Copyright Goodheart-Willcox Co., Inc.
218 Unit 3 Investigating Career Pathways in Human Services
Following are fi ve basic steps to creating a budget:
1. Gather information. Locate any available information about personal
income (money earned) and expenses, such as bank statements or
check stubs.
2. Determine income. Record the total amount of income available, in-
cluding cash on hand. Use net income when taxes are being deducted
from a paycheck (Figure 8.15).
3. Identify spending needs. List all fi xed and discretionary expenses.
Fixed expenses are costs that do not vary from time period to time
period. Rent, car payments, and insurance premiums are examples
of fi xed expenses. Discretionary expenses are costs that vary in price
and frequency. Entertainment and clothing purchases are examples
of discretionary expenses. In addition to fi xed and discretionary
expenses, many budgets also include a miscellaneous category for
unplanned expenses.
4. Total all income and then all expenses. If expenses are greater than
income, overspending will result. If income is equal to expenses,
overspending will not occur, but saving (setting money aside) will
not be possible either. Saving money can occur only when income is
greater than expenses (Figure 8.16).
5. Revise as needed. Make changes to the budget as necessary and
remember that the budget needs to be fl exible. Financial changes
may include eliminating or reducing expenses. Prioritize to identify
expenses that are needs and those that are wants.
Town
Department
Store
Employee SSN
Pay Period
Pay Date Net Pay
Check No.
Earnings Hrs. Current YTD Deductions Current YTD
! "#$
%'#( ()#$
") '
*'''
+!'+
TOTALS
Deductions Net income Gross income
Figure 8.15 A paycheck stub shows how much gross income you earn and how much
is taken out for deductions, which then equals your net income. What other sources of
income might you have?