By Mary Creedon ’14, Ina Herlihy ’14 and Maddie Ripley ’14, MWWM Columnists Personal Budgeting
Why should I care about budgeting?
Forming a personal budget by tracking your spending is the single most valuable tool to control your financial life. You cannot control something you do not understand. Knowing where you spend every dollar you earn will allow you to evaluate where you can afford to cut costs and where you can treat yourself. Forming and maintaining a budget gives you the opportunity to spend your hard-earned money on the things you love and to cut costs mercilessly on the things you don’t.
How do I form a budget?
To create a budget, list all of your expenditures, and divide them into categories such as student loans, utilities, health care, rent, cell phone, car, food, gifts, clothes, entertainment and miscellaneous. Next to each category, place an “E” for essential or an “F” for fun. This will help you see what categories of spending can be reduced or eliminated to help minimize costs.
How do I meet my budget?
Begin following your budget by keeping your receipts and recording expenses in your cell phone, notebook or computer. If you have a smart phone, take advantage of applications to help simplify the process of tracking your spending. Computer software such as Quicken and Microsoft Money are also beneficial. These resources provide a comprehensive place to record and categorize all your expenses.
Tracking your budget progress often is essential, to ensure that you do not forget to record any costs.
Saving and Investing
How should a portfolio be divided?
30 Percent Domestic Stocks: You should have U.S. stock funds that cover small-, mid- and large-cap stocks (which just means small, mid-sized and large publicly traded companies).
15 Percent Developed-World International Funds: Invest about 15 percent in international funds of developed nations such as Germany, the UK, etc.
20 Percent Real Estate: This is referring to Real Estate Investment Trusts, which invest in domestic and international mortgages for residential and commercial real estate.
5 Percent Emerging-Market Equities: Along the same lines as the developed world fundsk, except these are for developing countries such as China and India (this can be rather risky, hence the 5 percent suggestion).
15 Percent Government Bonds: These are usually fixed interest and therefore quite predictable in their returns. They are safe so they balance the risk in the rest of your portfolio but will not give as high returns as the above investments.
15 Percent Treasury Inflation-Protected Securities: Known as TIPS, these protect against inflation (so your money won›t lose value over time). Treasury Inflation- Protected Securities provide the least return.
Submit your personal finance questions to firstname.lastname@example.org.
Our next workshop, focused on student loans, is on Nov. 12 at 11:30 a.m. in Humanities 121.