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Finances 101: Where to Start

Berkeley Parents Network > Advice > Household Management > Finances 101: Where to Start


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Getting started with a budget

Oct 2011

I recently decided not to go back to my full-time creative job so that I could stay at home with my 6-month-old daughter. Now that we're living on one income, my husband has charged me with creating a budget for the family expenses. This seems akin to asking me to write a report in Greek. I have all of our accounts in Mint.com, but don't know where to go from there. I'd love some advice on resources that could help me get started. I'm not sure if I need to read a book or see a financial advisor or some kind of life coach/therapist. Or if there's a simple application that can help me. Has anyone been through this or have any good suggestions? Thanks in advance. Financial Dummy


As a base for getting started, I found this calculator helpful: http://www.epi.org/resources/budget/

It calculates what a basic budget should be based on family size and location. While not everything will apply, such as the childcare catagory, it will give you some base numbers to work with, and you can compare your actual spending once you've tracked that. The calculator is based on meeting your BASIC needs; unless you have a very tight budget, your numbers are likely to be higher, especially in the food and other catagories.

A budget takes a bit of time to perfect, and some trial and error, so give yourself at least 2-3 months to get the hang of it all. If you feel like you can't even see the page when you sit down to budget, hire someone to do the number crunching for you or sit with you while you figure out your budget.

Start out making a list of all the different catagories that you spend money on. A good example would be your rent/mortgage and all the bills taken care of on your online list. Then think about all the other catagories of things you spend on, such as household items, toiletries, clothes, outings, toys, coffee out. If numbers and meticulous number keeping make you phobic, the first step will be very hard, but will make it very easy for you to budget long-term. Or bring that friend or hired help on board.

The second step is for you and your husband to write down everything you spend money on as you spend it so you can start getting an idea of how much gets spent and on what kinds of things. Agree upon a format for writing it down so that it is easy for you (or your helper) to read and track. Do it for at least a couple of weeks, though for at least 3 months is ideal - calculate it out each month or every couple of weeks to keep from getting overwhelmed.

After whatever period of time you've decide upon, add up the catagories. From there you can decide what changes you want to make (an example is that if you guess that your food budget needs to be $600/month and $200 gets spend on coffee and lunches out, then you either need to calculate $800 month food budget, or discuss making coffee and lunches at home more often).

For calculating bills, some can or will always be the same (like rent/mortgage, internet, credit card payment). For things like PG&E that vary, you can call PG&E directly and ask what your average bill is as well as what your highest winter bill has been. I always calculate the average into my budget, expecting the winter bill to go over, but stay well under the number from late spring to early autumn. For annual fees, I average the cost over 12 months and set the funds aside each month in savings until the fee comes due each year. once you have the hang of it, it's easier ------------------------------------------- You can do it yourself and here is my suggestion - also coming from a financial dummy although I'm able to live on a budget. We were forced last year to fill out a ''financial worksheet'' (for a short sale, different story), which ended up being a great starting point for budgeting. This lists all your major expenses, such as mortgage/rent, loans for cars, minimum credit card payments, insurance payments, utilities, phone, and a ballpark amount for food and groceries - versus your income. You can google ''financial worksheet'' and download one from several bank websites, they all look roughly the same. Fill it out, and it already gives you an idea of how much discretionary income you have besides all the basics that you'll have to pay. Obviously you can just take the categories that make sense to you and put it in your own spreadsheet, you don't need any special format, and you can itemize further as you like. But you do have to be complete, everything large you spend money on should be on there.

After having done this, I went further and took one month of our daily expenses from receipts and our bank statement (take a ''normal'' month that has no expensive holidays or something, like October or January). I itemized everything by categories such as groceries, dining out, entertainment, medication, clothing, car repairs, home maintenance, etc, you could use other categories that make sense to you. Put it in a spreadsheet and add up the categories. You will have a good view on your monthly grocery bill and maybe find that you'll have to do some more bargain shopping, or that too much money is going to the movies, or that your cell phone expenses are topping your grocery bill, or whatever, so it becomes clear where you can save. Having the numbers in a spreadsheet was the only way that I could motivate my husband to be a bit more careful about spending money on food outside the home. If you're pinching hard to keep your food bill to about $600/month and your husband burns through another $300 for lunch with his friends and Starbucks afterwards, then it's pretty clear where the money can be saved.

