Author: John Steelybr
Source: ezinearticles.combr
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Creating a cash flow plan, or budget, is all to the well and good, but what do the numbers mean? In particular, how do you handle the amount spent in each category? And, if you are trying to make changes to your budget, where should you look to make the right changes? What I am discussing here is how much should be spent within each category of expenses; if what you are spending is more than the suggestions included here, then maybe that is an area you can work on, while if you are spending less than what I am saying, you probably need to look elsewhere to improve your cash flow. The numbers given in this article are suggested maximum percentages; they are not written in stone, but they are an excellent starting point. Also, by income we are talking about after tax income; handling your tax withholding amounts is a completely separate subject, covered at another time.

Giving

Lets get this one out of the way immediately. Where you want to give your charitable money is your business, but many experts agree that a giving spirit is very helpful towards your success. We are not talking about gifts to friends and relatives, but monetary gifts to charity. Many people give almost exclusively to their church, while others use such organizations as United Way. However you do it, the normal suggestion for charity is 10% of your income.

Savings

Elsewhere I have talked about the different types of savings, so let me just list them here: emergency funds (both immediate and long-term), replacement funds, and retirement funds. Each should be handled differently, but their total should be about 5% to 10% of your income.

Debt

The debt we are talking about does not include either your house or your car(s). We are talking about credit cards, student loans, and other such accounts. Personal loans also go into this category. The total here should be no more than 10% of your income

Housing

Housing costs include your mortgage, your utilities, your property tax, and maintenance costs. Do not include your homeowners insurance in this amount. While the mortgage company generally has an upper limit of 38% of your income, you probably should keep this about 25% to 30%, so that you can handle unexpected repairs. See my discussion of immediate emergency funds elsewhere.

Transportation

Transportation costs include car payments, gas, tolls, and maintenance, but not insurance. If you are paying off a motor home, treat your costs (both loan and licensing) as housing costs. This should be no more than 15% of your income.

Insurance

Be sure to include the withholding amounts from your paycheck as well as any insurance bills you pay directly. Include any PMI payments from your mortgage as well. Insurance should be about 5% of your income.

Living Expenses

This category includes your food, personal gifts, clothes, and grooming costs (haircuts, etc.). Also, include any education costs, lessons, magazine subscriptions, trips to the book store, and Internet access (if you can separate from the utility bills). Do not include your cable bill or eating out. You should have a maximum of 25% here.

Entertainment

Entertainment includes eating out, cable costs, movie rentals and purchases, hobbies, and any gym costs, as well as shows, movies, and such. You can also include an amount for driving expenses to the events you go to, particularly if they are out of town. Try to keep the total under 10% of your income.

Professional Services

This is where you put lawyer fees, doctors bills, prescriptions, and counseling costs. Plumbers, electricians and such should go into your housing category. Up to 15% of your income could go here.

Cash

Everybody spends cash, whether it be in soft drink machines, street vendors, or somewhere else. Put about 3% of your income here.

Totals

If you add up the totals, it comes to just under 145% of your income, which obviously doesnt work. So you need to define those areas where you spend a lot and those areas where you spend only a little. It is the categories that exceed these suggestions that should be your first target for economizing. Again, professional help could be valuable here, even if it costs you a little, so that your attention is focused on the areas which can be most productively changed.

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pJohn Steely has been a financial planner for over 5 years, with an emphasis on helping individuals and families becoming financially free. He has a free website, a target=_new href=http://www.learningmoneybasics.com rel=nofollowhttp://www.learningmoneybasics.com/a Visit his site to learn more about making money work and to get free personalized advice./pbr
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