Monday, May 10, 2010

Budgeting for pension cut 3-Expenses

Having worked out an estimate for net disposable income from your projected gross income minus taxes, the next step in budgeting is to estimate the amount you spend on a variety of items, and find out if your spending is within your projected disposable income or not.

Expenses should be divided into two main categories, Musts and Wants.

The "Musts" in your expenses are things that you will have to spend money on whether you like it or not. The "wants" are things that you have some control over and which you may decide to reduce or eliminate.

The items that I have included in "Musts" and "Wants" categories below are by no means fully inclusive. I probably have missed many items of expense that you will need to add to your own budget, and decide if they fall in the Must, or Want category.


- Include all grocery items

- Premiums
- Doctors, labs, and hospital charges
- Dentist charges
- Chiropractors
- Massages
- Drugs
- Home help care

Mortgage or rent
- Principal and interest payments
- House or renters insurance

- Water and sewer
- Electricity
- Gas
- Trash removal
- Security service
- Termite bonds & inspections

- Toiletries
- House supplies

- Auto loan or lease payment
- Auto maintenance
- Gasoline
- Auto insurance
- Tag fees

- Life insurance
- Long term care insurance
- Personal insurance

- Personal loan payments
- Equity loan payments

- Personal cash for incidentals


Eating out
- Restaurants
- Bars
- Events

- Home phones
- Cell phones
- Mail

- Movies
- Shows
- Television channels
- TV services (EG Netflix)
- Books and magazines

- New clothes
- Shoes
- Jewelry
- Accessories

- Food
- Grooming
- Vet charges

- Nails
- Spas

- Internet
- Maintenance
- Software

- Local travel
- Vacations
- Family visits

Gifts - Birthday gifts
- Holiday gifts
- Political gifts
- Charitable gifts

- Membership fees
- Homeowners associations fees
- Business or government fees

House & Garden
- General maintenance
- Repairs
- Upgrades
- Furniture
- Lawn maintenance
- Plants
- Watering
- Linens
- Office supplies

By examining your expenses over the last year or so, you should be able to build a personalized list of expenses like the one above. This will take some work because you will have to look at your records and charges on cards to separate out the expenses into the various categories you have selected.

If your records aren't adequate for that, you will have to start keeping records going forward in a manner that lets you break out your costs by category. There are software packages like "Quicken" which help you with that task, and most charge cards will allow you to download your monthly statements so that you can determine where your money is being spent by category.

This may sound like an enormous pain to carry out, but it is really the only way you will be able to find out where most of your money is going and then take some actions to reduce the spending in the areas that can be controlled.

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