Amazing Kids! Magazine

Money Smarts – Budgeting

By Ryan Traynor, Editor-in-Chief

 

Last month we talked about getting control of your money habits. The next step after learning how to control your spending is to budget your money. Why do you need a budget? Just like for every goal, a budget provides a roadmap for reaching a goal, but for financial goals. You wouldn’t want to throw a party without planning. Just like a party, you should set clear goals, create plans to achieve them, and work the plans so the goals can be met. Goals should be SMART: Specific, Measurable, Attainable, Relevant, and Time-bound. If you want to save up enough money to go to a concert in October, you need to map out how much you need to set aside each month until then to reach your goal. Without this map, it will be much more difficult to reach your goal. Without a budget you have no idea if you’re getting closer to your goals or if you’ll ever reach them. You will also find yourself making random purchases of things you don’t really want or need. You are also at greater risk of going into debt as you purchase things that you may not have the money for.

A budget takes into account your past expenses, predicts your future expenses, and adjusts your spending habits to set aside the money you need for your goals. Budgeting requires first knowing what you spend your money on. To figure this out, track your spending over a couple of months’ time. For each expense, write it down in a journal along with how much you spent, what it was spent on, and when you spent it. After you do this for a couple of months, go back over your entries. Group your expenses into categories: food, entertainment (movies, concerts, downloading music, video games, etc.), gifts, transportation, school supplies, personal products (shampoo, hair gel, etc.), and other categories. Look at when you spend your money and the average amount you spend each week. Does it vary or is the amount fairly steady? Analyze what effects the variations. This may include holidays, school breaks, seasons, etc.

The next step is to figure out what your income is. Income is any money you receive. It may include paychecks from a job, your allowance, payment for odd jobs such as baby-sitting, walking dogs or yard work, a gift card or cash for your birthday, money received from selling your stuff, and interest earned on savings or investments. Just like expenses, you map out how your income comes to you. Does it vary by week, month, or season? Write down what to expect over the next couple of months by week.

Once your analysis of your income and expenditures has occurred, you are ready to map out a budget. One thing a budget does is it highlights what you have bought that was overpriced, not worth it, or just a waste of money. It gives you an opportunity to correct this behavior. It helps you highlight your wants versus your needs. Your needs must be covered each month. Your wants can be adjusted to meet your goals as long as what you want in the future is worth more to you than the immediate want. When you are planning your budget, the amount you need to save each month is set aside for you. This is called “Pay Yourself First.” With a budget, this amount is set aside immediately so the rest of your money is then spread out among the rest of your expenditures and you don’t even miss the first amount you set aside for your savings. This is an emergency fund for unexpected items. While it is set aside, it can be earning interest in the bank.

Take your income and subtract your expenses. If the result is a minus number, figure out which expenses you can adjust to make your income equal your expenses. If the result is a positive number, you can put this extra amount aside in your “Pay Yourself First” fund to reach your goals faster.

As you go along with your budgeting plan, review the results. Adjust income or expenses as you need to in order to meet your goals. Take on additional jobs, chores, or sell some of your things to earn more money. Or, you can cut back on your spending to save more each month. Watching what you spend and save will help you reach your goals even faster. Good luck on reaching your dreams!