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Jun 8 2009 12:00AM

Question

My husband and I really need to budget; however, we don't know where to start. My husband is the only source of income at this time and we seem to have more bills than money. We realize that we may need to cut some expenses, but not sure what those are. We don't have any money remaining after paying bills to enjoy any family activities.

Answer

Financial planners are in general agreement about what you should do. J. Raleigh Bailes, Jr., CPA, PFS, CFP® of Bailes Bates & Associates, LLP, said you should first prepare a monthly budget so you can see your monthly income and expenses. You could do this in a spreadsheet, first putting your family's monthly take home income, and then listing your expenses.

When listing your expenses, Bailes recommends that you first itemize your fixed monthly expenses such as mortgage/rent, automobile notes, utilities, and real estate taxes. Then you can list your variable expenses such as groceries, clothing, travel, meals and entertainment. "If you can look through bank and credit card statements over the last few months you can do this immediately," he said. "If not, you can begin tracking going forward."
 
"After you've completed a full month's budget, you can see how much cash you have remaining at the end of the month to plan for your future. If necessary, you can begin cutting back on some of your variable expenses so you have more money to fund your emergency fund and goals each month," Bailes said.

Others agreed that the best place to save money is by cutting back on your variable expenses. "Many times the place to start analyzing is the discretionary expenses: downgrade the cable package, downgrade the cell phone package, eat out less, and the like," said FPA member, Jimmy Perryman, CFP®, of Perryman Financial Advisory.

If you do not have an emergency fund, be sure to set that up first. A general rule of thumb is to have between three to six months of living expenses set aside and designated as your emergency fund. 

Perryman also said this process of creating a budget, cutting back on variable expenses and creating an emergency fund doesn't have to be painful. "To make it seem even more worthwhile, set rewards for when you save one month's worth of expenses and another when you've saved two months, and so on," said Perryman. "It doesn't have to be anything big, but something to recognize your accomplishment, like movie night."

"Once you set aside at least three month's worth of living expenses in an emergency fund, and get a handle on spending, you can begin to think about designing a long-term investing plan," Perryman said. "Getting your financial house in order may seem overwhelming at times, so break them up into smaller increments and give yourself a deadline."

You may want to work with a financial planner to help you manage your finances.

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