Copyright Goodheart-Willcox Co., Inc. 41 Section 2.1 Personal Financial Landscape the difference in the Variance column. A variance is the difference between the budgeted amount and the actual amount. Are there variances in any items? When an actual expense is greater than budgeted amount, identify the cause. Did you ignore the budget? Was there an unexpected expense? Was your estimate too low? Adjust your budget to reflect actual income and spending. Try it for a few weeks. The points in Figure 2-4 can make a budget work better. On the last line of the budget, the expenses should be subtracted from the income. The budget in Figure 2-3 shows a positive outcome. Courtney actually spent $25 less than what was estimated. When a budget has a positive outcome, the money left over can be considered discretionary income. Discretionary income, also known as disposable income, is the money that remains after a person has paid all of his or her expenses. If you have any discretionary income, you can save, invest, or spend it however you like. From time to time, review and analyze your overall money management plan to make sure it is working for you. Reflect on your spending practices and evaluate how they influence your financial well being. You can expect financial plans to change with significant events in your life. These events include going to college, starting a new job, leaving home, getting married, having children, and changing jobs. Consider these questions as you analyze your budget. Is your financial plan working? Is your money doing what you want it to do? Are you reaching important goals? As you achieve goals, do you set new ones? Are you controlling your spending? Has your income or pattern of spending changed significantly? Are there changes in your life that call for adjustments in your financial planning? When revisions are needed, make the necessary changes to update your budget. Recheck in a week or two to see if the new entries are an improvement. Monitor your finances carefully to make sure your income works well for you over the years. Goodheart-Willcox Publisher Figure 2-4 When planning a budget, keep these points in mind. Advice for Better Budgeting Keep it simple. Write it down. Be specific. Be flexible. Be disciplined. Keep it all together. Be prepared for the unexpected.
Previous Page Next Page