{"id":2384,"date":"2023-05-09T18:50:34","date_gmt":"2023-05-09T18:50:34","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/?post_type=chapter&#038;p=2384"},"modified":"2024-10-18T20:55:10","modified_gmt":"2024-10-18T20:55:10","slug":"savings-expenses-budgets-learn-it-3","status":"web-only","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/chapter\/savings-expenses-budgets-learn-it-3\/","title":{"raw":"Savings, Expenses, Budgets: Learn It 3","rendered":"Savings, Expenses, Budgets: Learn It 3"},"content":{"raw":"<h2>Creating a Budget<\/h2>\r\n<p>Even though you may be persuaded by the downsides of budgeting and think, \u201cIt\u2019s not for me!\u201d don\u2019t give up until you\u2019ve tried it. Tracking one\u2019s income and spending is a good exercise for anyone, and if you follow the basic process below, it\u2019s easier than you think.<\/p>\r\n<section class=\"textbox proTip\">You can write down your budget on paper, use a computer spreadsheet program such as Excel or Google Sheets, or you can find popular budgeting apps that work for you. Some apps link to your accounts and offer other services such as tracking credit cards and your credit score. The key is to find an app that does what you need and actually use it. See <a href=\"https:\/\/clark.com\/personal-finance-credit\/budgeting-saving\/best-budgeting-apps\/\">Best Budgeting Apps in 2023<\/a> for some good apps to try.<sup id=\"footnote-ref2\" data-type=\"footnote-number\"><\/sup><\/section>\r\n<p>Armed with the right tools and a clear direction, let's dive into the step-by-step process to create a budget that aligns with your financial goals.<\/p>\r\n<h3>Step 1: Determine Goals<\/h3>\r\n<p>The first strategy\u00a0to create a successful budget\u00a0is to determine <strong>why<\/strong> you are doing a budget. Setting goals will give you motivation to stay focused and on budget:\u00a0something real to look forward to or achieve.<\/p>\r\n<p>Try to set both short-term and long-term goals.<\/p>\r\n<ul class=\"ul1\">\r\n\t<li class=\"li2\"><b>Short-term goals <\/b>should be things you want to do within six months to a year, such as\u00a0paying off a credit card or saving for your emergency fund<\/li>\r\n\t<li class=\"li2\"><b>Long-term goals <\/b>should be\u00a0things you want to do two or more years down the line, such as paying off college loans or buying a car<\/li>\r\n<\/ul>\r\n<p>If you find the thought of making a budget too dreary to contemplate, start with your dreams instead.\u00a0Sit 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.\u00a0Be 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<\/p>\r\n<h3>Step 2: Define Categories<\/h3>\r\n<p>Making categories helps make the budgeting process easier and quicker. Create a category for each of the areas you spend money or save money by grouping like items.\u00a0<\/p>\r\n<section class=\"textbox proTip\">\r\n<p>Tracking fewer\u00a0categories makes it easier to budget overall.\u00a0<\/p>\r\n<\/section>\r\n<p>Make a list of all the things you spend money on and save money for. Once you have your list, try to group items together. Potential categories might include:<\/p>\r\n<ul>\r\n\t<li><i><\/i><span class=\"s1\">Car: gasoline, oil changes, cleaning, upkeep.<\/span><\/li>\r\n\t<li>Entertainment: dates, parties, activities, Netflix or other streaming service subscriptions. Anything fun generally ends up in this area.<\/li>\r\n\t<li>Food: groceries, dining hall, coffee shops, restaurants, and bars.<\/li>\r\n\t<li>Household: food, cleaning supplies, personal care, over-the-counter medicine, and small appliances.<\/li>\r\n\t<li>Housing: rent, house payments,\u00a0or dorm costs.<\/li>\r\n\t<li>Gifts: gifts for birthdays, Christmas, showers, weddings, etc.<\/li>\r\n\t<li>Clothing: clothing, shoes, and accessories.<\/li>\r\n\t<li>Insurance: auto, rental, health, etc.<\/li>\r\n\t<li>Savings: any money you are going to save for specific reasons or to a general emergency fund.<\/li>\r\n\t<li>Utilities: cell phone, Internet, cable, electric, gas, water, trash, etc.<\/li>\r\n<\/ul>\r\n<h3>Step 3: Schedule Adjustments<\/h3>\r\n<p>Getting a budget up and running often works well for a month or two, and then mysterious problems come up. Spending may balance out well initially, but then grow harder to predict or control.<\/p>\r\n<section class=\"textbox proTip\">\r\n<p>A key secret: <strong>budgets need attention and adjustment every month<\/strong>.\u00a0<\/p>\r\n<\/section>\r\n<p>You might have 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 <em>amount<\/em>\u00a0you budget every month.\u00a0For 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.<\/p>\r\n<p><br \/>\r\nEach month, consider the following questions:<\/p>\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>If a category of your budget needs to increase its spending, then another area will\u00a0need to decrease its spending for that month.<\/p>\r\n<h3>Step 4: Consider Expenses That Don't Happen Each Month<\/h3>\r\n<p>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:<\/p>\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\">health care<\/li>\r\n<\/ul>\r\n<p>You don\u2019t want April to roll around and suddenly have to come up with a big amount of money to pay your taxes. To prepare ahead of time, start setting money aside every month in a savings account. This savings will become a new category for your spending.