Budgeting 101

One of the issues that affects all people, not just prisoners, is our financial situation. As finance guru Dave Ramsey always says, “There is never enough month at the end of the money.”

Ramsey has a program called Financial Peace University that several institutions offer through the chapel. If you have the opportunity to sign up for this class, I highly recommend it. In the mean time, I will mention Dave’s seven “baby steps” to obtain financial peace.

1. Save $500-$1,000 in a beginner emergency fund.
2. Pay off all debt (except the house) using the debt snowball.
3. Put 3-6 months of expenses into savings.
4. Invest 15% of your household income into Roth IRAs and pre-tax retirement plans.
5. Save for your children’s college education using tax-favored plans.
6. Pay off the house early.
7. Build wealth and give.

Now, I’m not going to go into details with all these because Dave will probably send me a cease and desist letter. I am however going to discuss the basic skill of budgeting.

When we hear the word budget, many people immediately thing of “penny pinchers.” This isn’t always true. There are millionaires and billionaires who budget and from looking at the results, it works. Budgets are divided into two groups: income and expenses. Income is money that is paid to you in some form. This is used to pay bills and buy things, which are expenses.

The most common form of income is a paycheck, sometimes called a salary. When you are released, finding a job will be hard. So, what I do is assume I’ll make minimum wage. The lowest hourly wage you can make in the United States is $7.25 per hour. If a state has a higher wage, the higher wage must be used. Determining a state’s minimum wage is as simple as looking in a (current) almanac. While the rate may have changed since then, this can give you a start.

Take for instance the State of Missouri. Their minimum wage is $7.70 per hour. Normally a full-time job equals 40 hours per week or 2,080 hours per year, although this can vary. If you multiply $7.70 x 2,080 hours, your estimated gross annual income is $16,016 (which is only about 130% of the poverty level). Therefore, the monthly gross salary would be about $1,334.67 ($16,016 divided by 12). Gross salary is the amount of money you make before taxes are taken out. After taxes are taken out, the money that is left is known as your net pay.

Taxes are very hard to calculate and thus I am recommending a great website at www.paycheckcity.com. On that site, you will find their “Paycheck Calculator.” You enter your hourly wage, the number of hours you worked, your pay period (whether you are paid weekly, monthly, and so on), the number of exemptions you are claiming (for simplicity, I use only 1, but it may be higher), as well as the state you are employed in.

The site will do everything for you and determine your net pay. Obviously, if you’re locked up, someone on the outside would have to do this for you. In the alternative, you can take your monthly gross pay, which in our example was $1,334.67 and multiply it by 0.87 (which is a rough average I have determined). So now, my net pay (after taxes) would be about $1,161.16 per month. To keep things simple, I’m going to round it up to about $1,200.

If you have any additional income from child support payments, gifts, stock dividends, or anything like that, add it to your net pay. This is how much money you have available this month.

The next part is what everybody hates, the expenses. While you can get really detailed on this, normally it can be broken down into eight categories: charity, savings, housing, utilities, food, clothing, transportation, and personal.

Each of these categories can be broken down even more. For instance, housing could include a rent or mortgage payment, money set aside for repairs, or homeowners or renters insurance. Utilities usually include electricity, gas, water, trash, phone, Internet, and cable or satellite.

Again, you can get as detailed as you want, but the goal is to assign every single dollar to something. A breakdown of recommended percentages is 10-15% for charitable gifts, 10-15% for savings, 25-35% for housing, 5-10% for utilities (which I’ve learned is REALLY hard to do), 5-15% for food, 10-15% for transportation, 2-7% for clothing, and 5-10% for personal use.

The food budget, which next to providing a roof over your head, is probably the most important is hard to estimate. According to the Center for Nutrition, Policy & Promotion, as well as the U.S. Department of Agriculture, the monthly cost for food can vary between $185 to close to $1,300 depending on family size and whether the meal plan is thrifty, low-cost, moderate-cost or liberal. For a single male between 19-50 years old, it ranges from $185 to about $370. So this can give you a starting point.

In the end, if you take all your income and subtract all your expenses, it should equal zero. If it is more than zero, play around with it by adding more to your food budget or putting more money in savings. If it is less than zero, you have two choices, cut back on spending or find more (legal) income.

As I mentioned in the past, I am putting together several forms your loves ones can download off our site at www.backsosoonblog.com. We hope to have all of this online in PDF form (including a printable budget form) by the end of the year.

In closing, again I want to thank everyone who has made #BackSoSoon so successful. We have only been around two months and are nearing close to 1,000 subscribers. So please spread the word and let’s work together to put an end to sex offender recidivism. Also, I never mention her in my message, but thank you to Jackie at J. Edwards Services. None of this would be possible without her and all the hard work she puts in.

#BackSoSoon is a blog dedicated to helping sex offenders successfully reintegrate back into society. Our website is www.backsosoonblog.com and our Corrlinks address is backsosoonblog@gmail.com.

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