Mind you, from experience I can tell you that this is all a Major Pain in the Neck to do (gathering all the exact numbers together, ugh), but after a few days of annoyance, it will give you the information that you need. I have found that financial advisors are primarily interested in larger issues or in selling you some kind of service and not in ironing out your minor budget issues. A good personal accountant may be willing to help you, but I think you can save yourself the expense. I know I should have done this type of worksheet a few years earlier and maybe we wouldn't have been so tight now... no longer clueless but still pennyless ------------------------------------------- Budgeting is easy, sticking to it is the challenge.

Money in, money out. Calculate monthly based on your incoming income. There are 2 types of expenses basically, fixed and variable. A variable is anything that varys from month to month i.e. PG&E, EBMUD. A fixed is anything you have to pay the same each month i.e. car payment, mortgage/rent.

I recommend calculating the fixed first, those have to be paid no matter what. Then take each variable expense and average what you've paid over a year's time. PG&E varies so much from winter to summer, which is why I take a year's average.

Now, look at your budget and decide what you ''need'' and what you ''want.'' Need food, don't need health club membership.

You might have to adjust your lifestyle some, but once you do, your family will find the groove. Don't leave any expense out. Write it all down. If you're honest about your spending, you'll get the best result. And if nobody's said to you, let me be the first to say you're doing the absolutely right thing for your family, to step off and take on the job of caretaker. Kids don't remember things, they remember experiences. Good luck. anon ------------------------------------------- It's not that hard. You don't need a financial advisor or even a book. You just basically have to make 2 columns (try Excel, or a piece of scrap paper) - one for incoming funds (that's easy, because it will probably be only 1 number for your spouse's salary) and one for expenses, and make sure the numbers add up.

Re: expenses, start with the things you can't change (mortgage/rent, utilities, insurance, loan payments). It is often recommended that the 2nd step be savings (if you are in a position to be doing this): retirement accounts, college funds, cash savings. (At minimum, you should aim for a savings account containing 3-6 months worth of expenses, if you don't have that already.)

Third step is the expenses that change: groceries, clothes, dining out, gifts, entertainment, etc. Since you are already using Mint, you have all this information already - look back over a year or so and see what your average monthly grocery expenses were (for example), and start with that #. Don't forget a small ''miscellaneous/cash/wiggle room'' category for unexpected or non-categorizable things that come up.

Then, if expenses income, now is the time to sit down with your spouse and discuss where to cut. Should you drop cable? Eat out less? Skip a vacation? Once you have set these goals (ex: max of $100/month on dining out), it is at this point that your list of expenses because a ''budget,'' because it is what you are aiming to do rather than what you have been doing in the past.

The last step is to become diligent at tracking your ongoing expenses. Try to pay for things with debit (vs. cash), keep all the receipts, and enter them regularly. If you are going to be the one doing this job, you'll need to get your spouse's help watching the baby for, say, an hour a week. I use an older software (MS Money) for this, but I have heard good things about Mint, and I bet you can set up the program to alert you in some way if you are exceeding the limits you have set per category (such as if you spend $101 on dining out in a given month). The key though is to be diligent about tracking your spending, otherwise you will have no way of knowing if you're meeting your goals. Good luck and enjoy your time home with baby! ------------------------------------------- Hi, I think it's great - if you have the time and the inclination - to read books. My favorites include the classic ''Your Money or Your Life'' by Joe Dominquez and Vicki Robins (it deals with everything from the psychological and politicial issues of money, how much is ''enough'' as well as a structured plan for financial indendepence - pretty deep stuff), as well as David Bach's books, like ''Smart Couples, Finish First'' or ''The Automatic Millionaire'' (an easier read, with good basic steps and inspirational stories. To your financial peace and prosperity! Pat ------------------------------------------- daveramsey.com has all the answers you need. budgeting calculator, plan, how-to make good choices about your money. he has a radio show youcan listen too online as well. his tools/plan saved our future. so glad i've been there, done that. only wish i had done it sooner ------------------------------------------- Dave Ramsey's book The Total Money Makeover really helped me with learning how to budget and be financially responsible and stable. He also has a radio and TV show. His advice is simple, straightforward, and sound. It takes hard work and dedication to put into practice what he recommends, but it pays off. We paid off $48,000 in debt in 2 years and saved another $100k in another 2! Making between $40k and $140k/year good luck! ------------------------------------------- Congrats on your choice to be a SAHM. I will share what we do for budgeting. You will need to use a spreadsheet to keep things organized. Here are the steps.

