Articles of Interest

Managing Your Money

by Jeff Cory, CFP, ChFC,
Executive Director

In a time of economic uncertainty highlighted by a sagging stock market and historically low interest rates, many retirees have had to take a fresh look at their personal money management. For many, this may include a reassessment of current income and expenses by preparing a personal budget to live by.

The basic purpose of a personal budget is to plan how an individual's money will be spent. Given limited financial resources, a budget is a method of managing personal cash flow to both meet current obligations and provide for future spending.

At The Legacy Foundation, many residents have received help with such budgets. Here are a few tips to get you started.

Reasons to Prepare a Personal Budget

The creation and use of a personal budget serves two key functions.

A planning tool: Correctly used, a personal budget can ensure that income and expenditures match, both in amount and timing. It can serve to spotlight potential cash-flow problems, as well as identify opportunities to make better use of current income.

A yardstick to measure progress: By comparing the planned budget against actual results, an individual can see if progress is being made toward meeting specific goals. This measuring process will often highlight areas where changes should be made.

Preparing a Personal Budget

There are a number of steps involved in preparing and using a personal budget.

Past income and expenditures: This initial step is to record information on past cash flow, both income and spending. Ideally, a year's worth of data should be gathered, to even out the effect of seasonal variations. Check registers, cancelled checks, copies of paid bills and recent income tax returns are excellent sources of this information.

Establish goals and designate resources: Explicit goals should be set, with dollar amounts and a realistic time frame to accomplish the goals. Specific dollar amounts are dedicated towards meeting each goal From the available cash flow.

Maintain records: Perhaps the most difficult part of the budget process is consistently keeping adequate monthly records of income and expenditures.

Periodic review: A periodic review, comparing the planned budget with actual results, provides a means of measuring progress toward an individual's goals.