My Personal Budget Plan for 2011

Budgets often have a negative connotation as they evoke the idea of restraint. However, in order to control household spending and solidify your personal financial situation, especially in these tough economic times, a solid budget is an essential tool.

Household budgets should include all necessary household spending, some fun money, and facilitate a savings plan.

Expenses

I begin the budget process by addressing my expenses first as this is the most difficult segment of personal financial planning. My biggest asset in preparing a yearly budget is strong monthly records. Each year I create an Excel spreadsheet to track actual monthly income and expenses. This not only assists in tax return preparation, it becomes the initial budget for the following year.

Budget Tip: If you have not kept detailed records, you can still create a strong estimate of your prior year spending by reviewing bank and credit card statements.

Next, I review each expense. While some one-time or unusual expenditures can be eliminated, they may need to be accounted for in my emergency fund calculations.

Budget Tip: If you own a home or car, you need an emergency fund. Otherwise, a broken water pipe or mechanical breakdown may jeopardize your personal financial plan.

Based upon my personal financial history, I know food and household expenses increase in May, June, July, and December, when my daughters come home from college.

Budget Tip: Make sure you account for all quarterly, semi-annual, or annual expenses. These may include non-escrowed real estate taxes and homeowner's insurance, as well as automobile insurance policies. For my own budget, I have to include books and fees expenses in August and in January for my two college students.

Savings

Savings should be as concrete an element in your budget as any expense. Savings should include an emergency fund and retirement savings. I also include a college education fund and a vacation fund. For those in ill health, a medical fund may be a necessary expenditure.

Income

As a freelance writer, my income fluctuates. I determine my monthly income needs after calculating my monthly expenses. I take into account known contracted assignments and add an estimate of supplemental assignments based on my prior year's figures. To supplement my writing income, I substitute teach. My budget gives me a good estimate of how many days I need to substitute in order to keep my bills paid and grow my savings.

Budget Tip: If your monthly expenses exceed your known income, there are only two options. Cut household spending or increase income. Since it is not reasonable to believe you can cut household spending substantially beyond your prior year's actual costs, you may need to consider ways to supplement your income.

Your finished budget should be viewed as a roadmap. It can help you avoid the pitfalls of debt and uncontrolled spending, while still allowing you to enjoy the ride on the way to achieving the ultimate goals of your own personal financial plans.

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