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Wednesday, January 08, 1997

Budgeting Foolishly

by MF Ham

A couple of readers asked for some help in budgeting and one bemoaned the fact that saving any money at all was elusive, at best. So, herewith a couple of elementary thoughts on this very important subject.

Successful budgeting is very much like successful weight control: exercise is of primary importance in both. In one, the most important exercise consists of pushing back from the table well before all the food is consumed. In the other, the most important thing is to stop reaching into the purse(and the credit cards) well before the bottom is reached.

The first thing I would do is sit down and think of all those things which you might call necessities and list them together with what you think is a realistic amount required for a specific period. A month is the most usual period, although some might prefer to use a week, two weeks or some other convenient and logical period of time. Eventually you'll want to add these periods up so that they reflect a full year since many of the things we need only come up for payment once a year, such as fire insurance, for example. Of course some people don't consider insurance of any kind to be a necessity, until they have an accident, fire or some other uninsured loss, and then it's too late.

The most basic needs are food, clothing and shelter, and it would be a good idea to list these things first. Now there are many levels of these things. Some people require French cuisine, designer clothes and a luxurious abode. That's fine if you have the funds to support such a lifestyle. If, on the other hand, your income is, say, $1000 per month, then you won't want to pay $600 of that for food as then there won't be much to pay for shelter, let alone clothing. The point I'm trying to make is that you cannot go far with $2000 per month appetites on a $1000 per month income.

The mechanics of doing a budget are extremely simple; write it down so you can review and add up the totals and revise as necessary to fit within your income. Since you have access to a computer an easy way is to construct a little spreadsheet with the various categories down the left side, months or weeks along the top, the amounts within each appropriate box and totals at the bottom and right edge. That way you can play with detail amounts and immediately see the results in your totals along the bottom for each period. You can also expand the spreadsheet to show both budgeted amounts and amounts actually spent. If you want to get fancy with it you can purchase a personal finance program such as Quicken and do the budgeting, record the expenditures and produce reports to show yourself how well or poorly you've done.

The mechanics only require a pencil and paper; computers, spreadsheets and finance programs are nice, but not at all necessary.

Some say they are unable to save anything. That's certainly a very common problem and I'll wind this up by saying that a specified regular amount going into a bank, money market fund or similar place to save is almost as much a necessity as is food! Yeah, I know, that's a strong statement; but it's true! Budgeting and sticking to your budget is almost entirely an exercise in discipline. The experience of most people shows that you can't rely on saving just whatever's left over at month-end. Somehow there's rarely anything left over to save, so make savings a necessity just like food, clothing and shelter.

None of this means anything unless you're willing to take charge of your own life, make a realistic plan and FOLLOW IT!

Wishing you all good fortune, Irv

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