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Plan Well, Retire Well

Saving and investing your money

How to Tell If You Need a Budget


My feet are killing me. Today, I stood on them for nearly 8 hours while I led a train-the-trainer class for staff from several different Chicago-area social service agencies.

What was so important that these agencies are sending their staff for two full days for training? Financial literacy. They want to help their clientele become better money managers and consumers. I was teaching them to use a U of I Extension curriculum called All My Money.

Most of us are trying to squeeze just a little more out of every dollar right now, with gasoline and other prices climbing. Perhaps you can use some of the ideas that were shared during the class today.

Do you need a budget? Should you be tracking your expenses? If you have debt that never seems to shrink, the answer is "Yes." I also believe you should track your expenses for at least a few months any time you go through a major life change. If you have

  • gotten married or divorced
  • had a baby
  • retired
  • changed jobs
  • filed bankruptcy
  • moved to a new place or bought a home
  • started a new job

your expenses are going to change, but by how much? Before you find yourself in financial quicksand, track your expenses to see how it's going. Carry a little notebook with you and jot down every expense. Or, if you use a debit card for everything, collect a receipt from each and every purchase. Write down the information if the merchant doesn't give you a receipt. Or, if you use cash, you can try envelope budgeting.

Make an estimate of how much you spend in a month, by category. Categories might include

  • food
  • transportation
  • rent or mortgage
  • debt payments
  • entertainment and hobbies
  • utilities
  • child care
  • gifts
  • and so on.

Record your expenses or collect receipts for a week. At the end of the week, total the expenses for each category and compare it with your budget to see how you're doing. Checking after just one week will help you catch spending problems while they are still small.

Here's what you might discover. Did you expect to spend $300 on food this month, but you've already spend $150 just this week? Maybe you didn't put "eating out" or "gifts" in your budget, but now you realize that you're spending $25 or more each week going out for lunch at work. And you had to buy a birthday gift. Look at your budget and revise it based on this new information. Can you get by with just $150 for groceries for the rest of the month, or will you have to reduce expenses in another catogory? Will you continue to each out for lunch, or will you decide to pack lunch because other expenses are more important?

Tracking your expenses puts you in control. You can spot problems before they get out of hand, and you can make adjustments right away to get things back on track.

One person in the class today has been using envelope budeting consistently for 25 years. That's a testament to the effectiveness of budgeting and tracking your expenses. Try it! You might find that it works so well, you'll never stop doing it!

Comments? Email us at RetireWell@uiuc.edu



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