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Chapter 10
Budgets Are for Everybody
In This Chapter
✧ The wildly unpopular budget
✧ Understanding why budgets are good
✧ Including necessities and non-necessities
✧ Anticipating nonroutine expenses
✧ Cutting back when you need to
 
 
Planning a budget and sticking to it might seem like a big-time drag, but chances are you’ll be happier and better off money-wise in the long run if you do it. Hardly anybody looks forward to having to plan and sticking to a budget. I mean, really, who wouldn’t rather have plenty of money to go out and get whatever you want instead of worrying about how much you’re spending? The truth is, though, that most of us do have to plan our spending. Chances are pretty good that by now you’ve learned there’s never enough money to get everything you’d like to have.
It’s hard enough to have some change left over at the end of the week during regular spending times, but then along come those out-of-the-ordinary circumstances that really stress the old pocketbook. Your girlfriend’s and your mom’s birthdays that happen to be only four days apart, holiday presents for your family, the junior prom for which you simply must have a new dress and shoes—you know what I’m saying. These and other must-buy situations can really stretch, or even deplete, your financial reserves.
However, following a budget can go a long way toward ensuring that you’ll have money when you need it. That doesn’t mean you’ll have unlimited supplies of the green stuff. It means that if you know what you have, know what you need, and plan what you’ll spend, you’ll be financially cool.

Why Nobody Likes a Budget

Budgets are kind of like going to the dentist. You probably don’t like to do it, but you know that you should because it’s good for you. Budgets have a bad rep, mostly because they require a degree of discipline. If you stick to one, it sometimes might force you to say “I guess not” to things you’d really like to have.
It’s tough to put off getting something that you really want. We live in a society where instant gratification is the way to go. Get it now and pay later. Charge it. Don’t worry about it until the bill comes. If you’ve fallen into the gotta-have-it-now rut, living within a budget won’t be easy. If you can do it, though, you’ll be on the fast track to financial success.

The Benefits of Budgeting

Learning to use a budget while you’re young has some important advantages. The most immediate is that you’ll learn to handle the money you have now. A more long-range advantage, but probably even more important, is that you’ll establish good spending and saving habits for down the road.
Let’s face it: If you get into financial trouble now, there’s a good chance that somebody will be able to bail you out. Mom or Dad will cover you or your best bud will loan you a few bucks to see you through until allowance time.
However, 10 or 15 years from now, chances are you’ll be out in the real world and living on your own. You’re likely to have a job, an income, a car, an apartment or house, maybe even a spouse and a family. You’ll also have annoying little money issues such as taxes, utility bills, credit card bills, insurance bills, more bills, and more bills.
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Scary Stuff
By age 25, the average American is $6,000 in debt—not a good financial position! Learning to budget and control your finances now can give you a huge advantage as you get older.
Learning to take care of your money now will go a long way toward ensuring that you’ll do it later in life—when it really counts. Let’s make it plain; setting up and using a budget is a good idea for the following reasons:
✧ Having a budget puts you in control of your finances and helps you avoid money pitfalls. It forces you to look at what you spend your money on and will tell you exactly what you can spend each week or month at the mall, at Burger King, or whatever.
✧ Having a budget now teaches you good financial habits that you’ll be able to use for the rest of your life.
Now, let’s get down to business and see what a budget for a person your age might look like.

