{"id":247,"date":"2016-02-04T20:22:46","date_gmt":"2016-02-04T20:22:46","guid":{"rendered":"https:\/\/courses.candelalearning.com\/lumencollegesuccess\/?post_type=chapter&#038;p=247"},"modified":"2016-09-23T16:12:16","modified_gmt":"2016-09-23T16:12:16","slug":"budgeting","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/nvrcte-sandbox-collegesuccess\/chapter\/budgeting\/","title":{"raw":"Budgeting","rendered":"Budgeting"},"content":{"raw":"<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1110\/2016\/04\/18234353\/33586505_455928b964_o.jpg\" rel=\"attachment wp-att-1056\"><img class=\"wp-image-1056 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1110\/2016\/04\/18234353\/33586505_455928b964_o.jpg\" alt=\"Photo showing the back of a young woman standing in a supermarket holding a shopping basket staring down a long aisle of &quot;bulk foods.&quot;\" width=\"525\" height=\"700\" \/><\/a>\r\n<blockquote>A budget is telling your money where to go instead of wondering where it went. \u2014Dave Ramsey, financial author<\/blockquote>\r\n<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\nBy the end of this section, you will be able to:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">Define budget strategies<\/li>\r\n \t<li style=\"font-weight: 400;\">Explore the pros\u00a0and cons\u00a0of\u00a0budgeting<\/li>\r\n \t<li style=\"font-weight: 400;\">Create a personal budget<\/li>\r\n<\/ul>\r\n<\/div>\r\nWithout a personal budget, most\u00a0people have a hard time\u00a0gauging how much money they spend and where their money goes. If you have ever gone to an ATM to withdraw money\u00a0and been surprised to discover how little you had\u00a0left in your account, this section is for you. It's also for anyone who wants to learn how to manage their money better and smarter\u2014which is an invaluable skill to have\u00a0during the penny-pinching years of college but also later on in life.\r\n<h2>Budgeting Strategies<\/h2>\r\nEven if you're very conscientious about paying your bills on time and generally have frugal spending habits, creating and following\u00a0a budget can put so much further ahead. In essence, a budget is a plan for how you want to spend money. It details how much money comes in each month and how much you've allocated for spending\u00a0on each thing. The virtue of a budget is that it puts you in control of financial decisions\u2014so you can avoid surprises at the ATM machine or at the end of the month. Let\u2019s look at some strategies for creating a budget:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\"><strong>Be realistic<\/strong>: People are often intimidated by budgets because they\u2019re afraid the plans will be too strict or force them to cut back\u00a0too much. Though\u00a0a budget may\u00a0reveal that you indeed spend a lot of money\u00a0on clothes, that's okay\u2014it may just also need to show that you spend very little on restaurants and eating out to make up for it. Again, it's about making choices and being realistic.<\/li>\r\n \t<li style=\"font-weight: 400;\"><strong>Choose a time line<\/strong>: Creating a budget for a fixed period of time will help you monitor whether you\u2019re meeting your financial goals. The time line you choose is up to you and your goals. For example, you\u00a0might create a monthly budget to monitor how you spend your paycheck every month.<\/li>\r\n \t<li style=\"font-weight: 400;\"><strong>Add financial\u00a0padding<\/strong>: Even if you feel like your\u00a0list of financial obligations\u00a0is already long, try to set aside a certain amount each month for a \"rainy day\" fund\u2014to pay for unforeseen\u00a0expenses and emergencies, like car repair, lost textbooks, etc.<\/li>\r\n \t<li style=\"font-weight: 400;\"><strong>Make adjustments as needed<\/strong>: While sticking to your budget is important, there\u2019s nothing wrong with revisiting and adjusting your original targets. For example, if you find that you are actually spending $50 more per month on groceries than you intended\u00a0(even after shopping for sale items), you may decide to save that money elsewhere in your budget next month\u2014on entertainment, for example.<\/li>\r\n<\/ul>\r\n[caption id=\"attachment_249\" align=\"aligncenter\" width=\"501\"]<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1110\/2016\/02\/02024957\/10814794534_3635371523_z.jpg\" rel=\"attachment wp-att-249\"><img class=\" wp-image-249\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1110\/2016\/02\/02024957\/10814794534_3635371523_z.jpg\" alt=\"Photo of people standing in line at a concession stand in a Loews Theatre\" width=\"501\" height=\"334\" \/><\/a> Even though you may not be able to afford \"unlimited\" trips to the movies each month, an effective budget can still account for leisure and entertainment activities.