How to prepare (and manage) a personal budget

Budgets are like New Year’s resolutions: Often made, but rarely followed. This happens because most of us have good intentions, but get frustrated easily.

While failing to keep your New Year’s resolutions rarely has a major effect on your life, failing to set up and maintain a monthly budget can. Because personal budgeting is so important, we’ll show you how to make the task manageable.

START NOW

It’s important not to delay the budgeting process. Here are some compelling reasons:

• As a student, you should keep monthly expenses at the lowest comfortable level to minimize student-loan requirements and save some earned income for startup.

• When you start to practice, you’ll need to stay with a budget to keep withdrawals from the practice to a minimum, particularly in the beginning when you will probably be operating in cash-flow deficit.

• As you prepare your business plan, you’ll need to include the amount necessary for you to draw out of your practice to live on each month (your “draw”), if you are a sole proprietor, or the amount you’ll need as a salary, if you are incorporating.

• When you go to a bank for a startup loan, the loan officer may ask you for your monthly budget information.

• If you are working as an associate or independent contractor, you must know the minimum you will need to live on, so you can negotiate your base salary.

KEEP ON TRACK

Your budget should be easy to use. Here are some suggestions for keeping things simple:

• Use only a few categories. The fewer the categories for expenses, the easier the decisions. For example: You can lump many different kinds of expenses into “miscellaneous.”

• Include a category for ‘unexpected’ expenses. Keep a little money in your checking or savings account for these things (repairs, for example).

• Don’t underestimate expenses. The reason most people don’t stay with a budget is they forget two major categories — miscellaneous and fun. If your budget doesn’t include some money for fun (eating out, small indulgences, or movies), you won’t stick to it.

Similarly, not setting aside enough money for miscellaneous expenses means you won’t have enough to pay for the small unexpected purchases that come up (over-the-counter medicine and tissues when you are sick or the underwear you forgot to pack when traveling, for example).

• Get into the ‘budget habit.’ Stick to what you have planned.

Some additional suggestions:

• Use duplicate checks. They cost a little more, but save a lot of time and frustration.

• Save all of your receipts. Set a jar or container in the kitchen or on your bedroom dresser. Put receipts in it and enter them in your worksheet at the end of the week.

• Pay bills online. Use bill-paying software or your bank’s free bill-pay service to schedule and pay bills. Not only do you get the benefit of saving on postage, you also get a record of bills paid.

• Post weekly. Set aside time each week to catch up on your weekly expenses and enter them into your worksheet.

FINAL THOUGHTS

When you prepare your budget, remember to include:

• Monthly payments on your student loans;

• Malpractice insurance, if you are an employee and expected to pay for your own. (If you’re in your own practice, this cost is a business expense);

• Health insurance for you and your family. Even if your practice has a healthcare plan, this cost will probably not be completely covered by the business; and

• Other sources of income — your spouse’s income; any salary you will be taking from your practice, if it is incorporated; and income from investments or alimony/child support.

Finally, a word of advice from a very wise chiropractor:

DSATM — Don’t Spend All the Money!