\u00a0<\/p>\r\n<section class=\"textbox proTip\">\r\n<p>You can divide\u00a0things like insurance premiums into monthly chunks and store 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.<\/p>\r\n<\/section>\r\n<p>It will take several months to get a cushion, so take that into account now. It doesn\u2019t matter what precise system you use. You just need to have a plan for these expenses.<\/p>\r\n<h3>Step 5: Unexpected Expenses<\/h3>\r\n<p>The hardest part of budgeting for most people is unexpected expenses. These expenses are often a surprise, and sometimes unpleasant, but you <strong>can<\/strong> still plan for them. Types of unexpected expenses include:<\/p>\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>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, set money aside ahead of time. You may think, \u201cEasier said than done!\u201d but putting aside as much as possible (and as realistically as possible) will\u00a0reduce your debt as well as lower your stress level!<br \/>\r\nThere are two ways you can set money aside:<\/p>\r\n<ul>\r\n\t<li>set a lump sum of money aside (the easiest way), or<\/li>\r\n\t<li>set up categories for these expenses (<span class=\"s3\">like you did for your monthly expenses<\/span>). This method is more time-consuming, but you can track exactly where your money is going.<\/li>\r\n<\/ul>\r\n<section class=\"textbox proTip\">\r\n<p>This savings is separate from your emergency fund. Most financial experts recommend that you have three to six months' worth of income in savings for emergencies. <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.<\/p>\r\n<\/section>\r\n<p><strong>How much money should you set aside?<\/strong><\/p>\r\n<p>The best way to figure out how much to budget for unexpected expenses is to list all the unplanned expenses you had last year, plus ones you can predict are coming soon. Make a list of all unexpected expenses, then estimate how much money you should have set aside for the year. Take your total and divide it by twelve and set this much aside each month. It might take you a while to get enough money set aside. Keep working on saving, and don't give up if you don't always meet your target each month.<\/p>","rendered":"<h2>Creating a Budget<\/h2>\n<p>Even though you may be persuaded by the downsides of budgeting and think, \u201cIt\u2019s not for me!\u201d don\u2019t give up until you\u2019ve tried it. Tracking one\u2019s income and spending is a good exercise for anyone, and if you follow the basic process below, it\u2019s easier than you think.<\/p>\n<section class=\"textbox proTip\">You can write down your budget on paper, use a computer spreadsheet program such as Excel or Google Sheets, or you can find popular budgeting apps that work for you. Some apps link to your accounts and offer other services such as tracking credit cards and your credit score. The key is to find an app that does what you need and actually use it. See <a href=\"https:\/\/clark.com\/personal-finance-credit\/budgeting-saving\/best-budgeting-apps\/\">Best Budgeting Apps in 2023<\/a> for some good apps to try.<sup id=\"footnote-ref2\" data-type=\"footnote-number\"><\/sup><\/section>\n<p>Armed with the right tools and a clear direction, let&#8217;s dive into the step-by-step process to create a budget that aligns with your financial goals.<\/p>\n<h3>Step 1: Determine Goals<\/h3>\n<p>The first strategy\u00a0to create a successful budget\u00a0is to determine <strong>why<\/strong> you are doing a budget. Setting goals will give you motivation to stay focused and on budget:\u00a0something real to look forward to or achieve.<\/p>\n<p>Try to set both short-term and long-term goals.<\/p>\n<ul class=\"ul1\">\n<li class=\"li2\"><b>Short-term goals <\/b>should be things you want to do within six months to a year, such as\u00a0paying off a credit card or saving for your emergency fund<\/li>\n<li class=\"li2\"><b>Long-term goals <\/b>should be\u00a0things you want to do two or more years down the line, such as paying off college loans or buying a car<\/li>\n<\/ul>\n<p>If you find the thought of making a budget too dreary to contemplate, start with your dreams instead.\u00a0Sit 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.\u00a0Be 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<\/p>\n<h3>Step 2: Define Categories<\/h3>\n<p>Making categories helps make the budgeting process easier and quicker. Create a category for each of the areas you spend money or save money by grouping like items.\u00a0<\/p>\n<section class=\"textbox proTip\">\n<p>Tracking fewer\u00a0categories makes it easier to budget overall.\u00a0<\/p>\n<\/section>\n<p>Make a list of all the things you spend money on and save money for. Once you have your list, try to group items together. Potential categories might include:<\/p>\n<ul>\n<li><i><\/i><span class=\"s1\">Car: gasoline, oil changes, cleaning, upkeep.<\/span><\/li>\n<li>Entertainment: dates, parties, activities, Netflix or other streaming service subscriptions. Anything fun generally ends up in this area.