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A GUIDE TOPERSONALBUDGETINGWhen it comes to improving your overall finances and economic wellbeing, there isnothing more important than knowing where your money is coming from and howyou spend your income. The best way to attain this objective is to create a personalbudget and follow the budget as though your life depends on it. A personal budgetdetails all your incomes and expenditures and can be used as a snapshot of yourcurrent financial condition. A personal budget will also point out whether you areliving within your means or are in need of dire financial assistance.POPULAR MYTHS ABOUT PERSONAL BUDGETINGMost people associate personal budgeting as a tiring and time consuming chore.Even though budgeting can be complicating during the initial stages, the eventualbenefits and cost cutting techniques will motivate the user to stick with the personalbudget in the long run.Another popular misconception is that personal budgeting is only useful for individualswho are in dire financial conditions. The truth is that even though personal budgetingcan be an effective tool for people who face financial difficulties, it is also anexcellent tool for all consumers who want to keep their finances organized and incontrol.WHAT IS YOUR NET INCOME?The first step in creating a personal budget is to figure out your net income. The netincome can be defined as the take home pay after all the taxes and deductions areremoved. All additional incomes such as rental income, self-employment income,interest/dividends income, child support/alimony and etc should be included in thetotal net income calculation. If you are unable to calculate your net income due tolack of records, earning fluctuations and other uncertainties, do your best to estimateand come up with a fair net income figure. We recommend that you use the monthlyincome worksheet in the back of this booklet to list all your incomes.AP U B L I C A T I O NO FC R E D I T G U A R DO FA M E R I C A

WHAT ARE YOUR EXPENSES?The next step is to list and record all your obvious and hidden expenses andcategorize them into the following four groups, which are Fixed, Variable, Periodicand Discretionary expenses. The most effective method of calculating your monthlyexpenses is by reviewing your monthly purchase receipts. If you have not saved yourreceipts in the past, start collecting them in the future. This way, you can track yourspending to see where your money goes. To list all your monthly expenses, please usethe weekly spending log and the expense worksheet in the back of this booklet.Fixed Expenses: These expenses occur every month and the dollar amount usuallyremains unchanged for longer periods of time. For instance, rent/mortgage,childcare, insurance premiums and car payments can all be classified as fixedexpenses.Variable Expenses: These expenses also occur on a monthly basis but the dollaramount often varies from month to month. Variable expenses include food expenses,utilities, gasoline, household expenses, credit card payments and etc.Periodic Expenses: These expenses can be classified as expenses that occur on aregular, but not monthly basis. Some of these expenses include auto insurance,medical expenses, home/auto maintenance, membership/dues and life insurancepremiums.Discretionary Expenses: These expenses can be defined as purchases that fall outsideone’s needs. In other words, luxuries of life that we can live without. Vacations, gifts,personal care, subscriptions and entertainment can all be identified as discretionaryexpenses.ANALYZING YOUR BUDGETAfter you have successfully calculated your monthly income and expenses, you canfigure out whether your budget creates a surplus or a deficit. If your monthly incomeexceeds your monthly expenses (surplus), you should pat yourself on the back andfind a way to save or invest the additional income. However, if your monthly expensesare greater than your monthly income (deficit), you should reevaluate your budgetAP U B L I C A T I O NO FC R E D I T G U A R DO FA M E R I C A

and try to cut back on some of the unnecessary expenses. If that fails, you canalways increase your income by taking on a part time job or working overtime.INCREASING YOUR INCOMEAs mentioned earlier, customers can increase their net income by either applying fora part-time job or working overtime. Be wary of get-rich-quick schemes and othermarketing pyramid schemes, which claim high profit margins and returns. Peopleshould also carefully evaluate plans to start small businesses. Implementing andrunning a small business can be quite overwhelming for people who have no priorexperience in dealing with business related matters. Also, before starting a business,you should calculate all upfront costs such as marketing materials, phone bills,licensing costs and other business costs.REDUCING YOUR EXPENSESCutting back on expenses can be quite difficult during the initial stage as most of usthink that we are quite modest when it comes to our everyday spending. With thismindset it is often difficult to find things to cut back on as we usually see thoseexpenses as important to our everyday life. When reducing expenses, you should firstcut down on your discretionary expenses as these represent the luxuries that you canno longer afford. High priced gifts, monthly magazine subscriptions, spa treatmentsand other leisure expenses should be sacrificed in the short term in hope of reducingyour budget deficit.Periodic expenses often offer the opportunity to find savings with a little hard workand sensible spending. Expenses such as auto insurance should be carefullyevaluated and compared with other insurance companies. By doing a simple webbased research, you may be able to get the same coverage for a lesser price fromanother insurer.Variable expenses also offer consumers the flexibility of saving money by small-scalelifestyle changes. Eating at home, taking lunch to school/work and cutting down onStarbucks coffee can yield great savings for cash strapped consumers. Nowadays,more and more customers are also reevaluating the need for a land based phoneAP U B L I C A T I O NO FC R E D I T G U A R DO FA M E R I C A

