2torial #0564:
Learn2 Establish a Personal Budget (continued)

Add up your expenses

Adding up and categorizing your expenses will clarify how you actually spend your money. Once you have a handle on where your money goes, you can start making adjustments accordingly.

Fixed expenses. Gather a month's worth of checking account information, credit card bills, utility bills, savings and/or retirement fund contributions, and any other records of regular expenses you might have. Add everything together.

Discretionary expenses. Faithfully record your variable expenses for one month. This includes gas and other transportation costs, groceries, laundry and dry cleaning, entertainment, gifts, clothing, subscriptions, club memberships, doctor visits, prescriptions, and the like.

Next, use the totals for fixed and discretionary expenses to calculate your overall expenses for a calendar year. This big picture will not only give you perspective, it will help you decide where to adjust your budget if needed.

Break it down. Use your fixed and discretionary totals to organize your spending into categories. Utilities such as telephone service, electricity, garbage collection, and water can go into one category. Food and household products such as toilet paper, dishwashing soap, and paper towels can go in another.

Organize the categories according to your spending habits and needs. For instance, some people might split out a separate category from entertainment expenses and devote it to books and magazines, while others might have a separate category dedicated to CDs.

Don't forget emergencies and unusual expenses. Plan to set aside a little each month for emergencies and unusual expenses (if you only buy clothes twice a year, or you need to save for dental visits, for example). When this savings account grows larger than you think you'll need, roll some of it over into your long-term savings.