Budgeting: tough but oh so wise

Your family probably knows how it spends money: food, clothes, car, mortgage or rent, Visa bill, phone bill. But what about where you have spent your money most recently? If you are like many Americans, you may breathe a sigh - of either resignation or relief - after paying your bills. And as the ink is drying on the check you might well be looking ahead to next month's bills.

A common tendency is to see money spent as water under the bridge. Unfortunately, that tendency forfeits important control over your family's finances.

You must know where your money has been going in order to know - at least in a degree - where money will go in the future. This process is known as family budgeting, and family bookkeeping is the way to go about it. One must admit up front that it is not a whole lot of fun. But it is the necessary first step to family financial planning.

''Most of us have a kind of bottom-line idea, but most of us just don't know where we've been spending our income,'' observes Rick Widdows, assistant professor of consumer science and retailing at Purdue University. He commends the idea of reviewing your family's past expenditures ''as a rough guide for projecting your spending needs into the future.''

William O. H. Freund Jr., a certified financial planner with Prescott, Ball & Turben of Cleveland (and a senior vice-president of the firm), notes that most families spend all they earn. Budgeting, he admits, is an unpleasant task. But if you do not budget at least once a year, it is likely you will have an erroneous notion of what your spending needs actually are.

''Most families don't have trouble meeting their bills,'' agrees Jay Rabinowitz, manager of family financial planning at Merrill Lynch of New York. ''They just don't review them.''

Mr. Widdows uses a home computer to track his family's spending. Software for this purpose abounds (examples: the Radio Shack Spreadsheet, the Lotus 1-2-3). His program accumulates expenditures and flags potential tax deductions. He says , ''We just did our taxes, and when we got to the medical area, I just hit a button and there were all the deductions.''

With or without a home computer, right now is the best time of the year to do an annual review of your family's spending. You should have in hand your final bank statements and canceled checks for 1983, the final bills for your credit cards, plus your W-2 forms and other 1983 tax material. Go over these, Mr. Freund advises, and lump them into categories like those on the accompanying worksheet.

It's likely your spending habits will approximate the percentages in the right-hand column. But if they don't, it may not be because you are doing something wrong. More likely, it reflects the fact that we each have different financial needs.

At any given time, one family may be spending more on education, another on child support, another may have a high medical or related expenditure. If extra relatives are living in the house, this could show up in a high food bill. Several teen-age children may mean more car expenses.

Some families may be giving more to their church or synagogue or favorite charity than are others. A skiing vacation is as valid as a week at the beach, but skiing usually costs more.

Also, bear in mind that family budgeting works best if your life style is stable. If in 1983 you moved, changed jobs, or got married or divorced, using the past to predict the future might not be a good idea. Better wait until your income and spending patterns settle down. But if you can get a fairly representative snapshot of your family's finances in 1983, this can become a base to work from in controlling expenditures in 1984.

At the least, says Widdows, ''past experience can give you a clue on discretionary spending.''

If any number is too far out of whack, that may be a clue to habits you might like to alter. This can be done without Draconian measures.

Widdows recommends, for instance, joint checking accounts instead of separate ones: Each partner in the marriage is more likely to be judicious about impulse purchases.

You can use the family budget to create savings, too. If, for instance, you find yourself spending $7 or $8 a day on lunch - and it's a mediocre lunch at that - there might be a way of cutting that in half, or by a third, and saving $ 1,200 to $1,500 a year. Or you can actually budget in regular payments to a savings account as an expenditure.

At this point, you might consult a financial planner, accountant, banker, insurance agent - someone who can help you design a long-range financial plan for spending, saving, and investing. If you haven't prepared a list of expenditures, the planner usually does that as a first step. Planning can be obtained on the cheap from popular money-management books, for a flat fee from services such as Merrill Lynch's Pathfinder.

Just as each family's spending habits vary, so its financial plans reflect individual goals. Parents with college-age children, for instance, may want to use the children's lower tax brackets to transfer money for schooling. Middle-aged parents might want to budget for an individual retirement account. Wealthy parents may need estate planning.

To echo George Santayana: Unless you review your past financial habits, you may end up repeating mistakes. The important thing, planners say, is that you know where you are spending money. Then you can begin to bring order into your financial plans.

So, go through that checkbook. It may even bring back a pleasant memory or two from 1983.

A WORKSHEET: WHERE YOU ARE SPENDING Your Average Annual Amount % Basic Needs Food -- 10.1% Clothing & cleaners -- '.2 Auto -- 4.4 Medical or similar (non reimbursed) -- 2.0 Allowances for family members -- 2.2 m 25.9% Additional Expenses Entertainment & hobbies -- 8.5% Vacations -- 6.7 Personal gifts -- 4.6 Charitable Contributions -- 6.2 Miscellaneous -- 2.9 m 28.9% Housing Mortgage & taxes (or rental) -- 20.9% Cleaning, maintenance, repairs -- 5.2 Utilities -- $6.0 Furnishings -- 2.6 m 34.7% Insurance premiums Life -- 4.6% Property & Casualty -- 1.2 Auto -- 1.1 Medical -- 1.5 Interst -- 21. m 10.5% TOTAL EXPENSES (excluding taxes, savings, investments) ( /mo.) TOTAL COMBINED EXPENSES * Percentages reflect source's clients. Source: Prescott, Ball & Turben.

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