Sample Budget and Discussion
Article by R. Joseph Ritter, Jr. CFP® EA
The following is a sample budget with specific categories broken out in detail for income and expenses. The dollar figures are for illustration purposes only and should not be construed as targets for your budget. The goal of the budget is for total income to equal total expenses, so that every dollar which comes in is assigned to a specific category, whether it is an expense, savings or debt payments.
| Income | ||||
| Salary | $33,351.00 | |||
| Other | ||||
| Cash-In | $0.00 | |||
| Ebay | $0.00 | |||
| Gifts | $0.00 | |||
| Interest | $0.00 | |||
| Tax Refund | $0.00 | |||
| Total | $33,351.00 | |||
| Expenses | ||||
| Office | $(240.00) | |||
| Auto | ||||
| Car Payment | $(1,200.00) | |||
| Fuel | $(2,220.00) | |||
| Insurance | $(1,800.00) | |||
| Registration | $(70.00) | |||
| Service | $(1,032.00) | |||
| Bank Fees | $0.00 | |||
| Cash Out | $0.00 | |||
| Dining | $(300.00) | |||
| Credit Cards | $(1,500.00) | |||
| School Loan | $(1,608.00) | |||
| Entertaining | $(120.00) | |||
| Gifts Given | $(1,055.00) | |||
| House Pmt | $0.00 | |||
| Rent | $(10,800.00) | |||
| Appliances | $0.00 | |||
| Baby Sppls | $(360.00) | |||
| Clothing | $(996.00) | |||
| Electronics | $(240.00) | |||
| Furniture | $(168.00) | |||
| Groceries | $(1,920.00) | |||
| Repairs | $(600.00) | |||
| Misc. | $(240.00) | |||
| Moving | $0.00 | |||
| Photos | $(360.00) | |||
| Postage | $(120.00) | |||
| Toiletries | $(132.00) | |||
| Toys | $(300.00) | |||
| Insurance | ||||
| Life | $0.00 | |||
| Health | $0.00 | |||
| Renter’s | $(240.00 | |||
| Medical | ||||
| Doctor | $(120.00) | |||
| Medicine | $(216.00) | |||
| Recreation | $(75.00) | |||
| Saving | $(6,000.00) | |||
| Storage | $0.00 | |||
| Subscriptns | $(120.00) | |||
| Utilities | ||||
| Cable TV | $(240.00) | |||
| Gas/Electric | $(1,500.00) | |||
| Phone | $(420.00) | |||
| Cell Phone | $(1,020.00) | |||
| Water | $(480.00) | |||
| Vacation | $(450.00) | |||
| Total | $(38,262.00) | |||
| Difference | $(4,911.00) |
Now, let’s examine the budget together. What is the first issue you noticed?
The most glaring issue in the budget is that expenses exceed income by $4,911.00. For the budget to work at all, income must increase or expenses must decrease.
How will this person fund the budget shortfall? Depending on the priorities this person keeps throughout the budget year, he or she may wind up having to fund the difference by using a credit card. But then what about the following year? If he or she uses a credit card, then next year’s budget will have to factor in credit card payments above all the other expenses on the current budget. Does this really seem possible since there is a shortfall now?
Probably not. That means funding the shortfall by using credit cards is not a very good option. In fact, when your budget is this tight, you really should not be using a credit card at all. One month of spending more on the credit card than you should have can spell trouble for the rest of the year and cause you to miss your goals.
Now, take a look back through the budget and see if you can identify a category that can be eliminated to reduce expenses.
This person anticipates being able to save $6,000 during the budget year. Unfortunately, if he or she uses only the cash which comes in, saving any money is really not practical, right?
Are you prepared to eliminate your savings goals from your budget? Suddenly, this is a big question which must be addressed and will help to inform your priorities.
In reality, he or she might wind up dipping into savings if something unexpected happens during the year. Some of the categories are very low, such as doctor bills and car repairs. Even if he or she removes the savings category, one major car repair or medical emergency could easily and quickly overwhelm the budget. Scenarios such as these highlight the usefulness of the emergency fund as part of your financial plan.
In the next two articles we will take a look at how you can control spending and review a sample budget report which illustrates what happened during the year.