1) Write down all of your set reoccurring monthly expenses. These are things like rent/mortgage, student loans, etc. If its something like health insurance dont write it down if it comes out of the paycheck automatically. Write only things that are fixed to the penny. Stuff that is required but varies like food and gas goes later. Write down each dollar amount on its own line and label it. Then sum those and call them something like ''fixed monthly expenses''. If its a bill you dont actually pay every month, take the annual amount and divide it by 12.

2) Write down your best estimate for the expenses that reoccur but are not set in stone like groceries, stuff for the baby, medical stuff etc. If you have no idea, spend a month acting as you usually do and write down ALL of your expenses to keep track of them. Like the above area, write each in its own line and sum at the end of the section. Call this section ''variable monthly expenses'' or something like that.

3) Write down in a new section what your monthly take home household income is. Use the actual number from the pay stub not annual salary divided by 12.

4) Subtract the numbers from the other two sections from the income number and write what remains down. This is your discretionary spending number. Hopefully it is positive. If not, or even if its a small number you need to look above for way to cut. For example, this might show you that you need to cancel cable, make an effort to be more strategic in your driving to cut your gas bill, etc

5) If you have credit card debt, your first priority is to pay that off making payments above the minimum payment using what remains from your last step as a guide.

6) Once you dont have credit card debt savings is next. We go by the rule of save enough to make things a little uncomfortable. Have your bank automatically transfer this sum into your savings account at the end of every month. Knowing this is going to happen will help make sure you dont ''Cheat''.

7) Whats left is your Fun money. You will need to save receipts for any spending in this category and write them in your spreadsheet to make sure you dont go over. If on a particular month you underspend on this part of your budget, you can put the extra in your savings account, spend it, or roll it over as a credit toward the next month.

This system takes some time up front and 20 mins every week to type your receipts but it is very straight forward, will ensure you live with in your means and build savings. Likes to Budget ------------------------------------------- Get a copy of The Tightwad Gazette by Amy Dacyczyn - you can get a used copy for about $3 at the moment. The book, which is a compilation of 3 volumes of her newsletters, are full of tips about being frugal. But by far the most valuable part of the book is her philosophy, and the best way to ''get it'' is to read Amy's introduction to each newsletter. Being frugal is a mindset, and it's about being creative as much as economical. It's about enjoying what you have, from family time and community to free events and resources.

I found these books at my mother-in-law's house, and read them over a four day vacation. I bought my own (used) copy. Then I took the most useful ideas, created a budget, made price lists, and was able to take two years off work with my young children in the Bay Area. It *is* possible to entertain, to have adventures with your kids, and to have fun being frugal, even here. You do have to spend weekly time planning, buy groceries at multiple places, and be creative about Christmas and other gift-giving holiday. You might not be able to shop at your favorite organic grocery store, and your kids won't take all the summer camps other kids do. But you will have more time with your kids and family, you will find plenty of free enrichment, and your life will be more relaxed. Pat ------------------------------------------- you might be over thinking it. The purpose of a budget is to make sure that you are not spending more than you are earning, and to meet financial goals that you have set (often saving - for retirement, college, upcoming vacation, etc.).

