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, including 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 Kristy A. James SSN 987-65-4321 Pay Period 3/8/XX to 3/21/XX Pay Date 3/27/XX Net Pay $827.70 Check No. 12341234 Earnings Hrs. Current YTD Deductions Current YTD REGULAR 80.00 1113.73 5923.12 FICA 69.06 494.17 OVERTIME 1872.99 MEDICARE 16.15 115.58 FED. TAX 116.17 880.89 STATE TAX 52.40 347.68 HEALTH 32.25 225.75 TOTALS 80.00 1113.73 7796.11 286.03 2064.07 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?