07 Apr Your budget – does it work?
Now is the time for the drum rollllllllll…. will your budget work?
Harrison was expected to make $1232. His expenses were expected to be $1000. $1232 – $1000 = $232, which means Harrison still has some money left over to put into savings like he wanted. His budget, as long as he works 2 hours a month for his parents, earns him his goal of saving $200. And, the additional $32 he has is equivalent to 4 hours of work with his parents, so he has a bit of a “cushion” just in case he gets sick and isn’t always able to work 2 hours a month. He seems to be in good financial shape.
Nicki was expected to make $1430. Her expenses were $1930. $1430 – $1930 = $-500, which means Nicki is $500 under budget. Her budget does not work. She will need to either make more money or make adjustments to her expenses, such as not buying any new clothes for the year or ever spending money on food with her friends (a total $500 adjustment). If she did this, she would have a balanced budget. She wouldn’t be saving any money but she wouldn’t be going into debt (her goal). Since Nicki does sometimes make extra money with her extra babysitting job she could put that money whenever she made it into a “food and entertainment jar” which would allow her to go out and have fun with friends according to how much she had in her “jar.”
Let’s pretend that Nicki does just that and puts all her extra babysitting money into a separate jar. Each time she adds money to it or takes money out of it, she keeps track of her spending in a notebook (technically called a ledger).
|Description||Money In Jar||$ added or taken out||New amount in Jar|
|Starting money in jar||$0||$0|
|Babysitting Mia 2/17||$20||+20||$20|
|Babysitting Mia 2/24||$30||+30||$50|
|Dinner with Annie||$25||-25||$25|
This way Nicki is able to see just how much money she has to spend. So if Steve asks her to go to the movies with him she can easily know if she has enough money, or not.
Things are definitely harder for Nicki than for Harrison. She has more expenses for which she is responsible and she even has a regular job versus an allowance. It may seem unfair that her budget is harder to keep but that’s life. Being aware of your finances and developing good habits are clever proactive strategies to help you manage your money and your life.
Did your budget balance out? Did you need to make adjustments? Did you have a little extra left over just in case something unexpected happened? Did you like the idea of a separate “money jar” for things like entertainment? Do you have good financial habits?
What good habits? See the next post.