A very simple thing to do, and a place to start, is to make a list, month by month of your regular bills. Since some bills are monthly, and some are on a different schedule, a Month-by-month list gives you the ability to look ahead. Be sure to include the estimated date due, estimated amount, and space to enter actual amount paid. Then total the estimated at the bottom of each month. This way, heavy expense months are illustrated by the list, so it helps you to plan ahead.

Once you have all your regular bills on your list, decide how you are going to list expenses that are not monthly bills - for example food and discretionary spending. If you always use your credit card for groceries or gas and your credit card bill is reasonably consistent, you can just include it with that bill on your monthly list. Or, you can give yourselves an allowance for groceries, and/or discretionary spending, and include it on your list as a ''bill'' that you pay to yourselves. The biggest catch is ATM use. I just don't use my ATM card on impulse. You can also choose to include something like an emergency fund for when your car breaks down or you have an unexpected veterinarian bill.

Since I'm old fashioned and still write checks to pay bills, and I hate spreadsheets, I print the list in January and keep it in my bill-paying kit (a plastic filing bin). Twice a month, I pay bills and fill in the amount paid on my bill-paying list. You can add the total every month to see how you are doing against your estimate, and to make sure you are not spending more than your income. The list also helps as a checklist in case one of your bills does not arrive in the mail. L ------------------------------------------- Hi there, I'm a CPA myself actully, but I don't use any software tools to track our household budget, a simple excel spreadsheet does the job. I'd recommend you start with the big picture (if you struggle with exact amounts, just take a look at a few prior bills and average out an amount/round up to be safe):

1: write down all sources of income (paycheck, etc)

2: list what you expect/budget to spend by category:
* Transportation (gas, car insurance, maintenance, bart tx, etc)
* Utilities (phone, cell, gas, water, internet, etc)
* House (mortgage, rent, annual property taxes/12,etc)
* Kids (clothing, formula, toys, diapers, lessons, etc)
* Health Insurance (paid separately)
* Memberships (gym, professional dues, etc)
* Food (estimate your grocery bill plus what you spend eating out)
* Other (such as credit card bills, school loans, dry cleaning, clothing, new furniture, etc)
* Savings - Don't forget to put aside an amount towards your savings account

Total of #1 minus total in #2 is your NET Income (what is left over after you pay your living expenses).

3 - TRACK your Actual Monthly Spending in above categories during the month.

If you compare #2 and #3 you will see where you are over or under; if you're over, you will be cutting down if you wanted to stay within your budget. Hope this helps. LL


Husband handles finances - I'm clueless

May 2008

I'm not even sure how to ask about this....I am SOOOOOO not a numbers/money brain. My husband does all the tax prep for our tax guy and most of our family bookkeeping. I pay most of the household bills either on line or with checks, but he does all the entering into the computer. We have a family of 4 and are both self employed. Some investments, mortgage, insurance, etc. We work hard and sometimes struggle financially but generally are comfortable and have what we need.

We are in our 50's and 60's (and have teenagers). I worry lately that if anything happened to my husband (G-d forbid) I would have no idea what our finances are about. I know next to nothing about how my husband runs his business (with employees, payroll, bills, etc). I would have no idea what even to look at first....would his business run without him? Would I be expected to take over? What about all of our loans, insurance, life insurance, health insurance, etc.

What I'm asking is....how do I start to learn about our family finances...my husband has his own system for filing, keeping track etc, so if I start to look thru the files I have no idea what i''m looking for. I know the first step is to ask him about it, which I have and we always agree that I need to learn and that he'll show me, but somehow it never happens.

