Tips For Setting A Workable Personal Budget For 2013


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So this will be the year you set and really follow a personal budget. The goal: less debt and more savings for retirement, a down payment for a house, travel -- you name it.

To make 2013 a success, you'll need a budget that's easy to follow. As you begin, consider four keys that will help you finalize and stick to your game plan:

• Consider the past. Neal Frankle, a CFP and founder of Wealth Pilgrim , recommends comparing how much you think you spend against reality.

"If you add your total withdrawals from your last 12 bank statements, that's how much you spent -- period," he said. "I tell clients when they do this exercise to not be surprised if it is 30% higher than what they thought."

The sobering effect launches many clients into action. Frankle reminds clients that little steps can pave the way for major results.

"Most people who ask about budgeting know they have to make a change," he says. "They start small and find it's actually fun to see the progress they make."

• Move toward automation. No need to don eye shades and sleeve garters as you pencil numbers into a ledger -- unless that's your thing. Plenty of websites and books have worksheets to help you categorize your income, expenses and debt. Websites include FamilyBudgetWorksheet and . Also, check your bank, brokerage or mutual fund firm for them. Favor those at sites you already visit.

"Automation is a budget's best friend," said Ebong Eka, a CPA for Levyti Consulting, adding that going digital promotes good habits.

If you haven't already done so, consider opening a separate savings account and having a portion of each paycheck deposited directly in it.

• Set reasonable expectations. Leave a cushion, space for error in your budget.

This scenario explains why: "You expect your cell phone bill to be $100 every month, but last month you unexpectedly went over your minutes," Eka said. "Leave some room in the budget if there is a likelihood of a repeat occurrence."

He favors setting aside a separate category for the cushion rather than padding others because it fosters discipline.

Lisa Fox, a CFP and director for financial planning at South Texas Money Management, emphasizes the value of reasonable expectations.

"Make sure you are setting a realistic budget," she said. " You don't want it to be so restrictive that you're going to not want to follow it altogether."

• Light maintenance. Periodic monitoring is needed once your budget is set. Start out daily and gradually taper off to weekly or monthly as you build confidence that good spending habits are taking hold.

Using tools such as Quicken or can help in monitoring spending.

"It's important to know exactly where all of your money is going," Fox said. "You want to review your budget monthly or at least quarterly so you can make adjustments."

Fox notes that monitoring is critical for retirees .

"You may wish to consider reducing unnecessary expenses," she said. "Life insurance is not always needed at this stage. I am not a fan of debt in retirement, so I urge clients not to upsize their home and take on a mortgage."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Mutual Funds

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