[\/caption]\r\n<h2>Pros and Cons of Budgeting<\/h2>\r\nWhile budgeting can be a useful financial tool, it may\u00a0not be for everybody. Some people may\u00a0feel more confident by\u00a0balancing their checkbook to see how much they have at any given time. Still, many argue that budgeting helps people stay on track and avoid overspending on \"wants\" such as restaurant food, clothes, and entertainment, so they always have enough money for \"needs,\" such as\u00a0rent\/mortgage, utilities, and food. The following lists summarize the\u00a0advantages\u00a0and disadvantages of budgeting:\r\n<h3>Pros<\/h3>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\"><strong>Provides a realistic view of personal finances<\/strong>: A personal budget provides an honest\u00a0snapshot of how much money you make and how much you can spend.\u00a0It can help you avoid deceptive financial thinking, such as believing\u00a0that you're \"flush\" right after pay day, when you really need to save that money for an upcoming bill.<\/li>\r\n \t<li style=\"font-weight: 400;\"><strong>Helps you avoid excess spending<\/strong>: Because a budget gives\u00a0you insight into the total picture of your income and expenses, you can make realistic decisions about spending. As above, a budget can help you avoid a having\u00a0faulty\u00a0sense of your financial resources and\u00a0remind you that even if you just got paid, most, if not all, of your check may\u00a0need to go toward fixed expenses.<\/li>\r\n \t<li style=\"font-weight: 400;\"><strong>Assists in goal setting<\/strong>: Since you get to decide how to allocate\u00a0your money, a budget can help you set goals. For example, if you create a yearly budget, you could plan and acccount\u00a0for an upcoming\u00a0family trip and start saving money for it in advance without worrying about having the money at\u00a0the last minute.<\/li>\r\n<\/ul>\r\n<h3>Cons<\/h3>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\"><strong>Budgets take energy<\/strong>: Planning a budget takes dedication. Since most students\u00a0lead busy lives and are balancing different demands\u00a0like work, school, and time with family and friends, it can\u00a0be easy to slip up. For example, if you have a stressful week at work or school, you might overspend while going out with friends and forget how much you budgeted for leisure activities.<\/li>\r\n \t<li style=\"font-weight: 400;\"><strong>Results take time<\/strong>: Since most budgets cover\u00a0a time period of a month, year, or even longer, people may\u00a0become frustrated waiting to see if their financial situation is better than it was before. Frustration can lead people to abandon their budget and go back to overspending or neglecting to save.<\/li>\r\n \t<li style=\"font-weight: 400;\"><strong>Budgets may\u00a0be strict<\/strong>: Remember that one of the important strategies for creating a successful budget is earmarking money for \"treats\" and extras such as entertainment.\u00a0However, in an effort to become more financially disciplined, some people make\u00a0budgets that are too restrictive and unrealistic. This can\u00a0backfire and lead to\u00a0overspending in one area or abandoning the budget altogether.<\/li>\r\n<\/ul>\r\n<h2>Creating a Personal Budget<\/h2>\r\nEven though you may be persuaded by the downsides of budgeting and think, \"It's not for me!\"\u00a0don't give up until you've tried it. Tracking one's income and spending is a good exercise for anyone, and if you follow the basic process, below, it's easier than you think.\r\n<h3>Stage 1: Determine Goals<\/h3>\r\n<p class=\"p1\"><span class=\"s1\">The first strategy\u00a0to create a successful budget\u00a0is to determine <strong>w<\/strong><\/span><span class=\"s1\"><strong>hy<\/strong> you are doing a budget. Setting goals will give you motivation to stay focused and on budget:\u00a0something \u201creal\u201d to look forward to or achieve.<\/span><\/p>\r\n<p class=\"p3\"><span class=\"s1\">Try to set both short-term and long-term goals.<\/span><\/p>\r\n\r\n<ul class=\"ul1\">\r\n \t<li class=\"li2\"><b><\/b><span class=\"s3\"><b>Short term goals <\/b><\/span><span class=\"s1\">should be things you want to do within 6 months to 1 year, such as\u00a0<\/span><span class=\"s1\">paying off a credit card or saving for your emergency fund<\/span><\/li>\r\n \t<li class=\"li2\"><b><\/b><span class=\"s3\"><b>Long term goals <\/b><\/span><span class=\"s1\">should be\u00a0things you want to do two or more years down the line, such as paying off college loans or buying a car<\/span><\/li>\r\n<\/ul>\r\n<p class=\"p3\"><span class=\"s1\">If you find the thought of making a budget too dreary to contemplate, start with your dreams, instead.\u00a0<\/span><span class=\"s1\">Sit down with a pen and paper and list out all your hopes for what you want to do in your life. Consider how the stress of financing these dreams will affect you in the short-term and long-term.\u00a0<\/span><span class=\"s1\">Be understanding of yourself, but also be realistic by asking, \u201cWill you be able to do the things you listed at the rate you are going?\u201d<\/span><\/p>\r\n\r\n<h3>Stage 2: Define Categories<\/h3>\r\n<p class=\"p1\"><span class=\"s1\">Making categories helps\u00a0make the budgeting process easier and quicker. Create a category for each of the areas you\u00a0spend money or save money by grouping like items.