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Plan Well, Retire Well

Saving and investing your money

Fretting about money? Try these strategies.

Go to the grocery store. Pay bills. Buy clothing online. Oh my, where has all the money gone? Do you ever feel like money keeps flowing out and you're just not quite sure where it all goes? I know I feel like this at times. Keeping track of regular expenses is one challenge; another challenge is trying to fund long-term goals such as college education for children, down payment on a home, or retirement.

If you feel baffled by your finances, you're in good company. This year's Retirement Confidence Survey found that Americans' confidence in their ability to afford a comfortable retirement has plunged to a new low. Clearly the economic situation in this country contributes to this uncertainty, but all the new ways to manage and invest our money also may explain this lack of confidence. So, what's a person to do?

When I feel uneasy about our family cash flow, I find that using tried and true financial tools can decrease my anxiety, clarify just how much money I do or don't have to spend, and help me plan for saving. For example, a budget is a financial tool that lets you take control of your finances.

To build a budget, first list all your income sources. Many people use a monthly budget (including all income received in a month) but you can choose a timeframe that makes sense to you. If you're paid every two weeks, a two week budget may make sense.

Next, list all your expenses. It can be difficult initially to know how much you spend. For some expenses, such as rent or mortgage payment, check your last bill. You may be able to estimate expenses (such as food) by looking at your checkbook register or checking account statement. To truly know where all your money goes, though, you may need to track your spending and write down all purchases whether you pay by cash, debit card, or credit card.

Typically when I talk to people about building a budget, they know how much they pay for big items, like rent, but have a hard time remembering what they purchased with the last $20 they withdrew from an A.T.M. Small purchases can add up, and you need to track these expenses. You can track your expenses on an index card in your wallet, on your cell phone, or write it down each evening. Find a method that works for you.

The goal is to have your income equal (or be more than) your expenses. If when you build your budget this doesn't work out, then you need to consider making changes. Can you increase your income? Or, are there areas where you can adjust your spending? One of the wonderful things about tracking your expenses is that it can be very enlightening. Take a look at what you're actually spending money on, and ask yourself, "is my money going towards my goals and what I value?" If not, this may provide you with the motivation to make some real changes in your spending behaviors.

Don't forget to include an expense category for savings. Plan to save money for unexpected expenses and long-term goals. If saving is not in your budget plan, it's not likely to happen.

Once you've built a budget, try it out. Then evaluate it and make changes as needed. A budget is not a fixed plan; it needs to be flexible so that you can make changes as you learn more about where your money really goes. For example, maybe the amount you originally estimated for food is too low. You may need to increase how much you expect to spend for this expense category and decrease another category to keep your budget balanced.

For more information about this topic, the website More for Your Money can help you design a budget step-by-step. If your income has decreased lately or you want to change your spending to meet saving goals, I recommend you read Setting Spending Priorities on the Getting Through Tough Financial Times website.

You may not want to keep a budget every day of your life. However during times of change or if you're worried about your finances, a budget is a useful tool to ensure your money is going towards the things that are important to you, including saving for long-term goals.

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