Budgeting – Calculating Income & Expenses

    Published: 06-16-2009
    Views: 8,479
    Christine Parker, financial planner and member of the Financial Planning Association talks about what you need to create a budget.

    Christine Parker: Hi! I am Christine Parker, and I am a financial planner and member of the Financial Planning Association. I am here to discuss budgeting. Right now, I am going to talk about what you need to create a budget. You'll need two pieces of information, your income and your expenses.

    Income generally comes from two sources, money you earn for the work you do and money you receive from your savings and investments. Some of you may have some other sources as well which we'll talk about in a minute.

    Income you earn is generally your salary or wages and sometimes other compensation, like commissions. It comes from your primary job, your spouse's job, or part-time work. Income from savings and investments comes from interest and dividends on bank accounts, CDs, stocks, bonds, mutual funds, and other financial products, or real estate income from property.

    Other sources of income may include Social Security, if you are disabled or widowed, as well as alimony, child support, an insurance settlement, a trust fund, an inheritance or hobbies.

    Like income, expenses tend to fall into broad categories. Fixed, regular expenses are the costs that you pay every month, every quarter, or sometimes every year. Variable expenses can be harder to define, since many of them are amounts you pay for things you need on a regular basis. But you tend to have more control over your variable expenses than you do over fixed expenses.

    Think of it this way, housing and food are both necessities, but the amount you pay in rent or mortgage is set while the amount you spend on food varies by where you shop and what you buy.

    There's a process you can follow to create a budget that makes it an easier task than you might imagine. First, gather your financial records so you can list your income and expenses. The three essentials are your pay stubs, your checkbook register, and your bank statements.

    Next, assign all income and expenses to a specific category; income, fixed, and variable expenses, etcetera.

    Now that you know how to create a budget, let's talk about taking financial control in trimming your expenses.