Banish worry with three budgets for life

Photo credit: Urbanite

To get your finances in order, it's important to have three budgets ready so you can prepare for many scenarios.

By KAREN TINA HARRISON

Nowadays, no matter your job situation, you need to take advantage of every financial tool available.

“A personal budget protects you when you have money coming in — and when you’re in transition,” said Dennis Garritan, chair of the Department of Leadership at NYU’s School of Continuing and Professional Studies (SCPS).

“The safest plan is to have three budgets ready for changes in your life and finances.

“A savings cushion can minimize pink-slip panic,” he added.Stephen Wetzel, a financial planner and president of Prometheus Capital Management, noted “if your budget puts away savings, you’ll be prepared for anything.”

Baseline budget

“This is your basic budget, when you’re employed at a decent, make-do level,” said Garritan. “List all your monthly expenses, from rent down to batteries.”

Wetzel advised putting savings as your top outlay. He recommended a 401(k) that comes right out of your paycheck “painlessly.”

The overall idea, Garritan said, is to live within your salary, so baseline expenses should be moderate — reasonable rent, modest vacations and occasional nights out. Wetzel said splurges “are like dessert. Enjoy them once in a while, and you won’t feel deprived.”

Living-large budget

This is your budget when you suddenly have a lot more income, thanks to a major promotion, better job or inheritance. Even if this budget is just hypothetical, you should have it at the ready.

Your living large budget should merely upscale items in your baseline, advised Garritan.

Going crazy with purchases or increasing housing costs will only multiply debt. “Most lottery winners end up broke, and regret having won,” Wetzel said.

Possible living-large enhancements include a better school or camp for your kids.

“Just be sure to increase your savings to meet increased taxes and to give you insurance for a downturn,” Wetzel said.

Bare-bones budget

This is the budget to use if you’ve been downsized, or if you see a big outlay looming, such as a wedding or grad-school tuition.

“Lock up your credit cards and whittle your budget,” Garritan said.

“Make frugal substitutions. Resale shops instead of Saks ... apartment swaps instead of hotels,” he said.

The silver lining: “Living modestly lets you discover what has meaning to you,” Garritan said.

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