Setting Up a Personal Budget
So many people find themselves in financial trouble and they have no idea how they got there. Budgeting is not something that is difficult to do with a little time and effort. In this module you will complete the following steps:
- Calculating Income
- Predicting Expenses
- Tracking Expenses
Part 1: Determining Income
The first thing you need to do is realize how much money you have to spend. List all sources of income that you have. The amount of money you make before taxes is called gross income. From this number there will be taxes taken out. It depends on a number of factors including how much you make and what state you live in, but taxes will take approximately 25% - 35% of your gross income. In addition to these taxes, some people might also have money taken out of their paycheck for a retirement account, health insurance, union dues, or other regular expenses. These expenses are taken out of your paycheck before the money even gets to you. After you subtract these amounts, you get your net income. A good way to think of this is as "spendable income." If you have money coming in from other sources besides a job they can be included in this section of the budget as well.
Part 2: Planning for the Month Ahead
Now that you know how much money will be coming in, it is important to understand where it is going to go before it is spent. In other words, this budget should be set up at the beginning of the month, not after the month. It may take you a few months to get it right, but you will eventually be able to predict how much money will be spent on certain items. You can use this budgeting worksheet as a beginning guide to set up your monthly budget. I suggest you modify it to fit your specific situation. There are 3 steps to take when budgeting. The worksheet will help you complete these three steps.
Step 1 – Categorize: Think of everything that you will spend money on over the next month and divide them into basic categories. You will start with some common sense things like housing, food, and utility bills. Some items that may be at the bottom of the list might be entertainment or vacations. You can keep a category for miscellaneous expenses as well because there will always be some expenses that fall into that category.
Step 2 - Prioritize: Not only will all expenditures have a category; it will also have a priority as well. You can divide your expenses into 3 separate classifications.
Step 3 - Be Flexible: There are some obvious expenses right off the bat that can be planned for. However, it is important to budget for unplanned expenses as well. Things will come up and your budget will change. It is important to have some money set aside for such occasions each month. Budgeting for this will prevent you from going into debt for such occasions.
Step 1 – Categorize: Think of everything that you will spend money on over the next month and divide them into basic categories. You will start with some common sense things like housing, food, and utility bills. Some items that may be at the bottom of the list might be entertainment or vacations. You can keep a category for miscellaneous expenses as well because there will always be some expenses that fall into that category.
Step 2 - Prioritize: Not only will all expenditures have a category; it will also have a priority as well. You can divide your expenses into 3 separate classifications.
- Necessities – These are items that you could not do without. Your rent payment every month will likely fall into this category as well as electric bills and some food items.
- Optional Items – These are items that are not necessarily necessities but items that are very important. For example, food is a necessity but going out to a restaurant would be an optional item.
- Splurge Items – These items are the opposite of necessities. They are things you really don’t need that you spend money on. Some examples of these are lottery tickets, designer clothing, or videogames.
Step 3 - Be Flexible: There are some obvious expenses right off the bat that can be planned for. However, it is important to budget for unplanned expenses as well. Things will come up and your budget will change. It is important to have some money set aside for such occasions each month. Budgeting for this will prevent you from going into debt for such occasions.
Part 3: Tracking Expenses as you Go
Step 3 - Tracking Expenses: Now that you have created a potential budget for the month, every penny that goes out needs to be tracked. The easiest way to track it is to write it down as you spend it. There is a worksheet to track daily spending that can help. You can carry this sheet with you or save receipts and record all transactions at the end of each night. Either way it is a lot easier to fill it out as the month passes. You may have to edit the sheet to fit your needs.
Check for Understanding
You can find the quiz on budgeting on the teacher resource page.
Your assignment for module 1 is to create a monthly budget for yourself or your family. The budget can be created using this budgeting worksheet or one of your own. If you do not yet have a career, you can find the average salary for various careers using the BLS for students website. After creating the budget, you must then use the worksheet to track daily spending to track all monthly expenditures. After the month is complete, you will then show the difference between your projected and actual expenditures. After showing the differences you will create the following months budget.
You must turn in:
Your assignment for module 1 is to create a monthly budget for yourself or your family. The budget can be created using this budgeting worksheet or one of your own. If you do not yet have a career, you can find the average salary for various careers using the BLS for students website. After creating the budget, you must then use the worksheet to track daily spending to track all monthly expenditures. After the month is complete, you will then show the difference between your projected and actual expenditures. After showing the differences you will create the following months budget.
You must turn in:
- The first months budget (with corrections)
- 4 weeks worth of spending sheets showing all transactions
- The second months budget
The rubric for this project can be found by clicking here or accessing it on the teacher resource page.
