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Managing Your Three-Dimensional Budget

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The economic depression has affected us all, but it has been particularly stressful for caregivers, whose financial resources are usually stretched thin, even in the best of times.

While restoring the economy's health is beyond the power of any one individual, caregivers can impose some order on their own personal financial world by setting spending limits and monitoring their expenses. A well-developed budget gives caregivers the tools to help them make the most of each dollar of income - ensuring they get the maximum bang for their buck and the best care for their loved one.

There's nothing particularly complicated about establishing a budget, but if you want it to work, you have to think about budgeting from three perspectives.

First Dimension: Routine Household Expenses

Routine household expenses include bills from your telephone, power and cable companies, mortgage payments or rent, and food, transportation and entertainment costs. One way to decide how much you should allocate is to keep a diary for two weeks, jotting down everything you spend.

Totaling up your expenses can lead to creative thinking about reducing them. You will likely find instances where routine expenditures on small items - like a $3 cup of coffee on the way to work - add up to considerable sums over time. If driving to work is straining your budget, you might consider forming a carpool. If credit card bills are high, call your credit card company to get a lower interest rate or set up principal-only payments.

Second Dimension: Out-of-Cycle Expenses

Out-of-cycle expenses are once- or twice-yearly costs such as house insurance, property taxes, and car repairs. These can easily derail a budget if you don't make allowances for them. Here again, a little research is helpful. You probably use a check, debit card, or credit card to pay these larger bills. You can get a good sense of your out-of-cycle expenses by reviewing your statements - in print or online - for the last year. Add up your out-of-cycle costs, divide by the number of pay periods you have in a year, and deposit that sum in your savings account each pay period. When these bills are due, you'll have the money to pay them.

Third Dimension: Emergency Expenses

Nothing can break your budget like an emergency. That's why it is important to build up a cash cushion by putting aside a fixed amount each month in a money market account. A good way to do this is to arrange for direct deposit of a portion of your paycheck into your money market account or set up automatic transfers from your checking account at the beginning of the month. Most employers and banks offer these services. Even if you start small, the savings will add up quickly.

Ultimately, you should try to save the equivalent of three to six months of expenses, but if you have no cushion to begin with, covering a single month is a worthwhile goal. If you have credit card debt, your next target is to pay it off. Once you have an ample cushion and are out of debt, you can use these monthly deposits to save for big purchases like a car or to fund your retirement.

Adding It All Up

Having a budget will give you control over your financial life and help you make ends meet. It will allow you to make provisions for yourself while maximizing the resources you can devote to caring for your loved one. And if you find you need extra help, you'll know exactly how much. 

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