Financial Prerequisite

Matthew Altmeyer, '05 

Remember taking those prerequisite classes during your first two years at Whitworth? It seemed as if you would never get to study subjects relevant to your major. But prerequisites served as a foundation on which to build future classes. Similarly, creating a budget (which basically is a plan for how and when you will spend your money) can be considered a preliminary step toward building your financial future. You will have difficulty advancing in life without such a plan, because it's a vital part of figuring out if you are financially able to purchase a home, invest in the stock market, or even take a vacation. Few find budgeting a pleasant experience, because it requires the maturity to plan ahead and to tell yourself "no." Despite how daunting it might seem when you first put pen to paper, budgeting is no more complicated than writing down how you spend your money.

Here are a few suggestions to get you started:

• Don't expect your budget to work the first month. It often takes three to four months to perfect.
• Write out your anticipated expenses for the month before the month begins.
• Over-fund your grocery category.
• If you are married, sit down and budget together. (If your spouse is out of the loop or not on board, the plan will fail!)

Various budgeting methods exist, but the real key is to find a plan that works for you. Some people have found success using the envelope system. This is a cash system, and it works very well for those who are visually oriented. Each category of your budget gets an envelope. So, for example, you would spend the money in the grocery envelope only on groceries. For those of you who are currently using a debit card, a modified envelope system can be deployed easily if you have two accounts at your bank. Deposit your entire paycheck into a savings or checking account for the month. Figure out your fixed costs (such as mortgage, rent, insurance, etc.), and set this up on auto bill pay for the month. Have the remainder, minus your savings, automatically transferred once a month into the second account that is linked to your debit card. This becomes your variable spending account for utilities, food, transportation, clothing, recreation, etc. Be sure to record each transaction, because overdraft fees can ruin a good budget.

There are other budgeting systems that people find helpful – but regardless of what system you use, it's extremely important to remember to spend each dollar on paper before it flies out of your wallet.

So, you may be asking, what percentage of my income should be spent on each budget category? No two budgets are alike, and if you have an unusually high or low income, these numbers could differ dramatically. But here's a rough guideline: 

• Savings                                   5-10 percent
• Housing                                  25-35 percent
• Utilities                                   5-10 percent
• Transportation                        10-15 percent
• Personal                                  5-10 percent
• Charitable Gifts                      10-15 percent
• Food                                       5-15 percent
• Clothing                                  2-7 percent
• Debts                                     10-15 percent
• Recreational                           5-10 percent
• Medical/Health                       5-10 percent

Healthy living is more than just what we eat and how much we exercise. How we spend the money we earn can dramatically affect our financial health. The key to creating a healthy financial plan is to decide where each dollar will be spent before you actually spend it. Yes, budgeting is a nasty and often boring pastime, but until you become the master of it, it will master you!

Matthew Altmeyer is a representative with Pacific West Securities and may be reached at 208.777.9444 or matthewaltmeyer@pwfinancial.net.

Securities offered through Pacific West Securities, Inc. Member FINRA/SIPC

This is the first in what we hope to be a continuing series called "My 101." Since Whitworth alumni are experts in a variety of areas, both professionally and creatively, we are asking you to share your knowledge with the rest of us.  Whether it's advice on how to prepare for a job as an au pair, what to ask your realtor, or what you don't need to pack for your trip to Central America, send us your ideas (and thoughts of what you'd like to read about – we know how track alumni experts down!).