Exploring Financial Literacy 54 Copyright Goodheart-Willcox Co., Inc. May not be reproduced or posted to a publicly accessible website. Check Your Understanding Why is it important to calculate your discretionary income each month? __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ LO 3-5 LO 3-5 Creating a Budget After tracking spending for a few weeks, you will see a pattern. This pattern of spending will help you decide how much you need for entertainment, lunch, and other items you purchase during the week. It will also help you identify changes you want to make to your spending habits. Once you have an idea of how much you need for specific items, you are ready to create a budget. A budget is a reminder to spend your money on things you really need or want. It helps in creating a financial plan because it forces you to think ahead about how you want to spend your money before you actually spend it. To create a budget, follow these steps. • Select a time period for the budget, such as one month. • List the amounts of estimated income for the period and total them. These estimates will be based on actual income you had last month. You Do the Math | 3-2 Carlos’ weekly expenses during the following week ending September 17 were $109.84. What will Carlos’ monthly expenses be if he spends this amount every week? His monthly income shown in Figure 3-1 states that he has $493.42 in income. What will his discretionary income be? Step 1 Calculate monthly expenses. Weekly expenses Number of weeks Total monthly expenses Step 2 Calculate discretionary income. Monthly income Monthly expenses Discretionary income