Notes

*The first step in creating a budget is determining how much money is available to spend each month.
*Some workers, such as those who are self-employed or earn most of their money through tips, do not have taxes withheld automatically from their income.
*The amount remaining, the net spendable income, is money that can be spent.
*Once workers have calculated their net spendable income, they must determine what monthly expenses they have.
*Housing includes all expenses having to do with a residence.
*The housing expense category includes rent or mortgage payments, electricity, water, gas, sanitation (garbage collection), homeowners or renters insurance, property taxes, telephone and Internet bills, and home maintenance.Payments for housing should add up to no more than 30% and 36% of one's net spendable income.
*Transportation expenses include anything having to do with daily travel.
*Transportation expenses range from bus and train fare to car-related expenses, such as car payments, gas, license fees, automotive insurance, taxes, and savings for maintenance and repairs. Transportation expenses should be between 15% and 20% of one's net spendable income.
*Food expenses should be between 12% and 17% of one's net spendable income.
* If people find housing, food, or transportation solutions that use up less of their income, they should use the cheaper options and save their money.
*In addition, money for life insurance and possibly health insurance (depending on employment benefits), debts, clothing, savings, medical expenses, and miscellaneous purchases must be accounted for in a budget.
*Since the expense categories are so broad, subcategories help clarify the specific costs being made.
*Some of these expenses, such as loan and insurance payments, are fixed expenses.
*Fixed expenses are constant and do not change from month to month. Other expenses, like fuel, are called variable expenses, as they may vary from month to month.
*In order to cover insurance payments, you divides the annual insurance costs by 12 months so he can save enough money each month to cover the insurance policy at the end of the year.
*Since not all of the money may be spent, the remaining amount is written in the last column, Amount Over/Under Budget.
*Including entertainment as a budget category rewards budgeting
*When creating a budget, use percents to calculate how much money should be spent in each category. Remember that to convert a percent to a decimal, the decimal point must be moved two spaces to the left.
34% → 0.34
To convert a decimal to a percent, move the decimal point two spaces to the right.
0.45 → 45%
To find a specific percent of a number, convert the percent to a decimal and multiply it by the number. For example, what is 30% of 1,400?
Convert 30% to a decimal.
30% = 0.30
Multiply 1,400 by 0.30.
0.30 • 1,400 = 420
So 30% of 1,400 is 420.
*The money placed in a major expense category is then broken down to cover costs of each subcategory.
*During the month she does not spend all of the money she had budgeted
*This money should stay in miscellaneous in case of higher expenses in a later month.
*If a subcategory is a variable but large expense, like gas for a car, estimate the amount of money that will be spent each month in that subcategory.
*Adding up the lowest percentage in each category equals 89%, and adding the highest percentage in each category would mean spending 123% of the net spendable income.
*For instance, if the maximum recommended percentages are spent on the housing and transportation expense categories, those categories alone will take up more than half the net spendable income.
*While food is a priority, there are a number of ways to save money in this expense category.
*The fifth category, debts, can also be problematic for some people
*While it is recommended that debt take no more than 6% of the net spendable income, sometimes a larger percentage must be budgeted towards debt depending on the amount of debt that needs to be paid off.
*While buying something that is cheap may save money initially, it may cost more money later.
*A budget shows how much can be spent. It does not say how to spend the money or what purchases to make.
*During these debates, politicians usually talk about how the bill will affect the budget deficit.
*The term budget deficit is a way of saying the government spends more money each year than it takes in through taxes.