Why Have A Budget Analysis

    November 18, 2002

Let’s start by defining a “Budget Analysis”. This is simply a breakdown of your budget (income, bills & expenses) showing how much money you have coming in and how much you have going out. It will show how your budget category percentages compare with what is recognized as the ideal percentages. The most important aspect of the Budget Analysis is the recommendations for improvement.

The first part of your analysis will list your income and breakdown your bills and expenses by category. At Budget Stretcher I use only four categories, Housing, Other Bills, Household Expenses, and Savings. The three expense categories allow 30% of your take home for each category with 10% going to savings.

Next, your expenses percentages will be compared to the ideal percentages that will show you what areas of your budget need improvement. The percentages above are simply targets. If you exceed the recommended percentage in one category but you do not exceed 100% of your take home pay for all categories, then you would not normally have a problem.

The recommendations for improvement are based on sound financial practices. There isn’t anything complicated about this, it is pretty much 2+2=4. However, there are some tricks that can be recommended to help make the figures add up a little easier. As an example, if you have say 40% of your income going to the Other Bills category because of credit cards, it may be recommended that you try consolidating your credit cards to lower your payments. This can be done by either a consolidation loan, home equity loan or by using an existing credit card to pay off all of the others.

I would recommend a Budget Analysis for anyone that is having problems with paying their bills or anyone that consistently pays their bills late. Also, if you have problems organizing your bills or would like to reduce your debt, a budget analysis may be helpful.

The next step is follow-up. No matter how thorough your budget analysis, you are going to have questions along the way. It is important that whoever is doing your budget analysis are available to answer these questions for as long as you need the help.

A Budget Analysis is not the answer to all of your problems. It is going to take time, organization and discipline to get your finances in order but it can point you in the right direction.

Terry Rigg is the author of Living Within Your Means – The Easy
Way http://www.homemoneyhelp.com/ebookadpage.html and editor
of The FREE Budget Stretcher Newsletter and Budget Stretcher
web site http://www.homemoneyhelp.com. He has 25 years of
experience counseling individuals and families concerning their
personal finances.