2. Determine your ESSENTIAL expenses

Steve has certain fixed monthly expenses. He lists them as: - Mortgage payment - Groceries - Automobile lease payment - Automobile Insurance - Utilities - Fuel

3. Calculate a monthly cost for ESSENTIAL expenses.

The expenses that Steve has deemed essential are a mix of fixed and variable costs. He notes fixed payments first, assigning their values as: Mortgage payment$1,300 Automobile lease payment$ 385 Automobile insurance$ 130

To better gauge his variable expenses, Steve creates an expense log and records all his purchases for two-month priors to setting up his budget. He also examines his old utility statements to determine his average expenses and is able to assign following values: Groceries$ 200 Utilities$ 400 Telephone (incl. Long distance) $ 50 Fuel $ 250

Knowing that his variable expenses are based on an average of prior expenses, Steve sets aside $200 per month to cover periods when expenses may be higher than his estimate.

Steve calculates his monthly ESSENTIALS cost as $2,915.00 4. Determine and calculate your non-essentials

Steve examines spreadsheet he created for step 3 and identifies some other common expenses. Entertainment $ 50 Meals (incl. Daily coffee)$ 100 Gifts (weddings, birthdays, etc.)$ 100 Books and magazines $ 50 Miscellaneous $ 25

Steve’s monthly non-essential expenses total $325

Steve creates a new spreadsheet with information he has calculated thus far. He calculates his disposable income as: Monthly income: $4,166.67 Less: ESSENTIALS$2,915.00 Less: Non-essentials $ 325.00 Disposable income$ 926.67

5. Establish monthly contributions towards debt elimination and savings:

Steve amassed some debt while in school and owes $5,000 on his credit line. He would also like to purchase a vehicle rather than lease and plans to take a trip to Europe in two years to visit family.

He decides on following monthly contributions: Debt$ 450.00 Savings$ 300.00

Steve deducts his monthly contributions from his disposable income and is left with $176.67, which he decides to leave in his checking account to cover other incidentals and miscellaneous expenses he may have overlooked. He makes a plan, however, to transfer $500 to his savings account when balance in his checking account exceeds $1,000.

It’s easy to see that you can write out a plan yourself or use a software package to set up a budget - no need to hire a professional accountant. It’s important to know where your money is coming from and where it is going so that you won’t have any unpleasant surprises – and maybe just enough money left over at end of day to buy that lottery ticket you’ve been hoping for!

© 2005 Deborah Carraro