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Benefit from a basic budget

Liberate yourself from financial surprises with this basic exercise.

Individual calculates expenses.

There are so many good reasons to establish a budget. So why do so few of us do it?*

Setting and following a budget has a distinct benefit: You gain control over where your money goes. And, according to Jason Heffner, senior financial services representative for the Principal Financial Group® in Overland Park, Kansas, that can be liberating.

"Budgeting gives you control over what you can handle," he says. "If you want to take a vacation, you know you have the money to do it. If you have an emergency, you can cover it."

But following a budget takes time and discipline, Heffner continues. "Many people have difficulty holding themselves accountable," he says. "And some don't want to admit they have money problems. They think the problems will just go away."

Track your spending

The first step: Identify where your money goes. Over a month or two track what you spend. Write down every expense, from mortgage payments to drive-through meals to money you give your kids.

"It's kind of an eye-opening experience," Heffner says. "You may be able to see why you're just breaking even—or coming up short at the end of every month."

Develop the budget

Next, calculate your available income and necessary expenses. Remember to factor in occasional purchases, such as annual car insurance payments, or anticipated needs, perhaps the cost of replacing a water heater. Include outlays earmarked for paying yourself first, college accounts and emergencies.

» Try our emergency calculator to determine how much you should set aside.

Resist the urge to include income that is less certain such as a holiday bonus or tax refunds. If those windfalls come your way, you can decide how to use the money based on your goals.

Establish specific goals

Determine your financial priorities, such as building an emergency fund or eliminating credit card debt. This can motivate you to stay on track, Heffner says.

"We suggest focusing on one or two goals for, say, six months," he says. "Write out those goals and keep them visible. Put them on a note and stick it to your bathroom mirror or the dash of the car." By keeping the goals in front, you remind yourself to stick to the plan.

After you achieve a goal you can move to the next one on your list.

Put your budget to work

Having a budget in place may allow you to find "extra money" for your goals simply by redirecting funds or reducing expenses.

» Use our calculator to see the possible long-term benefits of monitoring spending.

"You may be able to eliminate expenses," Heffner says. "Maybe you can consolidate a cell phone plan or reduce the number of times you eat out. Then you can put that money elsewhere—with a purpose."

Review your budget monthly or quarterly, depending on your preference. Make sure it's often enough to see how you're doing and stay on track—especially if you suffer a financial setback.

"It doesn't take much to create a crisis," Heffner says. "Having a budget can help you rebuild your savings after an emergency."

Take control of your finances.

Use our budgeting calculator. Do you know where your money goes? Track your spending with the help of our budgeting calculator.


* Source: One in Three Americans Prepare a Detailed Household Budget, Gallup, June 2013

The subject matter in this communication is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

© 2013 Principal Financial Services, Inc.

t131001017m – 10/2013

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