What to Include in Your Budget

If you’re one of the growing number of teenage entrepreneurs who have already started and are running a successful small business (more about these creatures in Chapter 17, “Thinking About a Business of Your Own”), or you get a huge allowance each week, or you have different means of income and varied expenses, you might want to consider getting some electronic help in tracking your cash. There are a bunch of computer software programs designed to make keeping track of income and expenses easier. Some of the most popular ones are Quicken, Microsoft Money, and Managing Your Money.
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Money Matters
There’s really no right way or wrong way to set up a budget. It’s more a matter of figuring out what works for you. It can be simple or complicated, but you’ve got to be comfortable with it and able and willing to use it.
However, if you’re a typical teen, you probably don’t need electronic help to set up a budget. In fact, your budget probably will be pretty simple, because your income and expenses probably are pretty limited.
The first thing you need to do is to get a handle on what you’re making and on how you’re spending your money. We discussed where your money comes from in Part 2, “So, How Are You Gonna Get It?” so think back to what you read and come up with a total of any and all income you have. This includes money you might get for allowance, doing yard work for a neighbor, baby-sitting, gifts from grandparents, and so forth.
The next step is to figure out how you spend your money—and this probably will be a little harder. Most of us spend significant amounts of money on small items, many of which we don’t even remember once the money is gone. Take a few minutes to think about spending categories—that is, general categories within which you spend. Some examples of spending categories include:
✧ Housing (probably doesn’t apply)
✧ Transportation (your own wheels, bus fares, gas for Dad’s car, and so forth)
✧ Debt (may or may not apply, depending on whether you have a credit card, student loans, or whatever)
✧ Entertainment
✧ Personal expenses
✧ Charities
You’ll need to list and expand on these expense categories, and try to figure out how much you spend on each. Most people work with monthly budgets, but if it works better for you to operate week by week, that’s fine, too. Don’t worry if you don’t know exactly how much you spend, just get as close as you can. This will help you to see what you’re spending and to look at ways you can cut back in certain areas or shift spending to other areas.
The following is an example of a budget with limited expenses that a typical teenager might use. Feel free to adapt this sample to fit your own needs. Just take out any categories that don’t apply to you.
A Sample Budget Worksheet for Teens
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Necessities First

When you’re making a budget, the first expenditures you need to include are the ones that are necessary. If you have things that you’re definitely and ultimately responsible for paying, don’t even think about eliminating that money within your budget.
Right now, however, you probably don’t have many necessary expenses. Your Friday night foray to the Outback Steakhouse doesn’t count as necessary, even though it might seem that way to you.
If you’re responsible for buying your own clothing, shoes, or toothpaste, those are necessary expenses. If you’re responsible for paying for costs associated with school, such as any out-of-the-ordinary fees for supplies, that’s a necessary expense. If you have a car and are responsible for its upkeep and insurance, those are necessary expenses. If you’re living in an apartment, housing costs certainly are a necessary expense. The more independently you’re living, the more necessary expenses you’ll have. Be sure you budget for them before you budget for anything else.
As you get older and your financial responsibilities increase, you’ll have a lot more of these necessary expenses. They include things such as housing, debt, insurance, taxes, transportation, health care, and costs of raising kids.

Nonessentials Second

Once you’ve budgeted for all the necessities (be sure you don’t forget anything), you can start thinking about the nonessentials. These expenses include stops at the donut shop on your way to school, the baseball cap with the logo of your favorite team, dinners with your friends—all the things you like to have and to do, but don’t really need.
If most of your needs are taken care of by your parents or whomever, any money you have can be used toward things that you want.

Understanding Budget Terms

There are various terms used to describe different aspects of a budget. Not all of these terms will apply to a budget for someone your age, but it doesn’t hurt for you to know what the following mean:
Routine expenses. These are the expenses that remain relatively the same, week after week, or month after month. They might include rent, insurance, food, and entertainment.
Nonroutine expenses. Nonroutine expenses are easy to forget about, because they don’t occur regularly. They might include medical bills, car repairs, wedding gifts, and so forth.
Fixed expenses. These are costs that don’t vary much in amount from month to month (or whatever time period you’re using). They include rent, car payments, health club dues, and so forth.
Variable expenses. Expenses that are variable change from month to month. They might include entertainment costs, vacations, food, clothing, and utilities.
Nondiscretionary expenses. These are the necessary ones—the ones you can’t get away from. They include housing, food, utilities, taxes, car payments, and so forth.
Discretionary expenses. If an expense is discretionary, it’s not necessary. They include vacations, memberships, entertainment, and so forth.
There are combinations of these types of expenses. For instance, a discretionary expense can be either fixed or variable. A health club fee is a fixed, discretionary expense. It’s the same each month, but it’s not necessary. Rent is a fixed, nondiscretionary, routine expense. A vacation is a variable, discretionary, nonroutine expense. You get the idea, right?

