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Financial Fitness: Have You Reviewed Your Budget Lately?

By James F. Brown, Jr.
President & CEO

Ours has become a society that lives beyond our means and, as a result, we have a negative savings rate. With our economy in a bit of chaos, perhaps now is a good time to review your household budget.

A budget simply puts on paper your available cash flow and how you spend that cash each week or month. The key to a good budget is to include as much information as you can. Start by taking a month to track your spending so that you have a complete record of where your money goes. It is important to keep a detailed and accurate record of your spending so you identify places where you might be able to cut and save money.

The first step in creating a budget is to total all of your income. Do this on a monthly basis.

Make sure you write down only your take home pay (your salary minus any taxes and deductions). You might also want to include tips, child support, part time jobs, etc.

Next, you will need to track your expenses. If you have bills that vary from month to month, use a monthly average. If you have an annual bill, divide that by 12 for a monthly figure.
One way of deciding how your income should be spent is to subscribe to the 80-10-10 theory. Ten percent of your income goes for religious or charitable spending, 10 percent towards savings and 80 percent for household and other living expenses.

Rent or mortgage payments should be between 20% and 30% of your income. Food should take another 15%. Debt payments should not exceed 15% of your income. Transportation (depending on if you have a car payment or not) can range from 5% to 15%.

Use the budget worksheet on the next page to write down your expenses by category. Make sure you tally everything, including those daily coffees and snacks. Those can add up quickly!
The last step in creating your budget is to total all of your expenses and subtract them from your total income. If the bottom line is zero, then your income and expenses are equal. You might be living paycheck to paycheck. Look to see if you can cut expenses and develop a savings plan for emergencies or unexpected expenses.

If you have a positive bottom line, then you have money left over at the end of the month! Congratulations! Put that money into savings or, if you have debt, pay more towards that debt.

If your bottom line is negative, you need to make adjustments. Analyze your budget to see where you can cut expenses - especially in the Looking Good or Just for Fun categories. Here are some tips for cutting household expenses:
Make extra mortgage payments when you can. You can save thousands of dollars in interest and shorten the loan period.
Trade your standard candescent bulbs for compact fluorescent bulbs. They are more energy-efficient, last for years, consume little power and generate little heat.
Make sure you turn off the television, radio and computer when not in use.
Replace filters in your heating and air conditioning units every month.
Set your thermostat to 78 in the summer and 68 in the winter. In the summer, increase the temperature you're when not at home.
Pack your lunch for work and bring snacks and drinks from home.
Switch to buying store brand goods instead of their name-brand counterparts. Typically, the store brand is just as good, they just don't need your support in funding their advertising budgets.
To cut back on entertainment spending, rent movies instead of seeing them in the theater or check out your local library for your favorite book instead of buying it.
Use online bill pay. This service is typically free with a bank's products, and it keeps you from racking up late fees that rob your pocketbook and harm your credit score.

If you have not looked at your budget lately, I encourage you take the time to sit down and examine your expenses. One good resource available on line is www.aba.com/ABAEF/consumers. Here you will find a wealth of information on all areas of financial needs. We have also provided a monthly budget worksheet for you to

You CAN take charge of your finances and your life by setting financial goals and sticking to them.

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