\u00a0<\/span><span class=\"s1\">Tracking fewer\u00a0categories makes it easier to budget overall.<\/span><\/p>\r\n<p class=\"p1\"><span class=\"s1\">Make a list of all the things you <em>spend money<\/em> <em>on<\/em> and <em>save money for<\/em>. Once you have your list try to group items together.<\/span><\/p>\r\n<p class=\"p1\">Potential categories might include:<\/p>\r\n\r\n<ul>\r\n \t<li><i><\/i><span class=\"s1\">Car\u00a0\u2013 gasoline, oil changes, cleaning, upkeep<\/span><\/li>\r\n \t<li>Entertainment \u2013 dates, parties, activities, Netflix or other streaming service subscriptions. Anything fun generally ends up in this area<\/li>\r\n \t<li>Food\u00a0\u2013 groceries, dining hall, coffee shops, restaurants, and bars<\/li>\r\n \t<li>Household \u2013 food, cleaning supplies, personal care, over the counter medicine, and small appliances<\/li>\r\n \t<li>Housing \u2013 rent\u00a0or dorm costs<\/li>\r\n \t<li>Gifts \u2013 gifts for birthdays, Christmas, showers, weddings, Father\u2019s Day etc.<\/li>\r\n \t<li>Clothing \u2013 clothing, shoes and accessories<\/li>\r\n \t<li>Insurance \u2013 auto, rental, health, etc.<\/li>\r\n \t<li>Savings \u2013 any money going to savings for specific reasons or a general emergency fund<\/li>\r\n \t<li>Utilities \u2013 cell phone, Internet, cable, electric, gas, water, trash, etc.<\/li>\r\n<\/ul>\r\n<h3>Stage 3: Schedule Adjustments<\/h3>\r\n<p class=\"p1\">Getting a budget up and running often works well for a month or two, and then encounters mysterious problems. Spending may balance out well initially, but then grow harder to predict or control.<\/p>\r\n<p class=\"p1\">A key secret: <strong>budgets need attention and adjustment every month<\/strong>.<\/p>\r\n<p class=\"p1\"><span class=\"s1\">You'll\u00a0have the same expenses every month, but they won't always be for the same amounts. Therefore, your categories of spending will stay the same, but you'll make adjustments to the <\/span><span class=\"s4\"><i>amount<\/i><\/span><span class=\"s1\">\u00a0you budget every month.\u00a0<\/span><\/p>\r\n<p class=\"p1\"><span class=\"s1\">For example,\u00a0if your significant other's birthday is coming up, you'll need to consider what you're planning to do or buy for that event, and how that affects other spending for the month.<\/span><\/p>\r\nEach month, consider:\r\n<ul class=\"ul1\">\r\n \t<li class=\"li3\"><span class=\"s1\">What events or activities do I have coming up?<\/span><\/li>\r\n \t<li class=\"li3\"><span class=\"s1\">Am I\u00a0going to be driving more or less?<\/span><\/li>\r\n \t<li class=\"li3\"><span class=\"s1\">What holidays are coming up, and what do I need to do to prepare?<\/span><\/li>\r\n \t<li class=\"li3\">Is anyone going to be helping me pay for some categories this month?<\/li>\r\n<\/ul>\r\n<p class=\"p2\"><span class=\"s3\">If a category of your budget needs to <\/span><span class=\"s1\"><b>increase <\/b>its spending<b>,<\/b><\/span><span class=\"s3\"> then another area will\u00a0need to\u00a0<\/span><span class=\"s1\"><b>decrease <\/b>its budget for that month.<\/span><\/p>\r\n\r\n<h3 class=\"p2\">Stage 4: Consider Expenses that Don't Happen Each Month<\/h3>\r\n<p class=\"p1\"><span class=\"s1\">Another challenging\u00a0area for\u00a0budgeting concerns things you know you'll have to pay for, but infrequently or not on a set schedule. Such items include:\u00a0<\/span><\/p>\r\n\r\n<ul class=\"ul1\">\r\n \t<li class=\"li2\"><span class=\"s2\">taxes<\/span><\/li>\r\n \t<li class=\"li2\">insurance premiums<\/li>\r\n \t<li class=\"li2\"><span class=\"s2\">clothing<\/span><\/li>\r\n \t<li class=\"li2\"><span class=\"s2\">vacation<\/span><\/li>\r\n \t<li class=\"li2\">healthcare<\/li>\r\n<\/ul>\r\n<p class=\"p3\"><span class=\"s2\">You don\u2019t want April\u00a0to roll around and suddenly have to come up with a big amount of money to pay your taxes.<\/span><\/p>\r\n<p class=\"p3\"><span class=\"s2\">To prepare ahead of time, start\u00a0setting money aside every month in a\u00a0savings account. This will become a new category for your spending. You can divide\u00a0things like insurance premiums into monthly chunks and sock that away ahead of time, in order to have enough for the lump payment when it comes due. Add an additional amount for less-predictable spending. That\u00a0way, if you encounter a\u00a0big sale at your favorite store, then you can\u00a0stock up and not wreak havoc on your\u00a0budget. It will take\u00a0several months to get a cushion, so take that into account now.<\/span><\/p>\r\n<p class=\"p1\"><span class=\"s2\">It doesn\u2019t matter what precise system you use. You just need to have a plan for these expenses.<\/span><\/p>\r\n\r\n<h3 class=\"p2\">Stage 5: Unexpected Expenses<\/h3>\r\n<p class=\"p1\"><span class=\"s1\">The hardest part of budgeting for most people is<i> unexpected expenses<\/i>.\u00a0These may be unexpected, and sometimes unpleasant, but you <strong>can<\/strong> still plan for them.