Unit 3: Learn to Budget

Budgeting—Making the Most of Your Money

A budget is a plan for managing your money during a given period of time.  It will help you find money for the stuff you want and provide money for the important things you need. 

What happens when you don’t use a budget?  You’re operating without a plan and making poor decisions—you're spending money haphazardly, overspending, and accumulating debt.  Simply having a budget will help you avoid all of this and helps you make the most of your money. 

Budgeting Terms and Concepts 

Before creating a budget, we’ll look at a few terms.  To create a monthly budget, you must understand that we are simply looking at our total income minus expenses. 

• Income: total amount of earnings from work and other relevant sources
• Expenses: total amount spent for fixed or variable expense
• Savings: total amount remaining after expenses for future wealth or financial planning

To balance a budget, we look first at cash flow.  Cash flow refers to the money you have coming in, as well as the money you have going out.  In determining a proper budget, we look first at whether we are able to balance our income and expenses, or if have enough money to cover the bills. 

Next, we’ll take a look at our income.  Income is the money we earn from a job.  But it can also be money from part-time work, an allowance, or interest earned from a savings account.  If you are working, you have become familiar with income taxes and payroll deductions.  The four most common payroll deductions are: federal income taxes, state income taxes, Social Security taxes, and Medicare taxes.  These taxes diminish your total earnings or gross income. 

Finally we’ll look at expenses.  Expenses are what you spend money on—your needs and wants.  There are basically three types of expenses: 

• Fixed Expenses are costs that are the same every month such as a mortgage or car loan. 
• Variable Expenses fluctuate in amount each month, such as food or clothing expenses. 
• Periodic or Occasional Expenses are expenses that do not occur monthly but are regular expenses such as car repairs or medical services. 

However an expense is classified, you should plan for how you will pay your expenses. One method to make certain you’re working towards paying the most important expenses is by following the Pay Yourself First Method, or PYF Method.  To follow the method, you immediately put a certain amount of money towards paying your fixed expenses.  This will help you eliminate wasteful spending on items that you want and ensure that you are able to pay for the things you need. 

Download PDF: Rework A Budget - Part 1

Download PDF: Rework A Budget - Part 2

Building A Budget

So how do you create a budget? 

1. First, decide the time frame for tracking your income and expenses.  Will it be weekly or monthly?
2. List all of the income you have coming in from work, allowances, or gifts. Then, total all your income.
3. You need to make categories for each of your expenses.  Divide expenses into fixed and variable expenses. Then total your monthly expenses. 
4. Subtract your total expenses from your total income.  If the number is negative, you need to go back and adjust some of your variable expenses until the number is zero. 
5. Step back and evaluate your budget to determine if your spending is too much or too little to meet your priorities or your financial goals. 

Download PDF: Setting Up A Budget - Part 1

Download PDF: Setting Up A Budget - Part 2

With your plan in place, the next step is to implement it.  Here are a few guidelines for putting the plan into action:

• Write your goals and prioritize them.
• Set clear outcomes for reaching each goal.
• Determine the proper amount of savings or additional money needed to reach your financial goals. 
• Review the plan to determine if you are working on schedule. 

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