within the food category are there ways to buy fewer prepared foods and to prepare more food at home for holidays and special occasions? Here are some ways to reduce all spending and to keep within your budget: Practice smart shopping. Use lists and don t shop when you are tired or hungry. Buy store or generic brands instead of national brands, especially for food staples. Go on fewer shopping trips. Avoid waste, especially for food, energy, transportation, and household products. Adopt a do-it-yourself philosophy by increasing the number of goods and services you can make or do at home and buying fewer conveniences and services. Find it for free. Get information. There are many sources of information to help you make better choices in the marketplace.

22 20 Step 6 month of Spending Record Food household Expenses transportation Food Total Household Total transportation Total Amount Planned amount Planned amount Planned Difference +/ difference +/ difference +/ How did your family do? Was there money left over at the end of the month? Was spending more than the Amount Planned? Why? What changes can be made to do better next month?

23 21 month of Spending Record Clothing Personal entertainment MedicaL other Clothing Personal entertainment Medical other Total Total Total Total Total Planned Planned Planned Planned Planned Amount Amount Amount Amount Amount Difference Difference Difference Difference Difference +/ +/ +/ +/ +/ How did your family do? Was there money left over at the end of the month? Was spending more than the Amount Planned? Why? What changes can be made to do better next month?

24 22 Step 2 plan for month of Take-Home Income Take-Home Income List Sources of Income (Paychecks, Assistance, Social Security, Food Stamps, Child Support, Unemployment, Relatives) income from Income from Income from Income from source #1 Source #2 Source #3 Source #4 Total Week 1 $ $ $ $ $ Week 2 $ $ $ $ $ Week 3 $ $ $ $ $ Week 4 $ $ $ $ $ Week 5 $ $ $ $ $ Add for Monthly Take-Home Income Total $

25 23 Step 3 Must Spend This Month Item amount Pay Yourself First goal from page 6 $ Monthly amount set aside from page 9 $ Child care $ Housing payment or rent $ Food $ Utilities $ Loans and overdue bills $ $ $ $ $ $ Prescription medicines $ add for Must Spend Total $

26 24 Step 4 Income Total $ Must Spend Total (Subtract ) Income Total for Flexible Expenses = $ Flexible expenses This Month Item amount Planned Food $ Household Expenses $ Transportation $ Clothing $ Personal $ Entertainment $ Medical $ Allowance $ Other $ Add for Plan Total $

27 25 Step 5 Income Total for Flexible Expenses Plan Total for Flexible Expenses $ = $ Does your INCOME TOTAL for FLEXIBLE EXPENSES equal PLAN TOTAL for FLEXIBLE EXPENSES? If income and outgo are equal, your plan is in great shape. If planned flexible expenses are more than income, you will need to make changes to have income equal outgo. As a family decide where to make cuts to reduce projected spending for the various categories. Have family members be part of a dollar watch. Each person would have a category and would find ways to reduce spending for it. For example, within the food category are there ways to buy fewer prepared foods and to prepare more food at home for holidays and special occasions? Here are some ways to reduce all spending and to keep within your budget: Practice smart shopping. Use lists and don t shop when you are tired or hungry. Buy store or generic brands instead of national brands, especially for food staples. Go on fewer shopping trips. Avoid waste, especially for food, energy, transportation, and household products. Adopt a do-it-yourself philosophy by increasing the number of goods and services you can make or do at home and buying fewer conveniences and services. Find it for free. Get information. There are many sources of information to help you make better choices in the marketplace.

28 26 Step 6 month of Spending Record Food household Expenses transportation Food Total Household Total transportation Total Amount Planned amount Planned amount Planned Difference +/ difference +/ difference +/ How did your family do? Was there money left over at the end of the month? Was spending more than the Amount Planned? Why? What changes can be made to do better next month?

29 27 month of Spending Record Clothing Personal entertainment MedicaL other Clothing Personal entertainment Medical other Total Total Total Total Total Planned Planned Planned Planned Planned Amount Amount Amount Amount Amount Difference Difference Difference Difference Difference +/ +/ +/ +/ +/ How did your family do? Was there money left over at the end of the month? Was spending more than the Amount Planned? Why? What changes can be made to do better next month?

30 28 Notes

31 extension.psu.edu Penn State College of Agricultural Sciences research and extension programs are funded in part by Pennsylvania counties, the Commonwealth of Pennsylvania, and the U.S. Department of Agriculture. This publication is available from the Publications Distribution Center, The Pennsylvania State University, 112 Agricultural Administration Building, University Park, PA For information telephone This publication is available in alternative media on request. The Pennsylvania State University is committed to the policy that all persons shall have equal access to programs, facilities, admission, and employment without regard to personal characteristics not related to ability, performance, or qualifications as determined by University policy or by state or federal authorities. It is the policy of the University to maintain an academic and work environment free of discrimination, including harassment. The Pennsylvania State University prohibits discrimination and harassment against any person because of age, ancestry, color, disability or handicap, genetic information, national origin, race, religious creed, sex, sexual orientation, gender identity, or veteran status and retaliation due to the reporting of discrimination or harassment. Discrimination, harassment, or retaliation against faculty, staff, or students will not be tolerated at The Pennsylvania State University. Direct all inquiries regarding the nondiscrimination policy to the Affirmative Action Director, The Pennsylvania State University, 328 Boucke Building, University Park, PA ; Tel Produced by Ag Communications and Marketing The Pennsylvania State University 2006 Code # UI389 R??M11/12mpc1768

32 CODE # UI389

Managing Your Money: A Family Plan

Managing Your Money: A Family Plan Managing Your Money: A Family Plan Everyone wants enough money to live on. Many people feel they need more. Use money to help get what you want by the following: making