<\/span><\/p>\r\n<p class=\"p1\"><span class=\"s1\">Types of unexpected expenses include<\/span><\/p>\r\n\r\n<ul class=\"ul1\">\r\n \t<li class=\"li2\"><span class=\"s1\">auto repairs<\/span><\/li>\r\n \t<li class=\"li2\"><span class=\"s1\">home repairs<\/span><\/li>\r\n \t<li class=\"li2\"><span class=\"s1\">veterinarian expenses<\/span><\/li>\r\n \t<li class=\"li2\"><span class=\"s1\">medical bills (like co-pays and prescriptions)<\/span><\/li>\r\n<\/ul>\r\n<p class=\"p1\"><span class=\"s1\">If you have a car, plan to have it repaired. The unknowns\u00a0are\u00a0when that will be and how much it will cost. To prepare, s<\/span><span class=\"s2\">et money aside ahead of time. Y<\/span><span class=\"s1\">ou may think, \u201cEasier said than done!\u201d \u00a0But putting aside as much as possible (and as realistic) will\u00a0reduce your debt as well as lower your stress level!<\/span><\/p>\r\n<span class=\"s1\">Two ways you can set money aside:<\/span>\r\n<ul>\r\n \t<li><span class=\"s1\">Set a lump sum of money aside (the easiest way)<\/span><\/li>\r\n \t<li><span class=\"s1\">Set up categories for these expenses (<span class=\"s3\">like you did for your monthly expenses<\/span>). This is more time-consuming but you can track exactly where your money is going.<\/span><\/li>\r\n<\/ul>\r\n<span class=\"s1\">Note \u2013 This is <\/span><span class=\"s2\"><b>separate\u00a0<\/b><\/span><span class=\"s1\">from your emergency fund. Most financial experts recommend that you have 3-6 months' worth of income in savings for emergencies.\u00a0<\/span><span class=\"s1\"><strong>Unexpected\u00a0expenses are not emergencies<\/strong>. Emergency funds should be untouched and on-hand for dire situations like losing a long-term job or encountering a major medical issue.\u00a0<\/span>\r\n<h4 class=\"p3\"><span class=\"s1\">How much money should you set aside?<\/span><\/h4>\r\n<p class=\"p1\"><span class=\"s1\">The best way to figure how much to budget for unexpected expenses\u00a0is to\u00a0list\u00a0all the unplanned expenses you had last year, plus ones you can predict are coming soon. For example, you might\u00a0predict that if you have a dog, he will have to visit the\u00a0veterinarian at least 2 times a year for unexpected reasons.<\/span><\/p>\r\n\r\n<ul class=\"ul1\">\r\n \t<li class=\"li2\"><span class=\"s1\">Make a list of all unexpected expenses<\/span><\/li>\r\n \t<li class=\"li2\"><span class=\"s1\">Estimate how much money you should have set aside for the year<\/span><\/li>\r\n \t<li class=\"li2\"><span class=\"s1\">Take your total and divide by 12 and set this much aside each month<\/span><\/li>\r\n<\/ul>\r\n<p class=\"p1\"><span class=\"s1\">It\u00a0might take you a while\u00a0to get enough money set aside. Keep working at this, and don't give up if you don't always meet this target each month.<\/span><\/p>\r\n\r\n<h3 class=\"p1\">The Envelope Method<\/h3>\r\nStill not convinced that making and following a budget is doable? The following video describes a budgeting technique that's very easy\u00a0and straightforward to follow: the \"Envelope Budget.\" Simply placing cash in labeled envelopes (one for each category or purpose)\u00a0each\u00a0month can be a very effective means of building healthy spending habits.\r\n\r\nhttps:\/\/youtu.be\/knfUHKzJ9m8\r\n<div class=\"textbox exercises\">\r\n<h3>Activity: Creating a Personal Budget<\/h3>\r\n<h4>Objective<\/h4>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">Create a personal budget<\/li>\r\n<\/ul>\r\n<h4>Directions<\/h4>\r\n<ul>\r\n \t<li>Review the <em>How to Budget Using the Envelope Method<\/em>\u00a0below, or find another \"how to budget\" video of your choosing.<\/li>\r\n \t<li>Select one type of budgets suggested\u00a0in the text or in the video. \u00a0Write down each step for the type of budget you selected.<\/li>\r\n \t<li style=\"font-weight: 400;\">Complete each step using your own financial information.<\/li>\r\n \t<li style=\"font-weight: 400;\">Do you think this process for creating a personal budget was helpful? Is there anything you\u2019d change?<\/li>\r\n<\/ul>\r\n<\/div>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/878","rendered":"<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1110\/2016\/04\/18234353\/33586505_455928b964_o.jpg\" rel=\"attachment wp-att-1056\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-1056 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1110\/2016\/04\/18234353\/33586505_455928b964_o.jpg\" alt=\"Photo showing the back of a young woman standing in a supermarket holding a shopping basket staring down a long aisle of &quot;bulk foods.&quot;\" width=\"525\" height=\"700\" \/><\/a><\/p>\n<blockquote><p>A budget is telling your money where to go instead of wondering where it went. \u2014Dave Ramsey, financial author<\/p><\/blockquote>\n<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<p>By the end of this section, you will be able to:<\/p>\n<ul>\n<li style=\"font-weight: 400;\">Define budget strategies<\/li>\n<li style=\"font-weight: 400;\">Explore the pros\u00a0and cons\u00a0of\u00a0budgeting<\/li>\n<li style=\"font-weight: 400;\">Create a personal budget<\/li>\n<\/ul>\n<\/div>\n<p>Without a personal budget, most\u00a0people have a hard time\u00a0gauging how much money they spend and where their money goes. If you have ever gone to an ATM to withdraw money\u00a0and been surprised to discover how little you had\u00a0left in your account, this section is for you. It&#8217;s also for anyone who wants to learn how to manage their money better and smarter\u2014which is an invaluable skill to have\u00a0during the penny-pinching years of college but also later on in life.