I can tell already. This year is going to be more expensive than last year.

For starters, my health insurance premium went up from $215 to $255.59 a month. My wife's Medicare prescription drug plan added a $100 deductible and raised the monthly premium from $23 to $35.90 (and is still the best plan we found for the medications she takes).

The cost of car insurance has gone up from $255 to $313 every six months despite having no accidents, no citations and no claims. And I doubt we'll be as lucky as in 2009, when we spent just $374 to fix minor things around our 8-1/2-year-old house and did not need a penny in repairs for our car, which is just as old.

So we are allocating $100 a month for repairs in our 2010 budget, part of $200 a month set aside for emergencies, whether it's the refrigerator going on the fritz or an unscheduled visit to the doctor. Including this emergency reserve and taxes we must pay on our projected income, our "needs" will cost us about $52,000 in 2010, up from the $50,000 we spent in 2009.

Any money left over we can spend on "wants," things that give us pleasure but that we don't need to live on.

That's how I recommend everybody set up a budget. Cover all your necessary expenses first before you budget for any "wants." Don't forget that "savings" -- for example, contributions to IRAs and other retirement plans -- are part of your needs if you are still working.

Not everybody's definition of "need" is the same, of course. Much will depend on where you choose to live. Our real estate taxes and homeowners association dues combined totaled $9,500 last year, but we can easily afford that amount, love our home and won't dream of moving. As writers, Georgina and I find high-speed Internet service a need to research our stories, but many other people won't.

Even expenses everybody agrees are needs-- such as the groceries and the electric bill -- can be lowered if we are smart consumers. The two questions to ask about all expenses are: Is it a need, and if it is, can the expense be less?

This is the mindset that will help you spend intelligently and save more, a goal millions of Americans set for themselves every New Year (along with losing weight, quitting smoking, or learning a new language or musical instrument). The key to success with all these goals is the same-- have a realistic plan and the discipline to follow it step by step.

For saving money, the first step is to know where it is going now. The way to know it is to keep track of all expenses, a habit Georgina and I have followed for decades. Budgeting is easy for us because we don't have to guess how much we tend to spend in each category but actually know.

By budgeting and keeping track, you can more easily recognize expenses that go up disproportionately from year to year. After noticing our insurance premiums escalate in 2008 even more than now, we shopped around for new policies and saved $655 last year. You also can identify big lump-sum expenses (for example, we are planning a vacation in October and our real estate taxes come due in November). By anticipating and planning, you can set aside enough money in your budget each month to be ready when the bill comes.

 

 

 

Personal Finance Make Budgeting a New Year's Resolution | Personal Finances and Saving

(c) 2010 Humberto Cruz