Do I need to take a class about finances? Is it easier then I'm thinking? Where do I start? I'm somewhat annoyed at myself and also embarrased that I allowed my self to ignore this aspect of our lives for so long, but really when money/finances talk comes around I glaze over. Any advice wll be so appreciated. Thanks in advance, anon


i suggest you start by speaking to a person at each one of your financial institutions. lets say you have a retirement account at Fidelity Investments, a bank account at Bank of America, maybe an accountant as well. take each statement (tax return to accountant) from each institution and walk through it with a representative. start with the bank, then the brokerage houses. at first the language will seem arcane, but eventually you will get it. this is just a start...
We were similarly clueless, and met with Brandi Bernazzani. She went through our budget with us, helped us figure out exactly what we bring in, what we send out, helped us organize our finances, make a plan for college and retirement. She is wonderful-very approachable and giving, and she comes to your house! Not at all like a typical financial planner in a fancy office, but she has just as much expertise. I highly recommend her. Monica
Hello -

Most of the advice you received so far said to go see a ''professional'' - please remember that most of these ''professionals'' receive compensation and kick backs/commission for their advice - just read the financial/business section of the paper regularly and you'll see stories about people who innocently walked into their bank (major - well known institutions) asked for ''safe investments'' and were sold horrible products with high fees, unreasonable penalties and lost lots of money for these people.

If you're in DEBT and need help getting out - you can start with Suzy Orman's 9 steps to financial freedom - she has simple ways for you to start tracking your spending and climb out of the debt. Once you get beyond that - you can start with other books like ''boglehead's guide'', and ''the four pillars of investing'' -

There's no easy way or magic pill. A part of growing up responsibly is learning these financial skills - which are unfortunately not taught in any reliable public way - and why too many people are led astray by professionals.

If you are just overwhelmed and want to get pointed in a direction - seek a ''fee based'' advisor who only charges you for the financial review and does not receive commission for the products they sell you.

If you see an advisor and they immediately start telling you that a universal life insurance, variable or equity index insurance plan are safe, reliable ''investment'' vehicles - RUN - don't walk out of that person's office and read more books.

Most of these books are at the library too so you don't even have to spend any money - just your own time and effort. You can do it! Protect Yourself - Use Your Own Brain!


Did not see your original post, but if you are looking for a great book on family finances, I highly recommend How to Make the Most of Your Money by Jane Bryant Quinn. I discovered this book when I was in my twenties and it has been my bible. I recently decided to see a financial planner and he basically told me that I'd been doing such a great job, I didn't need him. The book covers all the basics and is very easy to understand. Figured it out
Sorry for late post. If as I believe you said, your husband is willing, you just haven't worked out a way to share the information: have him (you can help) create a summary of all your financial information. This isn't as bad as it sounds, and unless your situation is unusually complicated, shouldn't be more than a couple of pages. For each account, list the name and address of the financial institution, the account number, the name(s) in which it is held, and the type of account (IRA, checking/savings, investment account, etc.) Same for insurance policies (include the beneficiaries if it's a life insurance policy) loans (list the original amount, monthly payment, etc.) and credit card accounts. Then keep it all in a very safe place (one copy off-site, in a safe deposit box or with a very trusted person) and update it once a year.

Everyone should have something like this; not only is it critical in case of disaster, it's helpful for things like retirement planning and applying for loans. The first time through it's hard to assemble the information, then it gets easier. Sarah


Need to learn how to manage our money better

June 2007

I have become interested in how to manage our money better and create substantial savings, but I should have learned this stuff long ago. Can anyone give me some advise on websites or books or general tips to become financially savvy? I have been doing quite a bit of reading from our local library's collection of books. anon


Read ''Woman and Money'' by Susie Orman...you can also get it as an audiobook. It has totally changed my way of thinking about money, my awareness, my money management(good for men too). She's really clear, interesting, touches ALL areas where you might have questions and makes excellent suggestions. I got it as an audiobook on itunes...for someone who might have little time to actually sit and read a book, this is a great alternative. Good luck. money ignorant no more
Read the book : ''The Richest Man in Babylon''. Totally about saving, perfect examples of people who make barely nothing, but still manage to save. Take care Anon
I think Money Magazine is a great tool. The title may sound a bit elitist but it's not. They include sound investing advice but also have a lot of practical day to day advice. The day to day advice includes best strategies for insurance, buying a home, etc. I also like their profiles of actual people & recommendations for improvement. I haven't taken this but noticed that Piedmont Adult School has investing classes for all people and classes especially for women as well. jahls
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