<\/p>\n<h2>Budgeting Strategies<\/h2>\n<p>Even if you&#8217;re very conscientious about paying your bills on time and generally have frugal spending habits, creating and following\u00a0a budget can put so much further ahead. In essence, a budget is a plan for how you want to spend money. It details how much money comes in each month and how much you&#8217;ve allocated for spending\u00a0on each thing. The virtue of a budget is that it puts you in control of financial decisions\u2014so you can avoid surprises at the ATM machine or at the end of the month. Let\u2019s look at some strategies for creating a budget:<\/p>\n<ul>\n<li style=\"font-weight: 400;\"><strong>Be realistic<\/strong>: People are often intimidated by budgets because they\u2019re afraid the plans will be too strict or force them to cut back\u00a0too much. Though\u00a0a budget may\u00a0reveal that you indeed spend a lot of money\u00a0on clothes, that&#8217;s okay\u2014it may just also need to show that you spend very little on restaurants and eating out to make up for it. Again, it&#8217;s about making choices and being realistic.<\/li>\n<li style=\"font-weight: 400;\"><strong>Choose a time line<\/strong>: Creating a budget for a fixed period of time will help you monitor whether you\u2019re meeting your financial goals. The time line you choose is up to you and your goals. For example, you\u00a0might create a monthly budget to monitor how you spend your paycheck every month.<\/li>\n<li style=\"font-weight: 400;\"><strong>Add financial\u00a0padding<\/strong>: Even if you feel like your\u00a0list of financial obligations\u00a0is already long, try to set aside a certain amount each month for a &#8220;rainy day&#8221; fund\u2014to pay for unforeseen\u00a0expenses and emergencies, like car repair, lost textbooks, etc.<\/li>\n<li style=\"font-weight: 400;\"><strong>Make adjustments as needed<\/strong>: While sticking to your budget is important, there\u2019s nothing wrong with revisiting and adjusting your original targets. For example, if you find that you are actually spending $50 more per month on groceries than you intended\u00a0(even after shopping for sale items), you may decide to save that money elsewhere in your budget next month\u2014on entertainment, for example.<\/li>\n<\/ul>\n<div id=\"attachment_249\" style=\"width: 511px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1110\/2016\/02\/02024957\/10814794534_3635371523_z.jpg\" rel=\"attachment wp-att-249\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-249\" class=\"wp-image-249\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1110\/2016\/02\/02024957\/10814794534_3635371523_z.jpg\" alt=\"Photo of people standing in line at a concession stand in a Loews Theatre\" width=\"501\" height=\"334\" \/><\/a><\/p>\n<p id=\"caption-attachment-249\" class=\"wp-caption-text\">Even though you may not be able to afford &#8220;unlimited&#8221; trips to the movies each month, an effective budget can still account for leisure and entertainment activities.<\/p>\n<\/div>\n<h2>Pros and Cons of Budgeting<\/h2>\n<p>While budgeting can be a useful financial tool, it may\u00a0not be for everybody. Some people may\u00a0feel more confident by\u00a0balancing their checkbook to see how much they have at any given time. Still, many argue that budgeting helps people stay on track and avoid overspending on &#8220;wants&#8221; such as restaurant food, clothes, and entertainment, so they always have enough money for &#8220;needs,&#8221; such as\u00a0rent\/mortgage, utilities, and food. The following lists summarize the\u00a0advantages\u00a0and disadvantages of budgeting:<\/p>\n<h3>Pros<\/h3>\n<ul>\n<li style=\"font-weight: 400;\"><strong>Provides a realistic view of personal finances<\/strong>: A personal budget provides an honest\u00a0snapshot of how much money you make and how much you can spend.\u00a0It can help you avoid deceptive financial thinking, such as believing\u00a0that you&#8217;re &#8220;flush&#8221; right after pay day, when you really need to save that money for an upcoming bill.<\/li>\n<li style=\"font-weight: 400;\"><strong>Helps you avoid excess spending<\/strong>: Because a budget gives\u00a0you insight into the total picture of your income and expenses, you can make realistic decisions about spending. As above, a budget can help you avoid a having\u00a0faulty\u00a0sense of your financial resources and\u00a0remind you that even if you just got paid, most, if not all, of your check may\u00a0need to go toward fixed expenses.