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The Basics of Budgeting

By Nanci Hellmich

Saving for retirement and other big expenses doesn’t mean you’ll never be able to buy another stick of gum or have to drive the same car for a hundred years. Most people have some wiggle room in their budgets to save more if they just tweak their expenses, and those small changes can add up to big savings, says CAPTRUST Senior Director Phyllis Klein. She speaks from experience. When Klein was in her 30s, she didn’t buy new clothing for a year, not even a pair of socks, so she’d be able to put more money toward a down payment on a home. To do that she had to keep close tabs on her spending. But only about 40 percent of people have a budget and track spending, according to the 2015 consumer financial literacy survey of 2,017 adults conducted for the non-profit National Foundation for Credit Counseling. That’s not surprising to Klein. She has worked with people who are really good at keeping and updating their budgets, and others who haven’t created one because the task seems overwhelming or they’re afraid of what the numbers might show.


The problem with not monitoring your personal finances is that you may end up short on funds for an emergency or retirement, says Bruce McClary, a spokesman for the credit-counseling group. Budgeting doesn’t have to be complicated, McClary says. He recommends writing down what you spend for a month in a notebook, your smartphone, or computer to help you figure out where your money is going. The next month, start thinking about priorities and where you can make some cuts, he says. Klein suggests finding a simple monthly household budget worksheet such as the one from CAPTRUST then start filling in the blanks.

“Think about saving first, and then spending what’s left, instead of thinking about spending and then saving what’s left.” She recommends saving an average of 10 to 15 percent of your gross income (total personal income before taxes or deductions) for retirement, emergency savings (car repairs, medical bills), and other major expenses such as a home and college education.

If you’re not saving that much, look for ways to make changes. Cutting spending by as little as $10 a week adds up to $520 by the end of the year, she says. Here are Klein’s and McClary’s ideas for tightening your budget:

  • Be smart about dining out. Research from the NPD Group shows that, on average, an in-home meal costs about a third of what it costs to buy the same food at a restaurant. This is one place many people could make changes, Klein says. If you usually go out to lunch, try cutting back to a couple of times a week, which will make it more of a treat while saving you money, she says. Go to restaurants that offer early bird specials or two-for-one deals.
  • Power pay your credit cards. “If you are carrying a credit card balance from month to month, then you need to develop a strategy to power pay that debt. The faster you get it out of the way, the sooner you can save for the future.” Credit cards are charging an average interest rate of 15 percent, and some people with poor credit ratings pay an average of 26 percent or higher, McClary says. When Klein was in her 30s, she didn’t buy new clothing for a year, not even a pair of socks, so she’d be able to put more money toward a down payment on a home. Phyllis Klein Senior Director, CAPTRUST.
  • Pay with cash. It’s easier to overspend when you’re using a credit card than when you’re doling out cash. Klein uses cash for groceries, so she’s more careful about her purchases and less likely to buy food that wilts or goes bad before she uses it. When you have to pitch spoiled food, “you can almost see your money being thrown out in the trash,” she says. >> Be smart about loans. Pay for big purchases, such as cars, with the shortest payment plan possible. Beware of taking a car loan that is longer than the time that you plan to own the car, she says.
  • Trim unnecessary expenses. Look for places where you’re spending money on things you don’t really need or use. For instance, if you get hundreds of channels on cable but only watch a few, change your plan and cut your bill, Klein says. If you buy coffee out every day, consider brewing it at home. Those types of expenses really add up over time.
  • Beware of shopping pitfalls. Many people buy things too quickly as they wander through stores, McClary says. Try to avoid that. Instead, go home and think about whether you really need the item or could get by without it. Evaluate your routine. If you’re driving 10 miles to go to the grocery store every day, try shopping once a week instead, McClary says. Plan meals, then make a grocery list and stick to it. You’ll spend less on gas, and you’ll be less likely to buy things you don’t need.
  • Set realistic vacation expectations. Take a close look at what you can afford, Klein says. That may mean doing a staycation one year and splurging on a trip the next year.
  • Plan for impulse buys. Designate some cash in your budget for impulse purchases, so you can enjoy some mad money and still live within your means, she says.
  • Make sure you are not overpaying Uncle Sam. If you get a big tax refund every year, adjust your withholding so that you get the money instead of the government, Klein says. Put that money directly into savings so you’re not tempted to spend it, she says.

Many people can cut things from their budgets without feeling deprived, Klein says. She’s glad she went a year without buying any new clothes. She learned some valuable lessons from the experience. “What started as a New Year’s resolution, after a few months became a self-imposed challenge and then a new savings habit.”

Have Questions? Need Help? Call the CAPTRUST Advice Desk at 800.967.9948, or schedule an appointment with a retirement counselor on this website today.