Archive for June, 2008

Creating a Budget That Works for You

Learning how you can organize your monthly income and expenses to create your own personal budget worksheet is challenging but easy.

 

Before you can create a budget that is unique to you, it’s important to understand the steps involved in the budgeting process. These steps include:

1. Initiate communication with family members

2. Consider your own unique personal or family situation

3. Set your goals

4. Gather and organize your financial data

5. Identify your income

6. Set your expense categories

7. Create and balance the budget

8. Monitor the budget actively

9. Adjust the budget as necessary

 

Now that you have accomplished the first three items on the list, you are ready to gather and organize your financial records. Examples of pertinent financial records are:

Detailed payslips, including salary, bonus, and commissions,

Checking account ledger

Most recent year’s completed tax return

Credit/debit card statements

Receipts for items purchased with cash

Home mortgage statements

Investment statements

Bank statements

 

Once you have gathered your relevant data, create a filing system for organization.

There are several systems that you can use, so find one that is easy for you. One

simple system is to use a box and 12 manila folders labeled for each month

(January-December). A budget sheet for each month is put in the front of each

folder. As bills, check statements, and receipts are received and paid each month,

they are entered on the budget sheet and the receipts are put into their respective

month’s folder. 

 

If you are single, it will be much easier to create a system. It is more difficult when

couples use multiple checking accounts. When there is more than one person who

performs the financial record keeping, it is critical that communication be open and timely. The couple must be clear about who is paying which bills, the amount of each

bill, and whether the money spent and saved is consistent with the set goals.

The fourth step in the budgeting process is to identify your income sources and the

amount of income from each source. It’s important to identify all sources of income,

including salary, commissions, bonuses, interests, dividends, rental income, and so

on. If you have a set regular income per month, not including bonuses or unexpected

income, it’s a good idea to set your budget according to your base salary.

 

Bonuses, income from overtime pay, and unexpected income should be allocated as

additional savings for goals or for other “extra” items. Those funds should not be

allocated or relied on for regular monthly budget items — if the irregular income is

discontinued, you will not be able to cover your normal expenses. This can result in

the need for you to incur debt in order to pay your regular bills.

Having multiple incomes can impact the complexity of the budgeting process,

especially when couples receive paychecks at different times of the month. In this

situation, you must take care to properly track and coordinate both income sources

accurately.

 

Underestimate Income, Overestimate Expenses

If your income varies from month to month, set up a budget that underestimates (or

conservatively estimates) your income and overestimates your anticipated expenses.

Another option for budgeting with irregular income is to estimate a budget that uses

the least basic monthly income anticipated. You then budget your expenses under

that income amount.

 

In either example, in those months where you realize more income that you

budgeted, the difference can be allocated in several ways. One way is to put that

money aside into an emergency fund for those months where your income may be

less than anticipated. Once you have built a comfortable level of emergency funds,

you can create a plan to allocate all of the funds to “paying yourself first,” or a plan

that allocates some funds to your goals and some money for your current variable

“fun” expenses.

 

For example, suppose you expect a monthly income of P10,000, and you set your

monthly expenses at P9,500. You would put aside the extra P500 per month until you

reach a comfortable cushion. This will assist you if you end up having a month in

which your income is less than the P10,000 you expected.

 

Setting Your Expense Categories

There are two main expense categories: fixed and variable. Your challenge is to

make sure that the fixed categories are those that you need and not just want. The

variable categories are more often what you want rather than need!

Thus, one of the key concepts in setting expense categories is to first identify

Whether you’re essential spending, then set an honest and realistic priority schedule for these expenses. Your discretionary expenses should come after your essential expenses.

 

Pay Yourself First

The most important “need” category of expenses is YOU. In other words, before you

pay anyone else, you must pay yourself first. In the financial world, many have

successfully used this concept. Included in this category are:

Emergency funds

Retirement funds

Education funds

 

Determining Expenses

One way to determine categories is to review your bank and credit card statements and the cash expenditures log you completed.

 

The common monthly fixed expense categories are:

Housing

Automobile

Gas

Medical

Insurance

Education

Common variable expenses include:

Food and groceries

Clothing

Entertainment and recreation

Miscellaneous

 

As you create your fixed and variable expense categories, keep in mind some

guidelines based upon your take-home pay, provided by the Financial Planning

Association:

Savings (pay yourself first) — 10 percent

Housing — 30 percent

Transportation — 10 percent

Health care — 5 percent

Debt — no more than 10 percent

Groceries — 20 percent

Recreation and vacations — 5 percent

All other combined — 10 percent

 

It is important to remember that these are just guidelines to begin the budgeting

process. Your real goals should be to pay off all of your debt, as quickly as possible,

except for your home mortgage, which usually requires a long-term payout plan.

Don’t create a “Cash” or “ATM” category. One of the most common “budget busters”

is cash taken from the ATM machine! Cash expenditures can be very dangerous to

the integrity of the budgeting process. It is better not to use cash or take money out

via the ATM machine unless you are disciplined enough to write down exactly where

you spend the cash.

Loan Condonation Program for SSS Borrowers Extended

Delinquent SSS loan borrowers can now breathe a sigh of relief because the Social Security System (SSS) is extending their consolidation and condonation program beginning May 1, 2008 up to April 30, 2009.

To date, the Social Security System has P25.8 billion delinquent short-term loans in its books whose bulk it hopes to recover through consolidation and condonation program.

This loan recovery program extension is a great chance to pay past due loan accounts from housing, salary, stock investment or other short-term loans with the SSS without any penalty.

Many members who borrowed from the fund have neglected payment, resulting in significant reduction in their benefits to their own disadvantage. To avail the great benefits, delinquent members should try to settle their accounts now so that when they become retire-able, they and their beneficiaries will not lose three-four-five years of their pension benefits.

When Will The Pre-Departure Loans To OFWs Be Restored

The decision of the Overseas Workers Welfare Administration (OWWA) to suspend the pre-departure loan program is a big blow to our departing OFWs who are in dire need of money. Most of the departing OFWs may have sold their cows and carabaos, pawn their ricefields and residential lot or availed loans from loan sharks who make money from 5-6 system. The OWWA’s decision added more hardship and quandary to our new breed of heroes where they can get money to buy plane ticket, clothing, pay placement fees, pocket money and for their love one’s who will be left behind with no money to spend for daily sustenance.

It’s almost two year now since the pre-departure loan program has been suspended apparently due to weak collection, but until now this program is in limbo. If the government can grant subsidies to the poor to pay electric bills and buy fertilizers, how come they are turning blind and wearing deaf ears to the departing OFWs cry for help? These OFWs are one of the prime factors that keep our economy alive with their billions of remittances. It is only due that they also receive support from the government.

It is true that there are many OFW borrowers who reneged in their obligation to pay for their loans. But the problem is, OWWA has not really implemented an effective collection system of the loans. Making the wellmeaning OFWs, in these trying times, to bear the brunt of the government’s failure to successfully implement recovery of the loans extended to OFWs is not a justification at all.

So, together with thousand of Filipinos, I’m also appealing to President Gloria Macapagal Arroyo to direct Labor Secretary Marianito Roque, the current administrator of OWWA to urgently restore the pre-departure loan program for OFWs.

The P5,000 to P40,000 pre-departure loans is of great help to ease the burden of our departing OFWs. I’m sure, in a year’s time, many if not all of there borrowers, will pay their loans including the 7.5 percent interest. Collecting their loans is a matter of implementing a simple, speedy, effective collection system with less cost.