<\/li>\n<li style=\"font-weight: 400;\"><strong>Assists in goal setting<\/strong>: Since you get to decide how to allocate\u00a0your money, a budget can help you set goals. For example, if you create a yearly budget, you could plan and acccount\u00a0for an upcoming\u00a0family trip and start saving money for it in advance without worrying about having the money at\u00a0the last minute.<\/li>\n<\/ul>\n<h3>Cons<\/h3>\n<ul>\n<li style=\"font-weight: 400;\"><strong>Budgets take energy<\/strong>: Planning a budget takes dedication. Since most students\u00a0lead busy lives and are balancing different demands\u00a0like work, school, and time with family and friends, it can\u00a0be easy to slip up. For example, if you have a stressful week at work or school, you might overspend while going out with friends and forget how much you budgeted for leisure activities.<\/li>\n<li style=\"font-weight: 400;\"><strong>Results take time<\/strong>: Since most budgets cover\u00a0a time period of a month, year, or even longer, people may\u00a0become frustrated waiting to see if their financial situation is better than it was before. Frustration can lead people to abandon their budget and go back to overspending or neglecting to save.<\/li>\n<li style=\"font-weight: 400;\"><strong>Budgets may\u00a0be strict<\/strong>: Remember that one of the important strategies for creating a successful budget is earmarking money for &#8220;treats&#8221; and extras such as entertainment.\u00a0However, in an effort to become more financially disciplined, some people make\u00a0budgets that are too restrictive and unrealistic. This can\u00a0backfire and lead to\u00a0overspending in one area or abandoning the budget altogether.<\/li>\n<\/ul>\n<h2>Creating a Personal Budget<\/h2>\n<p>Even though you may be persuaded by the downsides of budgeting and think, &#8220;It&#8217;s not for me!&#8221;\u00a0don&#8217;t give up until you&#8217;ve tried it. Tracking one&#8217;s income and spending is a good exercise for anyone, and if you follow the basic process, below, it&#8217;s easier than you think.<\/p>\n<h3>Stage 1: Determine Goals<\/h3>\n<p class=\"p1\"><span class=\"s1\">The first strategy\u00a0to create a successful budget\u00a0is to determine <strong>w<\/strong><\/span><span class=\"s1\"><strong>hy<\/strong> you are doing a budget. Setting goals will give you motivation to stay focused and on budget:\u00a0something \u201creal\u201d to look forward to or achieve.<\/span><\/p>\n<p class=\"p3\"><span class=\"s1\">Try to set both short-term and long-term goals.<\/span><\/p>\n<ul class=\"ul1\">\n<li class=\"li2\"><b><\/b><span class=\"s3\"><b>Short term goals <\/b><\/span><span class=\"s1\">should be things you want to do within 6 months to 1 year, such as\u00a0<\/span><span class=\"s1\">paying off a credit card or saving for your emergency fund<\/span><\/li>\n<li class=\"li2\"><b><\/b><span class=\"s3\"><b>Long term goals <\/b><\/span><span class=\"s1\">should be\u00a0things you want to do two or more years down the line, such as paying off college loans or buying a car<\/span><\/li>\n<\/ul>\n<p class=\"p3\"><span class=\"s1\">If you find the thought of making a budget too dreary to contemplate, start with your dreams, instead.\u00a0<\/span><span class=\"s1\">Sit down with a pen and paper and list out all your hopes for what you want to do in your life. Consider how the stress of financing these dreams will affect you in the short-term and long-term.\u00a0<\/span><span class=\"s1\">Be understanding of yourself, but also be realistic by asking, \u201cWill you be able to do the things you listed at the rate you are going?\u201d<\/span><\/p>\n<h3>Stage 2: Define Categories<\/h3>\n<p class=\"p1\"><span class=\"s1\">Making categories helps\u00a0make the budgeting process easier and quicker. Create a category for each of the areas you\u00a0spend money or save money by grouping like items.\u00a0<\/span><span class=\"s1\">Tracking fewer\u00a0categories makes it easier to budget overall.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Make a list of all the things you <em>spend money<\/em> <em>on<\/em> and <em>save money for<\/em>. Once you have your list try to group items together.<\/span><\/p>\n<p class=\"p1\">Potential categories might include:<\/p>\n<ul>\n<li><i><\/i><span class=\"s1\">Car\u00a0\u2013 gasoline, oil changes, cleaning, upkeep<\/span><\/li>\n<li>Entertainment \u2013 dates, parties, activities, Netflix or other streaming service subscriptions. Anything fun generally ends up in this area<\/li>\n<li>Food\u00a0\u2013 groceries, dining hall, coffee shops, restaurants, and bars<\/li>\n<li>Household \u2013 food, cleaning supplies, personal care, over the counter medicine, and small appliances<\/li>\n<li>Housing \u2013 rent\u00a0or dorm costs<\/li>\n<li>Gifts \u2013 gifts for birthdays, Christmas, showers, weddings, Father\u2019s Day etc.<\/li>\n<li>Clothing \u2013 clothing, shoes and accessories<\/li>\n<li>Insurance \u2013 auto, rental, health, etc.<\/li>\n<li>Savings \u2013 any money going to savings for specific reasons or a general emergency fund<\/li>\n<li>Utilities \u2013 cell phone, Internet, cable, electric, gas, water, trash, etc.