Get fiscally fit.

Put your new budget in effect

Are you ready to get in good fiscal shape? Over the next couple of months, we'll take you through a series of exercises designed to help you get on solid financial footing, do get ready to work!

Effective money management and consumer empowerment have been the primary locus of BLACK ENTERPRISE'S Black Wealth Initiative (see "Burdened With Holiday Debt?" in this issue). In this six-part consumer empowerment series, we will reinforce many of the Declaration of Financial Empowerment (DOFE) principles we introduced by showing you how you can implement them in your daily life.

To begin, this piece will focus on how you can set up a household budget. This is the first step toward financial empowerment because it: helps you "establish where your money is going and ensure you're not foolishly spending it," states Robert Pagan, a financial advisor with Westchester, New York-based Vernon & Associates (www.vernonandassociates.com). So, follow these guidelines to whip your finances into shape:

* Track your spending. Pagan advises that you "keep track of your spending for about two to four weeks and write each expenditure in a diary." When you record your transactions, make sure you include a description of the expenditure, the date [you made it], and whether you paid by cash, check, or credit card. This will help you determine which categories you should include in your budget.

* Review your bills over the past six months. Put them into categories, and figure out the average amount of money you spent in each. For annual expenditures, divide the total amount by 12. That's how much you contributed out of your monthly income to support that bill.

* Develop a cash flow statement. Compile your transactions into a basic cash flow statement. First, list where your money is coming from, including monthly salary, pensions, dividends, etc. Then list where your money is going. Get a total of each category and calculate the difference. This is your discretionary income. If this figure is a negative number, you're operating at a deficit. Regardless of the result, you should always look for ways to reduce your expenditures.

* Create a monthly budget allocation. Record the daily and monthly items that you're spending your money on and determine the average amount of money that needs to be applied to each category on a monthly basis. List the committed expenses first, such as rent, mortgage, or utilities. Then put down your discretionary expenses. Get a subtotal for each category, and then calculate a grand total. Says Pagan, "Don't forget to include the nonessential items, such as dry cleaning, salon services, entertainment, travel, and dining." For a sample worksheet, refer to BLACK ENTERPRISE'S Consumer Budget Planner in "The Art of Savvy Budgeting," May 2000, p. 79.

* Pay yourself first. You should allocate 10% of your income to your savings before you pay any other bills. Another goal should be to maintain a liquid cash reserve of up to three to six months' worth of living expenses so you can deal with emergencies or take advantage of opportunities.

* Eliminate categories that fail to provide value for your money. Once you've confirmed that the data you're using is meaningful and accurate, revise your first draft by cutting out unnecessary expenses.

* Ensure that your budget is realistic. "You have to make a budget that you can live with so that you'll still enjoy life," says Pagan. Remember, tracking your expenses is a means to an end, so the process shouldn't be excruciating. A few extras need to be included in your budget and you may decide to eliminate a purchase only for a period of time. According to Pagan, "Budgets need to be reviewed or revised every six months."

* Make budgeting a family affair. Get your spouse and children involved in your money management efforts. Ask them to come up with ways to reduce expenses.

* Reward progress. Once you meet a financial goal, reward yourself and your family with a special night out or other treat. Budgeting does require hard work, but it should also be fun.