budget gives you records of your income vice your
expenses and helps you manage your financial affairs.
If you’re married, budgeting involves both you and
your spouse. For married couples, handling money
matters is a joint effort. With two-income families,
money management is a different ball game. The
yours-mine-ours approach usually comes up, requiring
definite understandings. Certain inherent expenses
become greater when both the husband and wife earn
wages. Couples also need to have an understanding as to
what expenses they will pay from what funds. A written
budget, properly prepared and followed, helps couples
work out these problems.
In budget preparation you determine income and
expenses; examine spending habits; and see what, if
anything, you need to correct or improve. To help you
improve your spending habits, you need to be familiar
with the following terms used in financial
management:
Gross income. The total amount of pay before any
deductions.
Deductions. The amount of money taken from pay for
income taxes, Social Security, Service Group Life
Insurance(SGLI), and so forth.
Allotments. The money taken from gross income for
savings, checking accounts, family support or to
pay debts, such as car payments and debts due the
United States.
Net income. The money paid to a member after all
deductions and allotments are paid. Also known as
take-home pay.
Fixed expenses. Expenses that are the same each month.
Flexible or variable expenses. Expenses that are
different each month.
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 optional income. This
is the income available for planning purposes, which
you can apply to variable or flexible expenses. These
expenses include items such as savings, food, utilities,
entertainment, clothes, and gifts.
When preparing a budget, plan for savings first.
Planning for savings first is important. If you save first,
then you can plan your budget and still save money.
Everyone needs a savings program for unforeseen
expenses in the future. In addition, using a systematic,
planned savings program will help you to achieve set
goals. In determining how much to save, have a realistic
percentage of your optional income. This percentage
could be as little as 5% to 10% or as high as 20% of your
optional income.
After savings comes a fixed expense, followed by
variable expenses. The U.S. Department of Labor
suggest these percentage of take-home-pay for budget
preparation:
These percentages are approximate and will vary
from area to area and person to person.
To prepare a personal budget, you should keep close
track of your income, expenses, and savings for several
months. This information will help you understand your
spending habits. It will also help you determine average
non-fixed expenses. Understanding your spending
habits puts you in a position not only to budget your
income but also to correct undesirable spending habits.
Plans for spending extend to many areas and vary
according to the person’s status and requirements. The
basics of spending are to spend money wisely and in as
small amounts as possible.
INVESTMENT RULE OF 72
What is the rule of 72? The Rule of 72 gives you an
easy method of estimating the number of years it takes
for an investment’s value to double at a specific interest
rate or rate of return. The general formula for the Rule of
72 is as follows:
17-12
Student Notes:
Fixed Expenses
Variable Expenses
Housing
25%
Food
23%
Transportation
9%
Clothing
11%
Gifts and
contributions
5%
Savings and
unforeseen expenses
22%
