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What a Personal Budget Measure Monthly or Annual? A cost that is repeated regularly is called a recurring expense . For example, rent is a recurring expense because it is due the first day of every month. Other typical recurring personal expenses are credit card and student loan payments, utility, cell phone, and car payments. Recurring obligations are usually on a monthly payment cycle . For this reason, most budgets are also set up to be monthly. They provide a month- by-month picture of income and expenses. One of the beautiful things about a budget is that, after a few months, it will begin to reveal a lot about your personal spending habits and patterns . For example, accumulated monthly budget data can be used to compare how your winter expenses differ from your spring expenses, or whether your income drops in the summer months and by how much. Eventually, monthly budget data can be expanded to provide an annualized or “big picture” of your income and expenses which will reveal changes from year to year. That information is important for tax planning and meeting long term financial goals. If you are even mildly proficient at Excel, you can easily set up a budget spreadsheet. If not, search "free budget spreadsheet" and you will find plenty of templates. There are even budget templates on Pinterest.
BUDGETED ACTUAL 2700 2700 375 275 PRODUCT PR VIEW 90 20 55 100 25 60 3240 3160
STEP 1: Start with Income. To estimate monthly income, list all reliable anticipated sources of income including wages and salary, interest, investment income, bonuses and commissions, if your job includes those. At the end of the month, plug in what you actually earned. If you earn a salary, your income probably won’t change much from month to month. If you work on commission, there could be substantial gaps between what you budgeted and what you actually earned. If you have freelance gig, such as pet sitting or tutoring, include a category for that income. If so, that would make it a mandatory expense . Typically, these are recurring costs for housing, food, health, personal needs, transportation , and finance , like loan payments. Expenses are itemized within those categories. For example, housing includes rent and utilities if you rent a home, mortgage, taxes, and insurance, if you own it. Transportation costs are itemized to include car payment, fuel, insurance, and maintenance. While you may consider your monthly color, cut, and foot massage a necessity, those belong in the discretionary expense category, discussed below. Ironically, there can be unplanned mandatory expenses such as car repairs or vet bills. Reserve a little for those each month. Estimate your costs at the start of each month. Plug in the actual costs at the end of the month. STEP 2: Mandatory Expenses. Do you absolutely, positively have to pay for it each month?
II. A Personal Budget in Four Easy Steps
January Income Sources
Pay/Salary
Bonus
Commission
Recycling
Freelance Gig TOTAL INCOME
Reflect on Learning: When you’re making a budget and gathering information about your income, where do you look? Answer: Paycheck stubs, bank and brokerage statements. January Mandatory Expenses BUDGETED ACTUAL Mortgage or Rent 795 795 Property Taxes & Insurance 100 100 Utilities (elec., gas, water, garbage) 100 90 Transportation (Car Pymt + Ins.+ Gas) 245 275 Cell phone 85 85 Medical/Dental 50 60 Student Loan Pymt 110 110 Credit Card Pymt 80 125 Food/Groceries 200 240 Savings and IRA 150 150 Reserve for unplanned 55 25 TOTAL MANDATORY EXPENSES 1970 2055
THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY 265
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