If 2020 had one lesson, it was to expect the unexpected. As 2021 progresses, many are likely to feel the ongoing, costly effects of the COVID-19 pandemic and the economic turmoil that ensued. You can’t prepare for everything, so make sure to control for the things that you can. A budget is a great way to hedge against uncertainty and to take control of your finances. However, most people choose not to take an active interest in controlling their costs and expenses, leaving their household vulnerable to financial stress. According to a Gallup pole, only one third of American households have a budget.*

Budget Benefits

If creating a budget means going against the grain of society, then why go to all the trouble? Because in the realm of personal finance, it pays to be counter cultural. In their best-selling book The Millionaire Next Door, Thomas J. Stanley and William D. Danko shared some surprising statistics about affluent households. One such revelation is that millionaires are twice as likely as the overall population to have a household budget. Over 62% of the millionaire households surveyed for the book kept to a budget so they could build wealth! **

Creating a budget is boring, it takes time, and most people won’t understand why you’re doing it. Do it anyway. The bulk of life’s economic surprises and shifts are outside the control of hardworking citizens. Do yourself a favor and control costs where you can – in your own home.

Budget Basics

Where to start? Many people use the old tried-and-true method of a line-item spreadsheet (see below for an example). A maximum allowable expense is set for each item. When the time period ends, actual expenses are entered to determine if the household is under, over, or on budget for the item. Spreadsheets are tools and they don’t have to be pretty. They can be simple, just showing the high-level categories, or they can include more detailed subcategories. The important part is what happens during and after budgeting. The calculation, contemplation, and discussion of each item help illuminate each expense and empower the user to control costs. The example below is a simple version of a quarterly household budget. In this example, the family comes in $871 over budget for the quarter. (Over budget is bad, under budget is good.)

Family Budget 2023

     

First Quarter (Jan-Mar)

Budget

Actual

Difference

Auto+Gas

513

-1073

-560

Cable+Phone

429

-429

0

Charity

2000

-2000

0

Education

100

-131

-31

Electronics+Merchandise

100

-284

-184

Entertainment

75

-169

-94

Gifts

75

-75

0

Groceries

600

-750

-150

Home Improvement

200

-619

-419

Mortgage

2350

-2350

0

Office Expenses

79

0

79

Personal+ Family Shopping

373

0

373

Pets

150

-128

22

Restaurants

389

-300

89

Retirement Accounts

1500

-1500

0

Postage

34

-30

4

Taxes

4500

-4500

0

Utilities

967

-967

0

Total Expenses

14434

-15305

-871

 

If you want some help in setting up your budget, consider a software program or app to get started. Options range from free/basic to costly/fully-integrated. Here are some examples of popular budgeting programs:

Quicken – This software program is older than email and has evolved accordingly. Quicken was created by Intuit and eventually spun-off into its own company. Quicken still offers desktop software but now has an app that people can use to manage finances from their mobile devices. The company offers financial management tools for individuals, families, and small businesses.

Ramsey+ - Dave Ramsey is synonymous with financial self-help. A guru of modern times, Ramsey is a public speaker and podcaster who advises everyday people on getting out of debt and building wealth. His program, Ramsey+, comes with a budgeting tool and offers financial encouragement and education.

MintMint is an app created by the makers of Quicken. It’s free to begin and a good way to assemble a budget if you’re not a fan of spreadsheets. Users must create an account with Intuit to get started.

American Consumer Credit CounselingThe ACCC agency, located in Chicago, is a nonprofit that seeks to improve the financial situation of those seeking its services. Their website offers many free resources to help consumers start budgeting.

Special Budget Considerations for 2021

Healthcare Costs – The COVID-19 pandemic has resulted in unexpected medical bills for many American households. It is advisable to devote extra reserves to potential healthcare expenses.

Rising Cost of Insurance – The rising cost of healthcare affects all of the insured, regardless of an individual’s history. Plan for your monthly health insurance premium to increase in 2021.

Decreasing Commute Costs – With many people staying home and even working from home for the fist time ever, automobile and gasoline costs are likely to be down in 2021 versus previous years.

Tax Law Changes – A new federal administration usually means changes to tax code. Stay on top of these changes and ask your CPA or other tax professional how new tax regulation could affect your household budget.

Vacation – This line item is a wild card. Many households delayed vacations in 2020 and may want to budget for a big one in ’21. Others may err on the side of caution and delay this expense another year.

*Source: Debt.com

**Source: Danko, W. and Stanley, T, The Millionaire Next Door 20th Anniversary Edition, page 42.

Jessica Brita-Segyde

Jessica Brita-Segyde