Setting a household budget

A quick stop at the ATM yields $100 in crisp new bills. Then, before you can say “impulse buy,” you’re down to three quarters and the lint in the bottom of your purse or pocket.

If you’re puzzled by where the money goes each month, computerizing your budget may be a smart way to track your expenses so that you can make the right adjustments. By using some of the simple programs out there—Microsoft Money, My Budget Planner or Quicken, you can organize all of your expenditures in one place.

To start, pick a program and download it. Most have “wizards” or tutorials that walk you through the process. You’ll need to have your checking and savings account information handy, as well as copies of regular bills. That may be the toughest part. A surprising number of people don’t really have a good concept of the amount of money they pay out every month for regular expenses. But you can’t change the situation if you don’t have the facts, so gather copies of:

• Utility bills
• Telephone and internet bills
• Loan statements (mortgage, car, student loans)
• Credit card bills
• Tuition or day care bills
• Insurance bills

And any other expenses that you pay out every month. Be sure to look for “hidden” expenses--like the movie rental service or cable bill that you have charged to your credit card each month--and list those separately. Remember: It’s time for full disclosure.

You’ll need to input these accounts so that you can see the distribution of payments. It’s not uncommon for there to be a bit of sticker shock, but you need to keep in mind that you’re taking control of your finances—that’s an essential move toward financial independence.

Next, take a look at the expenditures you need to make for other essentials, like food, clothing, gas and health care. Looking over a year’s worth of credit card and bank statements should give you an idea of what you spend. For example, the Bureau of Labor Statistics says that, in 2006, the average household spent $6,111 on food--both in-home and out-of-home. Look at the amount you spend on gasoline and car maintenance and the co-pays that you spend taking your family to the doctor. These all need to be factored into your budget.

As you begin to use your computerized budget, be diligent about tracking all of your spending. Did you drop $7 at the coffee shop? Record it. Spent $20 on new songs for your MP3 player? Record it. Soon, it will get to be a habit, but you need to have an honest appraisal of where the money is going each day, each week, each month.

Once you subtract your all of these expenses, you may be surprised at how little is left. That’s normal. However, now that you’ve mapped out your expenditures, you can start trimming. For example, if you make your coffee at home and take it with you in a thermal cup, you could save as much as $3 or $4 per day. Over the course of a year, that could add up to hundreds. If you switch to a less pricey gym and cut back on premium television services you don’t use anyway, you might save enough to pay for a nice vacation or put more away in college or retirement funds.

It’s important to be realistic. For example, if you can’t live without an occasional meal out, be sure to include that. If your gym is one of your favorite places on earth, then trim other areas of your budget. Cutting things that make life more pleasant sets you up to fail. However, by taking a realistic look at the numbers and making smart decisions, you can free up money you never knew you had.