January 2005  Email this  Print this
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SPENDING
Budgets That Work (Honest)
by Jane Bennett Clark
Here's our candidate for the New Year's resolution that'smost frequently broken: Set up a budget. The b word can be so off-putting that financial professionals often prefer to use the more euphemistic "spending plan." As for actually sitting down and setting one up ... anyone for cleaning out the basement?
Yet figuring out where your money goes is the only way to get it under control. And the process doesn't have to be difficult. To make sure that your resolve -- and your budget -- last beyond January 31, follow these basic rules:
- Keep it simple. A successful budget needs to be compatible with lessons that you learned in kindergarten: Stay on task and take one step at a time.
- Make it personal. Rely on sophisticated software if you wish, but paper and pencil work fine, too.
- Be positive. Don't think of a budget as a straitjacket that limits your spending and takes the joy out of life. Think of it as a way to control small expenses now so that you can buy bigger stuff -- and have more fun -- in the future.
To set up budgets that worked for them, the individuals profiled below marched to the beat of their own drum. But they all ended up just where they wanted to be, whether it was savoring the pleasures of a new home, sitting atop a comfortable savings cushion or taking an exotic vacation.
Set a Goal
When he was just out of college and not making much money, Matt Lorano set a lofty goal for himself. "I wanted to buy a house," says Lorano, 31, a claims processor in Cleveland. With his girlfriend, Jill Moran, he achieved that goal four years ago -- and immediately set himself another: "Now I want to pay off the mortgage."
To get organized, Lorano started with an Excel spreadsheet, dividing his income among fixed expenses, such as rent and utilities, and discretionary outlays, including groceries and clothing. He earmarked savings for a down payment and set aside another fund for emergencies.
With his budget set up, Lorano now uses Quicken to keep it running smoothly. The software helps him allocate paychecks, and it recalculates subtotals based on expenditures, which Lorano enters almost daily.
Budgets don't have to be draconian. But to meet their goal of being mortgage-free within six years, Lorano and Moran say they are cutting back anywhere they can. They eat out sparingly, keep clothing costs to a minimum, and limit their grocery bills to about $100 a week, which allows them to almost double their monthly mortgage payment.
Once the mortgage is history, Lorano plans to shift the money toward other investments. "What really motivates people to curb spending is having a goal," says Christopher Jones, of Keystone Financial Planning, in Easton, Pa. "Why cut back unless you have something more valuable to spend the money on?"
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