ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, January 1, 1996 TAG: 9601010006
SECTION: BUSINESS PAGE: A8 EDITION: HOLIDAY
SOURCE: MAG POFF STAFF WRITER
It's that day again; Jan. 1 is the time for resolutions. You can resolve today that in 1996 you will finally gain control of your finances.
Specifically, you can draw up a budget and try to live with it. To keep that New Year's resolution, you need to do two things: Write down all your assets and liabilities to determine your year-end net worth; and, starting today, keep daily lists of all tax-related items so you will have a full year's worth of good records.
A livable budget is a key to family financial health, and you can use the form on this page to help you get a start. Not all items apply to everyone, so use just the categories that fit your situation.
The items starred with an asterisk are your fixed expenses. These are items whose price is set, such as auto insurance, meaning you have little or no control over their cost except for deciding not to buy them at all. Other expenses, such as movies, are more easily within your discretion.
Start with your fixed monthly costs, or those that remain constant. Examples are mortgage or rent payments, tuition costs and regular loan payments, such as those for a car or student loans. If you are trying to pay off a high credit-card balance, you may want to think of that obligation as a fixed cost as well.
Next, record how much you think you will spend on other necessary expenses that vary in amount. These include utilities (gas and electricity), telephone, water and sewer, food and household supplies. Look at last year's bills to help you arrive at realistic estimates.
Your budget should also cover discretionary items such as charitable contributions, entertainment, vacations, home improvements, clothing, recreation and hobbies. You should be realistic about those items. Unless you are paying off serious debts, you know you will buy some clothes and go out in the evening occasionally. But you must also realize that these are the expenses where serious money leakage can occur.
The Virginia Society of Certified Public Accountants said you should plan to set aside money in savings first before you budget for other discretionary items.
Be sure you have three to six months' worth of living expenses in an emergency fund. If you don't have an emergency fund, the CPAs said, you should make this one of your short-term savings goals.
Next, outline other short-term goals, such as a vacation or new dining room furniture, and long-term savings goals, such as a child's college education or your retirement. You must determine how much money you need to set aside each month to meet those goals.
If possible, the CPAs said, it's wise to put 10 percent of your income into long-term savings, such as certificates of deposit, Individual Retirement Accounts or stocks.
If, however, you have large outstanding debts on which you are paying high interest, the CPAs said, it makes better financial sense to settle those debts first and to structure your budget accordingly. Once the debts are reduced or eliminated, you can modify your budget to increase your savings or discretionary spending.
The amount of your outstanding debt, as well as your savings goals, will affect how much to budget for recreational activities and entertainment. You may find that you have to budget less for dining out and vacationing in order to pay off your debts or meet a savings objective. Remember, however, to budget for occasional activities that you and your family enjoy.
When you've completed your budget, review it with your family and try to stick to it for several months. At the end of that time, you may want to have a family conference to review the progress you have achieved in meeting your financial objectives.
If you've paid off a major loan, achieved a savings goal or had a significant change in family income, you may need to modify your budget.
Even if you feel financially secure, a budget will help you keep track of your money and ensure that you are making the most of it.
If you are adept with a computer, you may want to try personal financial software such as Intuit's Quicken or Microsoft's Money. Then you will be able to track all of your spending by category.
A computer program also can help with your tax records, but you don't need anything more complicated than a small notebook and file folders.
In your notebook, you should set aside pages for each category that is (or may be) tax-deductible, such as charitable contributions, medical costs and professional expenses.
Record every expense in your notebook the day it occurs, showing the date, method of payment (such as credit card or check number), the organization to which it was paid and the amount. If you don't have a computer, you might want to keep running totals in each category.
Even more importantly, set up some type of envelope or file folder for each category today. If you drop in your bills and receipts as the year progresses, you will congratulate yourself on New Year's Day of 1997 for the trouble you saved yourself in preparing your 1996 taxes.
LENGTH: Medium: 90 lines ILLUSTRATION: GRAPHIC: chart - Budget Worksheetby CNB