<\/li>\n<li>Food: groceries, dining hall, coffee shops, restaurants, and bars.<\/li>\n<li>Household: food, cleaning supplies, personal care, over-the-counter medicine, and small appliances.<\/li>\n<li>Housing: rent, house payments,\u00a0or dorm costs.<\/li>\n<li>Gifts: gifts for birthdays, Christmas, showers, weddings, etc.<\/li>\n<li>Clothing: clothing, shoes, and accessories.<\/li>\n<li>Insurance: auto, rental, health, etc.<\/li>\n<li>Savings: any money you are going to save for specific reasons or to a general emergency fund.<\/li>\n<li>Utilities: cell phone, Internet, cable, electric, gas, water, trash, etc.<\/li>\n<\/ul>\n<h3>Step 3: Schedule Adjustments<\/h3>\n<p>Getting a budget up and running often works well for a month or two, and then mysterious problems come up. Spending may balance out well initially, but then grow harder to predict or control.<\/p>\n<section class=\"textbox proTip\">\n<p>A key secret: <strong>budgets need attention and adjustment every month<\/strong>.\u00a0<\/p>\n<\/section>\n<p>You might have 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 <em>amount<\/em>\u00a0you budget every month.\u00a0For 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.<\/p>\n<p>\nEach month, consider the following questions:<\/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>If a category of your budget needs to increase its spending, then another area will\u00a0need to decrease its spending for that month.<\/p>\n<h3>Step 4: Consider Expenses That Don&#8217;t Happen Each Month<\/h3>\n<p>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:<\/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\">health care<\/li>\n<\/ul>\n<p>You don\u2019t want April to roll around and suddenly have to come up with a big amount of money to pay your taxes. To prepare ahead of time, start setting money aside every month in a savings account. This savings will become a new category for your spending.\u00a0<\/p>\n<section class=\"textbox proTip\">\n<p>You can divide\u00a0things like insurance premiums into monthly chunks and store 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.<\/p>\n<\/section>\n<p>It will take several months to get a cushion, so take that into account now. It doesn\u2019t matter what precise system you use. You just need to have a plan for these expenses.<\/p>\n<h3>Step 5: Unexpected Expenses<\/h3>\n<p>The hardest part of budgeting for most people is unexpected expenses. These expenses are often a surprise, and sometimes unpleasant, but you <strong>can<\/strong> still plan for them. Types of unexpected expenses include:<\/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>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, set money aside ahead of time. You may think, \u201cEasier said than done!\u201d but putting aside as much as possible (and as realistically as possible) will\u00a0reduce your debt as well as lower your stress level!<br \/>\nThere are two ways you can set money aside:<\/p>\n<ul>\n<li>set a lump sum of money aside (the easiest way), or<\/li>\n<li>set up categories for these expenses (<span class=\"s3\">like you did for your monthly expenses<\/span>). This method is more time-consuming, but you can track exactly where your money is going.<\/li>\n<\/ul>\n<section class=\"textbox proTip\">\n<p>This savings is separate from your emergency fund. Most financial experts recommend that you have three to six months&#8217; worth of income in savings for emergencies. <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.<\/p>\n<\/section>\n<p><strong>How much money should you set aside?<\/strong><\/p>\n<p>The best way to figure out how much to budget for unexpected expenses is to list all the unplanned expenses you had last year, plus ones you can predict are coming soon. Make a list of all unexpected expenses, then estimate how much money you should have set aside for the year. Take your total and divide it by twelve and set this much aside each month. It might take you a while to get enough money set aside. Keep working on saving, and don&#8217;t give up if you don&#8217;t always meet your target each month.<\/p>\n","protected":false},"author":15,"menu_order":7,"template":"","meta":{"_candela_citation":"[]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":89,"module-header":"learn_it","content_attributions":[],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapters\/2384"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/wp\/v2\/users\/15"}],"version-history":[{"count":21,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapters\/2384\/revisions"}],"predecessor-version":[{"id":13916,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapters\/2384\/revisions\/13916"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/parts\/89"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapters\/2384\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/wp\/v2\/media?parent=2384"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapter-type?post=2384"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/wp\/v2\/contributor?post=2384"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/wp\/v2\/license?post=2384"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}