Preparing a Budget

Setting Goals

Everyone has dreams and goals. Maybe yours is to start a child care business. Maybe your goal is that your child care business will provide you with enough income to start a retirement fund. Maybe you are just making ends meet and would like a little more money left over each month. Whatever your dreams, managing your money better and planning your financial future will help you to reach your goals.

The best way to reach any goal is to write them down. Where do you want to be at the end of the year? Where do you want to be in 5 years? How about ten years? Start thinking and jotting down your ideas. Make a list of your financial goals and indicate what is the most important goal on your list. Then determine which is the second most import goal. This will make it easier for you to develop a plan to reach the most important goals that you have set for yourself.

Example Goals:

1)   Contribute enough to a 401(k) or 403(b) retirement plan to get the full employer match

2)   Buy adequate insurance

3)   Pay off your credit card debt

4)   Establish a three-month emergency plan

5)   Establish a car replacement fund

6)   Save at least 10% of your profit for retirement

7)   Save for your children’s college education

Writing down your ideas and creating a list is important for a couple of reasons.  First, this process makes you stop and think about what your needs and goals are. Thinking about your goals doesn’t make them come true, but you first must identify what you want before you can plan for the reality.

Secondly, writing down your goals helps motivate you to stay on track to reach them. As with any dream – it might take a while to reach. A written list of goals will help remind you of your goals and help you stay on track so that you are not distracted along the way.

Lastly, a list will help you to assess your goals. As the saying goes, “Life happens when you are making other plans.” Maybe something in your life will change. Perhaps a marriage, a divorce, more children are in your future. With a written list, you will be able to change or adjust your goal list.



Determine your Current Financial Situation

After you have thought about and dreamed about your goals, the next step is to figure out where you are today so that you can move forward toward reaching your dreams. There are two steps to this process. The first is to figure out your assets, liabilities and your net worth. The second step is to figure out your monthly budget.

Determine Your Net Worth

To determine your net worth, list the value of all of your assets including your house, car, furniture, jewelry, art and any other property. Then list your cash available in checking accounts, savings accounts, or any certificates of deposit. Next add any other assets such as stocks, bonds mutual funds, or retirement accounts. The total of this list is your TOTAL ASSETS.

Then start a liability list. Include your home mortgage, any hone equity loans or second mortgages, car loans, personal loans, student loans, credit cards, or any other debts. This is your TOTAL LIABILITIES.

Subtract your TOTAL LIABILITIES from your TOTAL ASSETS and you will have your NET WORTH.

Your net worth figure will show you where your money is working for you right now and where possible opportunities are to reach your financial goals. For instance, if you have a high amount of credit card debt, paying that liability will provide you with extra cash to invest in your retirement plan.

Monthly Budget

This is a difficult step. Where does your money go anyway? We’ve all felt like money slips through our hands at some point.

Figuring your monthly budget is important to determine if there are changes that can be made to spend your money differently, or save more, to get you on your way to reaching your goals.

Income

Start by figuring out your net monthly income. This might vary for you. Do your best to come to as close as you can to a monthly average. Use a net figure for the purpose of budgeting for your personal financial goals. If you have someone else in your household contributing to the household income, don’t forget to add that amount as well. Also don’t forget to include child support payments, disability payments or any other income in to your figure.

Expenses

Monthly expenses are difficult for many people to determine. One way to figure this out is to go through your personal receipts or your checkbook for the last couple of months. Remember that at this point, we are just looking at your personal expenses and not your business expenses since we already subtracted them by using your net monthly income.

Be sure to include the following in your expenses list: rent, mortgage, real estate taxes (if not included in the mortgage amount already listed), gas, water, electric, phone, food (include dining out), clothing, dry cleaning, medical and dental expenses, car insurance, transportation expenses including gas, oil, parking or bus fares, life insurance, recreation, entertainment and travel, newspapers and magazines, charitable donations, babysitting, home maintenance, and children’s school needs.

Non-monthly expenses

Identify expenses that don’t occur each month (insurance, taxes, etc.) and divide these amounts by twelve to determine the monthly cost of these non-monthly expenses.

After listing your monthly income and expenses you will have a good idea of where your money comes from and where it goes. If your income drops then you should look for ways to cut your expenses to maintain your budget.

Track Your Monthly Expenses Worksheet

Fixed Expenses

 

 


Flexible Expenses

 

Mortgage (rent)

____________

Food

____________

Property tax

____________

Clothing

____________

Gas

____________

Gas

____________

Insurance

____________

Vacation

____________

Car loan interest

____________

Entertainment

____________

Credit card interest

____________

Cable television

____________

Utilities

____________

Charitable donations

____________

Other

____________

Other

____________

Other

____________

Other

___________

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