<\/li>\n<\/ul>\n<h3>Stage 3: Schedule Adjustments<\/h3>\n<p class=\"p1\">Getting a budget up and running often works well for a month or two, and then encounters mysterious problems. Spending may balance out well initially, but then grow harder to predict or control.<\/p>\n<p class=\"p1\">A key secret: <strong>budgets need attention and adjustment every month<\/strong>.<\/p>\n<p class=\"p1\"><span class=\"s1\">You&#8217;ll\u00a0have the same expenses every month, but they won&#8217;t always be for the same amounts. Therefore, your categories of spending will stay the same, but you&#8217;ll make adjustments to the <\/span><span class=\"s4\"><i>amount<\/i><\/span><span class=\"s1\">\u00a0you budget every month.\u00a0<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">For example,\u00a0if your significant other&#8217;s birthday is coming up, you&#8217;ll need to consider what you&#8217;re planning to do or buy for that event, and how that affects other spending for the month.<\/span><\/p>\n<p>Each month, consider:<\/p>\n<ul class=\"ul1\">\n<li class=\"li3\"><span class=\"s1\">What events or activities do I have coming up?<\/span><\/li>\n<li class=\"li3\"><span class=\"s1\">Am I\u00a0going to be driving more or less?<\/span><\/li>\n<li class=\"li3\"><span class=\"s1\">What holidays are coming up, and what do I need to do to prepare?<\/span><\/li>\n<li class=\"li3\">Is anyone going to be helping me pay for some categories this month?<\/li>\n<\/ul>\n<p class=\"p2\"><span class=\"s3\">If a category of your budget needs to <\/span><span class=\"s1\"><b>increase <\/b>its spending<b>,<\/b><\/span><span class=\"s3\"> then another area will\u00a0need to\u00a0<\/span><span class=\"s1\"><b>decrease <\/b>its budget for that month.<\/span><\/p>\n<h3 class=\"p2\">Stage 4: Consider Expenses that Don&#8217;t Happen Each Month<\/h3>\n<p class=\"p1\"><span class=\"s1\">Another challenging\u00a0area for\u00a0budgeting concerns things you know you&#8217;ll have to pay for, but infrequently or not on a set schedule. Such items include:\u00a0<\/span><\/p>\n<ul class=\"ul1\">\n<li class=\"li2\"><span class=\"s2\">taxes<\/span><\/li>\n<li class=\"li2\">insurance premiums<\/li>\n<li class=\"li2\"><span class=\"s2\">clothing<\/span><\/li>\n<li class=\"li2\"><span class=\"s2\">vacation<\/span><\/li>\n<li class=\"li2\">healthcare<\/li>\n<\/ul>\n<p class=\"p3\"><span class=\"s2\">You don\u2019t want April\u00a0to roll around and suddenly have to come up with a big amount of money to pay your taxes.<\/span><\/p>\n<p class=\"p3\"><span class=\"s2\">To prepare ahead of time, start\u00a0setting money aside every month in a\u00a0savings account. This will become a new category for your spending. You can divide\u00a0things like insurance premiums into monthly chunks and sock that away ahead of time, in order to have enough for the lump payment when it comes due. Add an additional amount for less-predictable spending. That\u00a0way, if you encounter a\u00a0big sale at your favorite store, then you can\u00a0stock up and not wreak havoc on your\u00a0budget. It will take\u00a0several months to get a cushion, so take that into account now.<\/span><\/p>\n<p class=\"p1\"><span class=\"s2\">It doesn\u2019t matter what precise system you use. You just need to have a plan for these expenses.<\/span><\/p>\n<h3 class=\"p2\">Stage 5: Unexpected Expenses<\/h3>\n<p class=\"p1\"><span class=\"s1\">The hardest part of budgeting for most people is<i> unexpected expenses<\/i>.\u00a0These may be unexpected, and sometimes unpleasant, but you <strong>can<\/strong> still plan for them.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Types of unexpected expenses include<\/span><\/p>\n<ul class=\"ul1\">\n<li class=\"li2\"><span class=\"s1\">auto repairs<\/span><\/li>\n<li class=\"li2\"><span class=\"s1\">home repairs<\/span><\/li>\n<li class=\"li2\"><span class=\"s1\">veterinarian expenses<\/span><\/li>\n<li class=\"li2\"><span class=\"s1\">medical bills (like co-pays and prescriptions)<\/span><\/li>\n<\/ul>\n<p class=\"p1\"><span class=\"s1\">If you have a car, plan to have it repaired. The unknowns\u00a0are\u00a0when that will be and how much it will cost. To prepare, s<\/span><span class=\"s2\">et money aside ahead of time. Y<\/span><span class=\"s1\">ou may think, \u201cEasier said than done!\u201d \u00a0But putting aside as much as possible (and as realistic) will\u00a0reduce your debt as well as lower your stress level!<\/span><\/p>\n<p><span class=\"s1\">Two ways you can set money aside:<\/span><\/p>\n<ul>\n<li><span class=\"s1\">Set a lump sum of money aside (the easiest way)<\/span><\/li>\n<li><span class=\"s1\">Set up categories for these expenses (<span class=\"s3\">like you did for your monthly expenses<\/span>). This is more time-consuming but you can track exactly where your money is going.<\/span><\/li>\n<\/ul>\n<p><span class=\"s1\">Note \u2013 This is <\/span><span class=\"s2\"><b>separate\u00a0<\/b><\/span><span class=\"s1\">from your emergency fund. Most financial experts recommend that you have 3-6 months&#8217; worth of income in savings for emergencies.