Estimating Your Budget

Emphasize to the students that it is important for anyone who earns money to have a budget, that is, a plan that helps one decide how best to save and spend money with the income earned. This plan must account for bills, rent, and other expenses. Additionally, one must consider deductions, such as health insurance, Social Security, taxes, and other deductions. These deductions are made each time one receives a paycheck, which means that the total amount earned will be lowered. The total amount after deductions is called take-home pay. One should base their budget on her take-home pay. After determining take-home pay, one can start creating her budget.

Next, monthly expenses should be determined, taking care to prioritize needs over wants. If there is money left over after all necessities are met, then one can address any miscellaneous expenses.

Two key expenses to budget for are fixed expenses and variable expenses. A fixed expense is one that does not change from month to month. If, for instance, one decides to put a percentage of her take-home pay into a savings account every month, say 10%, then that is a fixed expense, since every single month, the same amount, 10%, is taken out. Other examples of fixed expenses are rent or car payments. On the contrary, variable expenses do change from month to month. One example of this is the amount one pays for utilities, such as water or electricity, since these amounts will likely fluctuate depending on how much each utility is used. Also, the amount of money spent on food can be another variable expense. Food is an expense that is easier to control – one can choose to avoid eating out in favor preparing meals at home to save money.

It is important to keep an eye on each expense made in order to ensure that total expenses are not greater than the income earned. One should make adjustments to his or her plan if expenses are higher than expected. Additionally, it is advisable to create a "buffer zone" to cover any unexpected expenses one might incur.

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