Fixed expenses include rent and mortgage payments and time payments for expenses such as autos, furniture, and insurance. The difference between  fixed  expenses  and  net  income  is discretionary income. This is the income available for planning purposes, which personnel can apply to variable or flexible expenses. These expenses include items such as savings, food, entertain- ment, clothes, and gifts. When preparing a budget, personnel first need to consider savings. Planning first for savings is important. When personnel plan to pay expenses first, they usually find they have no money left for savings. Everyone needs a savings program for unfore- seen expenses in the future. In addition, using a systematic, planned savings program will help personnel achieve set goals. In helping your people determine how much to save, recommend they save a realistic percentage of their discretionary income. This percentage could be as little as 5 to 10 percent or as high as 20 percent of the discretionary  income. After savings comes fixed expenses, followed by variable expenses. The U.S. Department of Labor suggests these percentages of take-home pay for budget preparation: FIXED EXPENSES VARIABLE EXPENSES Housing 25% Food 23% Transportation 9% Clothing 11% Gifts and contributions 5 % Miscellaneous 5% Savings and unforeseen expenses 22% These percentages are approximate and will vary from area to area and person to person. To prepare a personal budget, personnel should keep close track of their income, expenses, and savings for several months. This information will help them understand their spending habits. It will also help them determine average nonfix- ed expenses. Understanding their spending habits puts personnel in a position not only to budget their  income,  but  also  to  correct  undesirable spending habits. Plans for spending extend to many areas and vary according to the person’s status and require- ments. The basics of spending are to spend money wisely and in as small amounts as possible. Use of Credit Credit  has  its  base  largely  on  trust.  The average person in the Navy is trustworthy and expects to receive a fair deal in business and financial dealings. Conversely, the way personnel handle their private financial affairs provides a reliable sign of their general character and trustworthiness. When we speak of credit, we usually think of time  payment  purchases  or  charge  accounts. Actually credit consists of a much broader scope. The entire country runs on credit, including industries; banks; and local, state, and federal governments. In fact, if credit were to stop suddenly, the result would be catastrophic. For example, almost no one would be able to buy a home, an automobile, furniture, or a television or stereo set. Without these sales, unemployment would skyrocket. These salaries, not available for the retail market, would in turn adversely affect the sale of other goods. The effect would continue from the highest to the lowest level, and economic chaos would result. USE  OF  CREDIT  BY  NAVY  PERSON- NEL. —The Navy expects all its members to discharge their financial responsibilities in a timely manner. The Navy expects its members to strive to avoid any discredit upon themselves or the naval service. A good knowledge of credit will allow them to better handle their financial affairs and often save money. Navy personnel have special problems not faced by the public in borrowing money. If Navy personnel are to use credit wisely, they need to know the ABCs of credit. They especially need to know how to avoid some of the problems young Navy men and women often have. PRINCIPLES OF CREDIT. —Credit literally means buy now, pay later. The system permits us to purchase goods as we need them, but pay for them over a certain period. Credit means you receive a loan of money, and you always pay extra when you borrow money. Credit, if you use it wisely, ensures a reasonable standard of living. However, you cannot substitute credit for sound financial planning and a systematic savings plan. Additionally, improper use of credit can create a financial nightmare that can adversely affect your job, family life, and mental and physical health. 4-14