Developing and creating monthly budget on personal finance.

Money management skills and budgeting personal finance.

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Money Management Part 5

Creating a monthly budget

We’ve already reviewed those items that you can live without, but in this article, we’ll explore necessities in your life—those things that you cannot and should not live without:  food and water, shelter, clothing, and some type of transportation.  Yes, we all know the basics, but the range in pricing for these necessities can be shocking.

Based upon your long-term plan and your short-term goals, you have the opportunity to obtain life’s needs as well as some of your wants.  You must realize how life’s needs (e.g., food and clothing) can also be non-essential.  For example, if a short-term goal is to have a special dinner out with your family, you may have to use the money you would have been able to invest, or if you need (want) a new suit for a job interview, you may need to give up that dinner.  You really must use your judgment when it comes to choosing between certain needs since the range is so great.  For now, let’s look at the categories of life necessities.

Food and Beverage
How much money do you spend on food and beverages each month?  You must calculate not only all the trips to the market but also the stops for fast food, take out, and dining in restaurants—and let’s not forget colas, bottled water, coffee, beer, or cocktails. 

Although food is certainly a necessity, alcohol isn’t—nor is bottled water, unless you live in an area that does not supply fresh water.  Many of these items that fall into the food and water category are actually non-essential.  Take a few moments to calculate your monthly food and beverage budget:

Now that you’ve calculated the percentage of your budget spent on (un)necessary food and beverages, you should be a better manager of your money.  Remember that preparing your own food is much less expensive than eating out, but sometimes you must sacrifice the time you could spend cooking to work or manage other parts of your life.  These facets of your budget must be scrutinized in order to be a successful money manager.

Shelter
Housing options depend greatly on your situation, but you may be able to save money; consider everything available: buying a home, renting an apartment or room, living with parents or family, sharing a home and expenses with a roommate, renting out a room, overseeing property in exchange for rent, or providing services in exchange for a room.  Since it would be impractical to move a wife and children into your parents’ home to save money, you could consider a couple of the other options to save money, but your situation may allow you to explore other alternatives as well.  Use your new skills as a money manager to examine every possibility.  Let’s look at a few scenarios:

Clearly there are some advantages and disadvantages to these options; for example, you may sacrifice some privacy and independence, but you may gain the opportunity to meet your long-term plan, so consider your options.  Here are a few steps that may help you determine if you can change your living situation:

• List the advantages of one of the situations above

• Determine the savings you could put toward investments

• List the disadvantages of one of the situations above; is this a want?

Now, take a few moments to calculate your current monthly shelter costs; remember to include property taxes, mortgage insurance, utilities, and maintenance.  Also, if you have any home services such as housekeeping, lawn, or garden care, include those as well:

You should now have a better idea of how much of your monthly budget is spent on housing, and you should be able to see the difference between what is necessary and what is non-essential.  Now, act on this information.

In the next article in this series, we’ll discuss the other necessities in life: clothing and transportation.

Money Management Part 6

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