Money Management Newsletter

Family Business

Setting Up a Budget

Dr. Jo Turner

Professor, Family and Consumer Economics

Budgeting is allocating your income to cover your expenses. This is a simple concept, but a challenging task for most of us. This article should help you make a spending plan (budget) for your family's money.

Budgeting can help you achieve your goals by allowing you to consider spending alternatives within a single framework. Specifically budgeting can help you save for the things you want. It will help you live within your income and know where your money is going. Since budgeting involves a system of record keeping, it can help you keep an annual record of all expenditures, some of which may provide tax deductions.

It is easier to plan and keep records if you group expenses. One way to begin is to break down your expenditures based on your records into several categories such as food, clothing, shelter, utilities, personal care, entertainment, transportation, and savings. You may need to add other categories such as vacations or contributions. You may want to condense some categories such as putting all housing related expenses in one category.

Another way to begin is to setup categories that some one else has predetermined. You can find these in budget books, publications, computer programs or articles like this one. Of course, some categories may not pertain to you or you may need to add other categories

The suggested classifications also include a savings and investment category. If you don't budget for savings and deposit the amounts budgeted, you will probably find it difficult to save. It takes discipline to save for things you want such as a new rug or your children's college education. Failure to save leads to doing without or borrowing money and making interest payments that cut into what you can spend on other things.

Regardless of what system you use to classify your expenses, you should observe a few basic guidelines.

Keep similar expenses in the same category.
Set up enough different categories so that you have a meaningful record for your expenses.
Do not group too many different expenses into a catchall category.
Keep the number of categories small enough to make booking simple.

Listed below are some budget categories and items that maybe included in them. Some of these will fit your family, others may not.

Food (food eaten at home, food away from home, snacks, coffee breaks, school lunches, home food production)
Housing (house payments or rent)
Utilities (gas, electricity, garbage pickup, water, television cable, telephone, cell phone, Internet connection)
Housing operation or Household Expenditures (laundry supplies, storage rental, paper goods, stationery, postage, cleaning supplies, pest control, safe deposit box rent, home insurance, property taxes, yard care, hired help)
Household Repairs (roof, painting, plumbing)
Health (medical and hospital insurance premiums, doctor and dentist bills, medicine, eyeglasses, hearing aids, first aid supplies, treatments or therapy, transportation to receive medical care)
Equipment and Furnishings (furniture, rugs, curtains, pictures, vases, mirror, appliances, kitchen utensils, bedding, linens, china, silver, glass ware, equipment repair)
Transportation (car purchase, car expenses -- gas, oil, repairs, tires, licenses, insurance, maintenance, taxes -- parking fees, bus, plane or train tickets, taxi fares or rentals)
Clothing (ready-to-wear, footwear, cleaning and repair, sewing supplies, accessories, alterations)
Personal Care (haircuts, beauty shop, allowances, cosmetics, toiletries, shaving supplies and other personal care items)
Gifts (to include wrapping paper, flowers, cards)
Contributions (charitable donations, i.e. church, civic and educational organizations)
Education (school supplies, books and supplies, magazines, newspapers, lessons)
Business related expenses (union dues, professional dues, business licenses and insurance, tools required for the job)
Child Care (babysitting, daycare)
Recreation (social club dues, sports, admission, equipment, movies, records, tapes, tobacco, liquor, hobby supplies)
Pet (food, licenses, supplies, veterinarian fees)
Banking & Credit Cost (fees for service and interest charged on any credit purchase)
Insurance (life, disability, liability -- insurance not included in other categories)
Savings and Investments (might include savings for emergency fund as well as for goals or could have a separate category)
Miscellaneous (legal fees, income taxes)

For more information on record keeping contact your local Extension agent.