Factoring In Nonroutine Expenses

If you’re setting up a budget for yourself, you’ll need to think ahead to anticipate the nonroutine expenses that might come up. This can be a lot of fun, because it allows you to imagine all kinds of neat possibilities.
Maybe your girlfriend’s family will invite you to go along on their vacation to the beach like they did last year. You know it’s not a given, but it could happen. If it does, you’ll probably want to have some extra cash put aside to take along. Or, maybe some senior is selling the snowboard of your dreams, for half of what you’d have to pay for it new. If you’ve anticipated for nonroutine expenses within your budgets, you can be heading for the slopes on your new board this weekend.
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Money Matters
Nonroutine expenses aren’t necessarily big surprises, they’re just not routine. For instance, your brother’s birthday present is a nonroutine expense, even though his birthday rolls around every year at the same time.
The biggest dance of the year is coming up and you’ve just seen the greatest dress ever. The problem is that it’s super expensive and your mom’s not budging from the $65 she promised to put toward it. Having some money allocated for nonroutine expenses in your budget puts you on your way to the mall with enough money to buy the dress.
Of course, whether or not you’ll be able to anticipate and save for nonroutine expenses depends on how much income you have, and your other expenses. If you can, though, it’s a good idea to try to set some money aside for these types of things.

Trimming the Fat from Your Budget

Once you’ve listed all your expenses, compare what you spend to what you earn. Maybe you’re in pretty good financial shape—not spending too much, and able to save some money every week or month.
On the other hand, maybe you’re surprised to see exactly how much you’ve been spending. Remember all those little things such as that pack of gum, the double latte, and that great shade of lipstick? Small items sure can add up quickly, can’t they? If you’re not happy about how your expenditures stack up to your income, you can do one of two things:
✧ Make more money
✧ Spend less money
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Money Matters
Almost every budget has spending areas that can be reduced. Look first to entertainment, then to personal items.
If you’ve already got a job, it might be impractical to think about getting another. Most states have restrictions on how many hours teenagers can work. Besides, you need time to do homework, be with your friends, hang out at home, and pursue other interests and hobbies. You might be able to add on some more hours or find a job that pays more, but remember there’s more to your teenage years than making money.
If your earning potential is pretty well maxed out and you’re not happy with the amount of money you’ve been able to put aside, it’s time to think about trimming some of the fat from your budget. Trimming the fat can be extremely painful, but trust me, it almost always can be done. You’d be surprised at what you can do without if you really have to.
Although almost any expense included in your budget can be trimmed, some areas are easier to scale down than others. Generally, variable expenses are easier to trim than fixed expenses, and discretionary expenses are easier to cut than nondiscretionary. That’s not to say, however, that you can’t save money in all areas of your budget. Pay extra attention to categories such as entertainment and personal.
There are a lot of ways to spend less, and a good budget can help you to do so by making you more aware of where your money is going.
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Scary Stuff
Don’t spend a lot of time drafting a budget, only to have it go by the wayside a month or two later. Many a person has gone off the financial straight and narrow by abandoning budgeting efforts. Stick with it!
 
 
The Least You Need to Know
✧ Many people resist setting up and using a budget, but nearly everyone can benefit from one.
✧ Learning to use a budget now will help you get control of your money and establish good financial habits.
✧ Your budget should include various spending areas such as transportation, entertainment, charity, and personal.
✧ It’s important to anticipate expenses that don’t occur regularly so that you’ll be prepared for them.
✧ There are many ways to trim your budget, primarily from areas that include variable and discretionary expenses.
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