A budget, or spending plan, is essential for knowing where your money comes from (income) — and planning where it goes (saving, investing and spending). If you do not already have one, use the Personal Budget Work Sheet to create your own personal budget.

At the first of the month, write the amount you plan to spend in the appropriate column.
During the month, record what you actually spend.
Track your spending over a 3-month period. Adjust your budget as appropriate.

Once you create a budget, stick to it. Avoid spending on things not included in your plan unless you are willing to substitute another item for it.

Stay Out Of Debt

You cannot build wealth by spending more than you earn. If you and a parent or guardian decide you should apply for a credit card or loan, proceed with caution.

Decide exactly how you will use credit.
Limit the number of credit cards you own. You probably do not need more than one.
Pay bills on time and in full. Never skip a payment.

If you have already accumulated debt from credit card spending, college loans or other sources, you should generally follow these steps to pay it in full. Skip those that do not apply.

Pay credit-card balances first. Start with the card having the highest interest rate and pay as much as you can until the balance is zero. Continue until all balances are zero.
Pay personal loans and financed items such as a vehicle or furniture.
Make extra payments on student loans as soon as other debt is eliminated.

Do not let credit card balances accumulate. If you spend $3,000 using a credit card and pay only the monthly minimum due, it will take almost 22 years to eliminate the debt and if the interest rate is 18% it will cost $4,115 in interest. The following example shows how expensive credit card debt can become when you spend more than you can repay in 30 days.

Credit Card Debt Multiplier

$3,000 Balance

Interest Rate

Time To Pay Off

Total Interest

Total Cost

Pay Minimum
(2.5% of Balance)

18%

11%

21 yrs. 11 mos.

14 yrs. 9 mos.

$4,115

$1,606

$7,115

$4,606

Pay $100/mo.

18%

11%

3 yrs. 5 mos.

3 yrs.

$1,015

$ 524

$4,015

$3,524

Save, Save, Save

Whenever you receive money, pay yourself first. Deposit at least 10 percent to 15 percent of it into a savings account before spending any. If you cannot afford this much, start with a smaller amount and increase it as your income grows. The important thing is to make saving a habit.

To make saving easier, ask your bank or credit union to automatically transfer a specific amount from your checking account to a savings account each month. When you receive extra money — a gift, pay increase or bonus — deposit it directly into your savings.

Create An Emergency Fund

Your emergency fund should typically equal 3 to 6 months of basic living expenses to get you through a medical emergency, job loss or other crisis without having to borrow money. Keep your emergency fund in an interest-bearing savings account or money market account, so that it is always available if you need it.

Earn Matching Dollars

If your employer offers matching dollars for participating in a retirement plan such as a 401(k) or 403(b), take advantage of it now. Contribute at least up to the amount your employer matches. You will be giving yourself a raise.

Saving	Investing
Saving generally refers to accumulating money safely — in a bank savings account, certificate of deposit or a money market account — for upcoming expenses or emergencies. You earn a lower, fixed rate of return. Your money is protected, and you can generally access and use it whenever you need it. You should save for short-term goals.	Investing generally refers to buying investments — such as stocks, bonds or mutual funds — that promise higher long-term returns but can decline in value. Your money is at risk. In return for taking that risk, you can receive a greater potential return on your investment. Generally, you should invest for long-term goals.

For More Information

The USAA Educational Foundation publications, Get MoneyWise, Get CreditWise and Making Money Work For You, offer more information.

Next: Understanding The Basics

Updated Thursday, May 01, 2008

HELPFUL FORMS & LISTS

Personal Budget Work Sheet