59 Copyright Goodheart-Willcox Co., Inc. May not be reproduced or posted to a publicly accessible website. Summary LO 3-1 Explain the purpose of a budget. A budget is a plan for the use of money over time based on goals, expenses, and expected income. A budget can help you keep track of your money and spend wisely. It estimates categories of expected income and expenses for a given period of time. LO 3-2 Discuss income. Income is money received from any source. To estimate income, write the amount and the source of each income. Then, total the amounts. LO 3-3 Discuss expenses. An expense is an amount paid for goods or services. A fixed expense is one that stays the same each month, while a variable expense is one that changes from month to month. Tracking expenses will give you an idea of how to plan for expenses in your budget. LO 3-4 Calculate discretionary income. Money that remains after you have paid for regular or needed expenses is discretionary income. To calculate discretionary income, subtract total fixed and variable expenses from income. LO 3-5 List steps to create a monthly budget. To create a budget, select a time period for the budget. List the amounts of estimated income for the period and total them. List the estimated fixed and variable expenses for the time period and total them. Subtract the total expenses from the total income to find discretionary income. If the discretionary income amount is a negative number, reduce expenses. Chapter 3 Review and Assessment