Barbara O'Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension
A budget (a.k.a., spending plan) is a plan for spending future income and expenses, including setting aside savings for future financial goals. Ideally, a budget should be written (paper, computer spreadsheet, etc.) with specific categories of income and spending and dollar amounts. Benefits of budgeting include providing "guardrails" for spending, achieving financial goals (if savings is included), and for peace of mind.
Budgets project future income and expenses with a goal of achieving positive cash flow. Therefore, developing and following a budget requires a level of attention to detail (e.g., recording and adjusting expenses). Below are four recommendations to develop a budget that works:
- Define Your Income: Base a budget on average monthly take-home income. Multiply weekly pay by 4.3 to get a monthly amount. This accounts for "extra" income months (e.g., months with five Friday paydays).
- Pay Yourself First: Ask yourself if you can live on 80% to 90% of your income with 10% to 20% of income set aside for savings goals. The 20% amount is meant for long-term savings and includes tax-deferred retirement savings plan contributions. Savings is the most difficult "expense" to budget.
- Set Aside Reserves: Plan ahead for occasional expenses by setting aside money monthly for them. Examples include insurance premiums, home and car maintenance, pets, and property taxes if not escrowed.
- Follow the "2x Gas" Rule: Set aside twice the amount that you spend monthly on gas for car maintenance and repair expenses. Drivers who buy more gas put more "wear and tear" on their car. You will not have expenses every month but, when you do, money will be there.
Food is a major recurring expense in family budgets. It may not be the largest expense dollar wise, compared to housing costs, income and property taxes, child care, and transportation, but people still spend a lot of money buying food. Below are seven smart ways to cut food costs to get your budget numbers to balance:
- Make a Shopping List: List items to buy and their approximate cost before you go food shopping. Then stick to the list. Include "miscellaneous" and a dollar amount (e.g., $5) so impulse buying is built in.
- Use Coupons Wisely: Redeem coupons from newspapers and online platforms, but only on products that you plan to buy anyway and only when the after-coupon cost is cheaper than alternative products.
- Search for Bargains: Look for marked down bakery items, meat/seafood, and other supermarket "clearance" foods. If the packaging is intact, it is generally safe to buy these foods if used immediately.
- Double (or Triple) Your Savings: Take advantage of double or triple the savings on manufacturer's coupons and supermarkets that allow you to combine a store coupon and a manufacturer's coupon.
- Join the Club: Sign up for supermarket "shoppers' cards" that provide access to special sales promotions and/or an opportunity to earn points toward free or reduced price food items (e.g., a free Easter ham).
- Stock Up to Save: Buy (or grow in a home garden) fresh fruits and vegetables when they are in season and can, freeze, or dry them for use at a later date.
- Cut Up Your Own Food: The more preparation that a store does (e.g., cutting up stew beef, making meat and vegetable kabobs, and slicing fruit or making fruit salads), the more consumers generally need to pay.
To prepare you own personalized budget, download this Spending Plan Worksheet (PDF) from Rutgers Cooperative Extension that includes spaces to list income and fixed, variable, and occasional expenses.