Budget Tidbit

Here is a great budget tidbit that I found on the CNBC website.

Carmen Wong Ulrich runs a segment called On the Money that I often watch, but she also has a great setup on the CNBC website. I especially like her Budget Calculator. Input your monthly income and it will calculate about how much you should spend in each category, such as housing, transportation, debt, and others.

What I like the most is that Carmen has reasonable (realistic) percentages for how to allocate your income. So if you are feeling ambitious, you can set up a simple Excel spreadsheet, input Carmen’s percentages and adjust them accordingly. I would suggest adjusting your debt payment ratio higher if you want to pay it off quickly, cut back on your “everything else” expenses, and up-the-ante on your savings rate. Just make sure that the percentages adds up to 100% or else you will be scratching your head at the end of the month.

Granted, the calculator is basic and does not allow you to change how much you contribute (ie: to savings) but it is a good place to start. One potential downfall: Carmen did not allocate anything for investing, which is very important - but again, it is a very basic calculator and one could easily lump the expense in with the “Everything else” category.

So what is the point of this tidbit? Part of budgeting is knowing approximately how much you should allow yourself to spend on bills, etc… without undercutting something else. Unfortunately, most people have no idea where to start.

As a result, when people are just starting out (hello Twentysomethings), they often over estimate how much they can spend on housing (often the largest expense) and underestimate their other bills, like utilities, transportation, and other essentials. And by the end of the month, they are way over budget, contemplating getting a second job, and often have nothing left over for savings.

I for one was a victim of it. And oh boy did I have a reality check… But you live and learn, right?

So do yourself a favor and take a look at the link. Input your income and take note of how it compares to your actual spending habits. Because after all, money doesn’t grow on trees…

~K

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