How Budgeting Works
A budget allows you to analyze:
- How much money is coming in
- How much money is going out
- How much is left over for major purchases, likes and entertainment
In general, we will consider net income when working on a budget.
What is net income? Net income is the amount of take-home pay you get every week or month, it is the amount of money you actually bring home from your paycheck after tax and any other deductions are taken out of your paycheck. There are cases where other income can come into your budget as well and a few of them would be interest from a savings account, cash gifts, tips, bonuses and child support.
How to Calculate Your Net Monthly Income
Simply apply the following formula, depending on how often you are paid:
- If paycheck is weekly, multiply pay by 52 and divide by 12
- If paycheck is bi-weekly, multiply pay by 26 and divide by 12
- If paycheck is semi-monthly, multiply pay by 2
TIP
Buy figuring out your monthly budget you will know exactly how much you can afford for any monthly purchases that have to be made. Be sure to allocate your funds to cover all expenses and do not forget your savings. Adjust your lifestyle accordingly is the challange to becoming good at budgeting.
| Learn About: | |
|---|---|
| Living Within Your Means | Shopping Within Your Budget |
| Budget Glossary | Research The Right Vehicle |
| Why Budgeting Works | How to Develop a Budget |