line at home since most find cell phones to be more efficient and suitable for their fastpaced lifestyles.Monthly fixed expenses are often difficult to adjust because of their fixed nature.Rent/Mortgage, insurance premiums, alimony payments and other fixed expendituresmost often cannot be controlled when compared to other expense categories.However, most utility companies nowadays allow its customers to combine two ormore services together for a lower monthly rate. For instance, most cable companiesnow offer high-speed Internet access to its customers as a combined servicepackage.CAN CREDIT COUNSELING HELP?If you have tried out the above methods and still fail to reduce your deficit, youshould obtain professional assistance from personal finance experts. Non-profit creditcounseling companies such as CreditGUARD of America are created to helpcustomers who are currently experiencing high debt and interest charges. Thesecompanies can reduce or eliminate your debt and interest charges and canconsolidate all your debt into one low monthly payment.KNOWING YOUR NET WORTHThe final stage of the budget process involves a careful evaluation of your net worth.Net worth is the best measurement of the state of your financial health and most ofyour major spending, investing and other financial decisions should be based on thisfigure. To find out your net worth, you should first find out your total assets andliabilities. You can utilize our net worth worksheet to list all your assets and liabilities.WHAT ARE YOUR TOTAL ASSESTS?Assets can be classified as any item of economic value owned by an individual. Mostof us, when thinking about assets, relate it to our tangible properties like houses, carsand land. We, often forget to include our stock portfolios, retirement accounts, rarecoin collections, valuable paintings, jewelry and etc, hence overlooking the value ofthese assets.AP U B L I C A T I O NO FC R E D I T G U A R DO FA M E R I C A

WHAT ARE YOUR TOTAL LIABILITIES?An individual’s financial obligations towards his/her creditors are known as liabilities.Liabilities can range from credit card debt to personal IOU’s. When calculating yourtotal liabilities, keep in mind to include every possible liability regardless of itseconomic importance. Student loans, mortgage, medical bills, collection accountsand credit card balances can all be classified as liabilities. In the past, if you have cosigned a loan for someone else, be sure to include this loan as one of your liabilities.The reason behind this is quite simple, if the other person skips town, you are legallyobligated to repay that loan.CALCULATING YOUR NET WORTHAfter writing down all your assets and liabilities on a sheet of paper, you cancalculate your net worth by subtracting your total liabilities from your total assets. Ifyour calculation yields a positive number, your overall financial state is in goodcondition. If the result shows a negative value, do your best to decrease your debtwhile increasing your assets. If your net worth is dangerously negative, you might beinsolvent and would have to act quickly to get your finances back on the right track.If you are unable to do so, you may be forced to file for bankruptcy to ease some ofthose high debt amounts.If you have any questions or comments regarding this publication, please contactNemal Perera at 1-800-400-5844 Ext. 160 or email [email protected] 2005, CreditGUARD of America, Inc.AP U B L I C A T I O NO FC R E D I T G U A R DO FA M E R I C A

Monthly Income WorksheetWe recommend that you use your monthly income information for this worksheet. Ifyou are unable to come up with a monthly figure, estimate your annual income, thendivide that figure by 12 (months) to find the monthly amount.PRIMARY INCOMESalaryBonusesIncentivesCommissionsSECONDARY INCOMESelf-EmploymentRental IncomeInterestDividendsAnnuitiesDISABILITY INCOMESocial Security Disability BenefitsWorkers CompensationUnion Disability BenefitsPENSION PLANSProfit Sharing Plans401(k) or 403(b)Social Security RetirementsMilitary PensionsOTHER SOURCES OF INCOMEChild Support and AlimonyCourt SettlementsUnemployment CompensationOtherTOTAL MONTHLY INCOMEACTUAL ( )BUDGETED ( )* Personal Budgeting Worksheets, Copyright 2005, CreditGUARD of America Inc.AP U B L I C A T I O NO FC R E D I T G U A R DO FA M E R I C A