A Budget?!

Your Financial Plan or Budget

The purpose of a financial plan is to have a clear idea of what you bring in and what you take out in terms of your Money.

In simple terms once you can identify your fixed income and your fixed expenses. 

·         Fixed income is your salary and any other inflow of cash that is reliable and consistent. 

First Fixed Income (where you get the money):

Source:

Source

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Salary

Other Income

·         Fixed expenses are those necessary expenses without which your living standard would be inadequate. These usually include your rent or mortgage and utilities your communication phone & Internet

·         Not fixed expenses: (can be different each month) your medical expenses (insurance, prescription medicine and co-pay), gas or other commuting expenses

Uses:

Fixed Expenses

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Rent/Mortgage

Utilities

Medical

Tele-Communication

Work Related Commute

·         Discretionary expenses: review all your spending from the past 12 to 24 months (use your credit card or bank statements to see which expenses can be slotted into this category.  Here are some examples:

§         Cell phone plan component that include data plans that are used for pleasure

§         Cable subscription to full scope entertainment package

§         Eating out / drinking coffee out

§         Alcohol/Wine collecting/consuming out

§         Downloading new music and movies

§         Season tickets to sports/theater/concerts/club cover charges

§         Detailing your car (non-business)

§         Gym membership and branded dieting

§         Salon service (except for professional upkeep)

§         Frequently buying high cost branded clothing (not related to your career)

§         Buying or leasing a high end vehicle (not related to career)

§         Pleasure traveling on credit

§         The newest electronic devices not related to career

§         Alternative medicine not covered by insurance

Discretionary Expenses:

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Discretionary Expenses

Now for the fun part: What is left over?  Is it a negative number?  Positive number?  What kind of number should it be?

Once you’ve figured out your income and expenses put together a plan for the next 12 months.  Here are two examples:

Example One

Mr. John Smith

36 year old Financial Analyst

Sources	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Category Total
Salary	4,000	4,000	4,000	4,000	4,000	4,000	4,000	4,000	4,000	4,000	4,000	4,000	48,000
Other Income	10	10	10	10	10	10	10	10	10	10	10	10	120
													48,120
Expenses
Rent/Mortgage	850	850	850	850	850	850	850	850	850	850	850	850	10,200
Credit Card & Other Loans	500	500	500	500	500	500	500	500	500	500	500	500	6,000
Utilities	150	150	150	150	150	150	150	150	150	150	150	150	1,800
Medical	250	250	250	250	250	250	250	250	250	250	250	250	3,000
Tele-Communication	125	125	125	125	125	125	125	125	125	125	125	125	1,500
Work Related Commute	100	100	100	100	100	100	100	100	100	100	100	100	1,200
Food*	200	200	200	200	200	200	200	200	200	200	200	200	2,400
													26,100
Discretionary Expenses	2,500	3,000	1,500	1,500	2,800	2,500	4,000	1,500	1,500	1,500	3,000	4,500	29,800
Remaining	(665)	(1,165)	335	335	(965)	(665)	(2,165)	335	335	335	(1,165)	(2,665)	(7,780)

*Assumes grocery and occasional dinner out.

In this example we see the outcome of $7,780 shortfall, when your incoming earnings were less then the outgoing expenses, which would impact your overall retirement and next year’s expenses.  What does the surplus 7,780 mean to you?  What can you do to curb your discretionary spending?  Could you perhaps, to cut your fixed costs?   What can you do to increase your earnings?

Example Two

Ms. Jane Smith

27 year old, Single Mother, Junior Auditor

Source	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Category Total
Salary	4,000	4,000	4,000	4,000	4,000	4,000	4,000	4,000	4,000	4,000	4,000	4,000	48,000
Other Income	10	10	10	10	10	10	10	10	10	10	10	10	120
													48,120
Expenses
Rent/Mortgage	1,200	1,200	1,200	1,200	1,200	1,200	1,200	1,200	1,200	1,200	1,200	1,200	14,400
Credit Card & Other Loans	500	500	500	500	500	500	500	500	500	500	500	500	6,000
Utilities	150	150	150	150	150	150	150	150	150	150	150	150	1,800
Medical	250	250	250	250	250	250	250	250	250	250	250	250	3,000
Tele-Communication	125	125	125	125	125	125	125	125	125	125	125	125	1,500
Work Related Commute	100	100	100	100	100	100	100	100	100	100	100	100	1,200
Food*	200	200	200	200	200	200	200	200	200	200	200	200	2,400
													30,300
Discretionary Expenses	350	350	350	350	350	350	350	350	350	350	350	1,500	5,350
Remaining	1,135	1,135	1,135	1,135	1,135	1,135	1,135	1,135	1,135	1,135	1,135	(15)	12,470

*Assumes grocery and occasional dinner out.

In this example we increased the rent (from 850 to 1,200) to accommodate the extra bedroom for Ms. Smith’s child.  However, the outcome is a $12,470 surplus, when your incoming earnings were more then the outgoing expenses, which would allow you to pay off debt, save for retirement and for next year’s expenses. 

What could you do with 12,470?  Could you curb your discretionary spending?  Could you perhaps, cut some of your fixed costs?   Or is there something you could do to increase your earnings?