Customized Budgeting Software

by Gary Foreman

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Hi Gary,
I have a budgeting question. I am in search of some type of budgeting tool that allows me to input my annual income, regular monthly bills (utilities, mortgage, vehicle insurance, etc.), and other "self inflicted" debt such as credit cards and loans (other than mortgage). Then, I want it to calculate what I should budget for particular items based upon my income and the monthly expenses mentioned above. For instance, how much should I budget for clothing, groceries, and personal expenses (haircuts) while trying to pay off my "self inflicted" debt? Is there such a tool in existence? I have Microsoft Money on my computer, but it only generates charts that show me how much I am spending on those items, not what I should be spending based on my income versus debt ratio. Any suggestions?

RH faces a common problem. Without a benchmark, how do you know if you're spending too much? And, better still, if such a benchmark exists, could it do all the calculations for me?

It's a good question, especially when you're trying to payback what RH calls "self inflicted" debt. And, yes, it would be nice if some piece of software would do it all for us.

As RH said, Microsoft Money does generate charts that show how much she's spending in various areas. Most budget programs have a similar feature. RH can compare those charts to a "typical" budget.

As a side note, I like to work with "after tax" figures. We can all relate to what we take home in our paycheck. How much we can spend in any area is determined by multiplying our pay by the percentage for that category.

One guideline allocates "take home pay" this way:









Debt Repayment










Everything Else


RH can take her existing expenses and see how they compares to the guideline. Most budget software and professional advisors are reluctant to provide a one-size-fits-all budget plan. That's because every family is different. These guidelines should be modified for family size, age and number of children, and a number of other factors. They are a starting point for discussion. Nothing more.

For example, suppose that "self inflicted" debt repayment requires more than 5% of her after-tax pay. That's not uncommon. Often one or two of the categories are higher than average. Lets face it, most people's lives don't fit neatly into the average.

One oversized category could be ok. For instance, maybe housing consumes 38% of RH's money because she lives in Los Angeles or New York. The only way to reduce it would be to live in her car or move out of the area. But, RH knows the best places to reduce her spending so she can continue to repay debt. That's where a computer cannot replace human effort.

She knows that her good driving record means lower than average insurance rates. And, only she knows that haircuts are important to her. So she can't reduce there. It's going to take RH's time and knowledge to determine which areas can provide the needed savings.

She may run into trouble. Finding a percent or two is one thing. But carving 5% or more out of other categories can be difficult. The problem is that about two thirds of the average budget is consumed on housing, food and auto. The best place to find some extra money is in those areas. If you can't make up the 5% there, it's difficult to find that much in the smaller remaining categories.

If any category is more than 5% above the typical, she'll have real trouble living within her income. For instance, if debt repayment is 11% of her income or housing consumes 40%, RH will find it very hard to make up the difference somewhere else.

When one category is that far out of the average, the best way to solve the problem is to reduce spending in that specific category. That could require drastic action like trading a car you can't afford for one that's within your budget. Or not cruising the mall shopping for clothes each weekend. Or moving to an affordable home.

If debt is the problem, RH might want to consider debt consolidation, credit counseling or even bankruptcy if the debt is simply too much to repay. Of course, if she can begin to repay the debt, each month will get easier since the amount owed will be a little lower.

Whatever her circumstances, RH can use the budgeting software that she has, compare her spending to some guidelines, make adjustments that fit her lifestyle and then determine what corrective action needs to be taken. It'll take a little work, but will give her a better answer than any one-size-fits-all budget template.

Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, and Gary shares his philosophy of money here. Gary is available for audio, video or print interviews. For more info see his media page.

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