Making Your Budget

What do I put for income?

Income is any form of payment made to you. This can be regular salary, Social Security benefits, investment dividends, or even scholarships. This is your income after deducting taxes, which is known as your “adjusted gross income” (AGI).

If you are making a monthly budget, you should list the expected income for the entire month. If your pay fluctuates, you should estimate the lower average. It’s important not to overestimate your income, so that you don’t spend too much.

What are my bills?

Bills are any regular payments made for good or services. This could be rent, utilities, subscriptions, or loan payments. Track the due date for each bill so that you are setting aside the right amount.

 Similar to income, some bills can vary from month to month. This can be bills like water, electricity, or medical copays. When budgeting these expenses, round up. Expecting to pay more is better than finding you can’t pay the full bill.

What’s the difference between bills and expenses? 

A bill is money that you owe but have not paid yet. These are items that have a “due date”, such as rent, Netflix, Amazon Prime, etc.

An expense is an item paid at the time of sale, like groceries, gas, or retail purchases.

 It’s important to budget for both bills and expenses, because priorities exist in both categories. The rent, a bill, could arguably be as important as groceries, an expense. 

How do I plan to save?

Savings should be the first deduction from your income, before any bills or expenses. Whether it’s a dollar amount or percent of your income, calculate your desired monthly savings. But it should always come out before any other deduction. 

Take a moment to think of yourself as a business. Your goods and service is the time you sell your employer. And what they pay you is your revenue stream. The first expense should be to the business. Which is you.

What else should I budget for? 

Consider the bills and payments that are due once a year. Most of these payments are rather large, such as Amazon Prime subscriptions, or tax bills. To pay for this, there are generally two options:

1) Pay with cash from your current paycheck or savings

2) Include it in your budget, dividing the payment by 12 (months) Save a little each month to spread the burden.

Option two is preferable. Reduce stress by setting aside a little each month, rather than making a large and sudden payment. This is why many mortgages include an “escrow” option.