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Careful Budget Planning Can Pay Off

January 29, 1987|BONNIE McCULLOUGH | McCullough, based in Colorado, is the author of five books on home management.

It can be depressing this time of year to get your W-2 forms in the mail, to see the grand total for 1986 and wonder where it all went. It's time for evaluation; a time to redirect financial goals.

Net worth is not necessarily determined by income. True value is measured by the goods, services and savings you can accumulate. This has to do with how carefully you keep track of financial papers, whether you spend impulsively or intentionally, how wisely you shop and how well you take care of what you have.

To manage money means organizing. The first technique would be to spend intentionally, to make a plan before you spend. An old-fashioned word for this process is budget.

So often, a person is feeling good on payday, ready for a reward, and stops at a bar or grocery store to cash the paycheck. The first impulse is an undirected splurge. Without prioritizing need, one spends on the first thing one sees. That's why bars and grocery stores are usually quite willing to cash paychecks. Since you can't have everything, take time to decide what you want most.

The secret is to write it down, putting those floating thoughts in words. If you can't work it out on paper, it won't work in green. People who take a few minutes to prepare a plan before they start to spend make fewer mistakes. This is the beginning of good money management.

Examine emotional involvement with spending. Some people spend to soothe depression, anger or insecurities. Future money--for example, a tax refund that you may be expecting--looks as if it will buy more than it really will. Before you get it, money looks as if it will cover more, and credit is a convenient method of taking you into that realm of hope. When you spend future money, you promise it to someone else before you have even gotten up in the morning to go to work. It leads some of us to trouble.

The longer you wait, the harder it is to get control. If you don't have enough income to cover bills, call the local consumer credit counseling service to get help in setting up a budget plan.

Budgeting doesn't have to take all the fun out of life. In fact, it can bring more long-term satisfaction. Your goal may be for a nice vacation or to fix up the house. This is where it helps to keep a want list. When you have made a logical choice, it is easier to set aside lesser wants.

If your goal is to have some money left for investment, you cannot spend everything you get on daily living. Once you get some money into savings, it's like having someone else work for you. You don't have to do all the labor yourself. One way or another, you will use all of the money. The question is, are you getting the best value? Think it through.

Divide your money. Some organizers with a great deal of discipline can do this on ledger paper. Others need a physical separation. Here are three techniques for separating money:

--The envelope method. After a skeleton budget plan has been written and the paycheck cashed, money is slipped into envelopes marked: gas, food, fun, rent, clothing, etc. What's left is left; when it's gone it's gone. This is more visual and final than abstract buying with credit cards.

--The bank account method. Many people use a method similar to the envelope system, except they use various bank accounts to help them separate funds. For example, one couple has a household account for current usage and a savings account for large short-term payments (insurance, emergencies, new tires, a hot water heater, dental or medical needs). Third, they have an account for vacation and/or Christmas money. Fourth, they have a long-term savings account to prepare for investing in such things as real estate, stocks and bonds, certificates and retirement programs. Separating funds makes a person think twice before dipping into an account reserved for another purpose.

--Payroll deduction plans can help you set aside funds for purposes other than immediate spending.

Keep track of where your money goes. By keeping an expense record you can compare actual costs to the plan. You can pinpoint leaks and problems and revise the plan or habits accordingly. The typical family does not know how 25% of its income is spent. We cannot assume that those expenditures were not important, but if you do not have a system of recording expenses, how can you make an evaluation for improvement? This record could be in a bookkeeping journal, in a commercial budget book, on a spread sheet or simply in the checkbook.

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