First, Balance Your Bills

To build your lifetime money plan, start with what’s most important—your basic necessities. These are the “must-have” bills—those you need to pay month in and month out, no matter what. This includes your rent or mortgage payment, utilities, insurance, car payment, regular medical bills, and any legal obligations (such as student loans). If you pay for daycare so that you can go to work, it goes with your must-have bills. The list also includes a basic food allowance (just the bare essentials—T-bone steaks and restaurant meals don’t qualify as “must-have” bills). Add all these regular expenses up, and call the list your “Monthly Must-Have Expenses.” Generally, you should be able to cover your monthly must-have expenses on 50 percent of your take-home income. 

That’s right—half your money can go to must-haves. If you keep your must-haves to 50 percent of your income, you will have plenty left over to spend for fun, and enough left over to save for your future. Keeping the must-have expenses in balance will give you a solid foundation for your lifetime money plan. What if you can't manage your bills on 50 percent of your income? Then this is a strong sign that it is time to cut back. Maybe you should send back the rent-to-own television. Maybe it is time to move to a smaller apartment or to trade in the car for something cheaper. Maybe you need to share expenses with a roommate or a family member. Do whatever you can to get your basic expenses down to half of your income. 

These can be tough choices, but in the long run you'll live happier and rest easier if you start to get your budget straight now. Take a closer look at your expenses with the help of a worksheet available at www.wiserwomen.org. What if you just can’t get it to 50 percent right now? Then get as close as you can. If you are spending 65 percent of your income on must-haves, maybe you can bring it down to 55 percent. It’s not perfect, but it would be a big step toward building a more secure future. And once you’ve done your best, set a goal for getting your must-haves into balance. Maybe it will be in a year, once you finish paying off your car. Maybe it will be in two years, once the youngest child starts kindergarten and your daycare bills go down. The point here is to keep your eye on the big picture—your long-term financial health. It may take a while until you get everything under control, but every step you take in this direction makes your life better today and tomorrow.