\u00a0<\/span><span class=\"s1\"><strong>Unexpected\u00a0expenses are not emergencies<\/strong>. Emergency funds should be untouched and on-hand for dire situations like losing a long-term job or encountering a major medical issue.\u00a0<\/span><\/p>\n<h4 class=\"p3\"><span class=\"s1\">How much money should you set aside?<\/span><\/h4>\n<p class=\"p1\"><span class=\"s1\">The best way to figure how much to budget for unexpected expenses\u00a0is to\u00a0list\u00a0all the unplanned expenses you had last year, plus ones you can predict are coming soon. For example, you might\u00a0predict that if you have a dog, he will have to visit the\u00a0veterinarian at least 2 times a year for unexpected reasons.<\/span><\/p>\n<ul class=\"ul1\">\n<li class=\"li2\"><span class=\"s1\">Make a list of all unexpected expenses<\/span><\/li>\n<li class=\"li2\"><span class=\"s1\">Estimate how much money you should have set aside for the year<\/span><\/li>\n<li class=\"li2\"><span class=\"s1\">Take your total and divide by 12 and set this much aside each month<\/span><\/li>\n<\/ul>\n<p class=\"p1\"><span class=\"s1\">It\u00a0might take you a while\u00a0to get enough money set aside. Keep working at this, and don&#8217;t give up if you don&#8217;t always meet this target each month.<\/span><\/p>\n<h3 class=\"p1\">The Envelope Method<\/h3>\n<p>Still not convinced that making and following a budget is doable? The following video describes a budgeting technique that&#8217;s very easy\u00a0and straightforward to follow: the &#8220;Envelope Budget.&#8221; Simply placing cash in labeled envelopes (one for each category or purpose)\u00a0each\u00a0month can be a very effective means of building healthy spending habits.<\/p>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"Cash Budgeting Using the Envelope System | CASH ENVELOPES | Young Finances\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/knfUHKzJ9m8?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<div class=\"textbox exercises\">\n<h3>Activity: Creating a Personal Budget<\/h3>\n<h4>Objective<\/h4>\n<ul>\n<li style=\"font-weight: 400;\">Create a personal budget<\/li>\n<\/ul>\n<h4>Directions<\/h4>\n<ul>\n<li>Review the <em>How to Budget Using the Envelope Method<\/em>\u00a0below, or find another &#8220;how to budget&#8221; video of your choosing.<\/li>\n<li>Select one type of budgets suggested\u00a0in the text or in the video. \u00a0Write down each step for the type of budget you selected.<\/li>\n<li style=\"font-weight: 400;\">Complete each step using your own financial information.<\/li>\n<li style=\"font-weight: 400;\">Do you think this process for creating a personal budget was helpful? Is there anything you\u2019d change?<\/li>\n<\/ul>\n<\/div>\n<p>\t<iframe id=\"lumen_assessment_878\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=878&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_878\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-247\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Budgeting. <strong>Authored by<\/strong>: Jolene Carr. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Revision and Adaptation of How to Budget Your Money. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Woman in a Grocery Aisle. <strong>Authored by<\/strong>: Sir Mildred Pierce. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/sirmildredpierce\/33586505\/sizes\/o\/\">https:\/\/www.flickr.com\/photos\/sirmildredpierce\/33586505\/sizes\/o\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><li>Image of movie theater concessions. <strong>Authored by<\/strong>: Susan Sermoneta. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/flic.kr\/p\/htEDCJ\">https:\/\/flic.kr\/p\/htEDCJ<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/\">CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives <\/a><\/em><\/li><li>How to Budget Your Money. <strong>Provided by<\/strong>: Be Centsable. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/www.becentsable.net\/2015\/01\/budget-money.html\/\">http:\/\/www.becentsable.net\/2015\/01\/budget-money.html\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>How to Budget Using the Envelope Method. <strong>Authored by<\/strong>: LaTisha Styles. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/knfUHKzJ9m8\">https:\/\/youtu.be\/knfUHKzJ9m8<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":277,"menu_order":5,"template":"","meta":{"_candela_citation":"{\"0\":{\"type\":\"cc\",\"description\":\"Woman in a Grocery Aisle\",\"author\":\"Sir Mildred Pierce\",\"organization\":\"\",\"url\":\"https:\/\/www.flickr.com\/photos\/sirmildredpierce\/33586505\/sizes\/o\/\",\"project\":\"\",\"license\":\"cc-by-sa\",\"license_terms\":\"\"},\"1\":{\"type\":\"cc\",\"description\":\"Image of movie theater concessions\",\"author\":\"Susan Sermoneta\",\"organization\":\"\",\"url\":\"https:\/\/flic.kr\/p\/htEDCJ\",\"project\":\"\",\"license\":\"cc-by-nc-nd\",\"license_terms\":\"\"},\"2\":{\"type\":\"copyrighted_video\",\"description\":\"How to Budget Using the Envelope 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