Budget Management A Sample Budget We Can Spend with Confidence

This is a sample budget prepared by Dick and Jane who are both employed. Dick is paid weekly and brings home a check for $700.00 each week. Jane is paid every two weeks and brings home a check for $1000.00 each pay day.

Jane sometimes receives an additional amount for paid overtime and Dick receives a bonus from time to time. However, since these amounts are not guaranteed, for budgeting purposes they are not considered. If and when the extra money is received it will be added to their income at that time.

Now, if you assume that Dick will be paid four times a month and Jane will be paid twice a month, their total combined net income appears to be $4,800.00 per month. But using this assumption, as many people do, is incorrect.

During the year Dick will be paid 52 times for a yearly net income of $36,400. Jane will be paid 26 times for a yearly net income of $26,000. Their combined yearly income of $62,400, when divided by 12 (months), yields a monthly net income of $5,200.00. This is $400.00 a month more than the amount figured incorrectly above.

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After arriving at their total monthly net income Dick and Jane compile a list of all their known monthly expenses. Here is Dick and Jane's list*:

Mortgage(or rent)payment - - - - - - - - - - 1,100.00

Auto loan - - - - - - - - - - - - - - - - - 460.00

Auto insurance - - - - - - - - - - - - - - - 200.00

Auto expenses (gas, etc.) - - - - - - - - - 175.00

Groceries ($150.00/week) - - - - - - - - - - 650.00

Utilities - - - - - - - - - - - - - - - - - 210.00

Telephone - - - - - - - - - - - - - - - - - 65.00

Medical - - - - - - - - - - - - - - - - - - 130.00

Loan payment - - - - - - - - - - - - - - - - 125.00

Life/Health insurance - - - - - - - - - - - 240.00

Entertainment - - - - - - - - - - - - - - - 125.00

Savings - - - - - - - - - - - - - - - - - - 500.00

Weekly Cash ($100.00/week) - - - - - - - - - 433.33

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Total Expenses - - - - $4413.33

*(The budget categories listed here are to demonstrate a budgeting concept and are not meant to represent a complete list of budget categories for an actual budget. The list you use will be indicative of your unique expenses.)

Subtracting the total expenses from the total monthly income leaves them with a balance of $786.67. This amount is placed into an "expendable" account (on paper) and is the amount that Dick and Jane are free to spend each month on non-budgeted items.

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To manage their newly created budget Dick and Jane need to do the following:

The first month's budget is set up on paper showing each expense item and the "left over" amount in their expendable account.

At each pay period the amount received is placed in a checking account. If the amount received is the exact amount that was used to figure their budget, no notation is made. However, if the amount is greater or less than the figured amount, the difference is added to or deducted from their expendable account. It is very important that they account for each pay period in this manner. For example, Jane may take a day off, without pay, resulting in a loss of $100.00 for the pay period. When she receives her paycheck she must deduct the $100.00 from the budget's expendable account. By the same token, if Dick receives a bonus of $500.00 one week, the $500.00 is added to the expendable account. In this way their budget is compensated for the loss or gain of income.

Once a week the weekly cash amount of $100.00, as provided in their budget, is withdrawn from their checking account. The balance of the weekly cash account at the end of any given month may end up having a balance, or be negative, depending on whether the withdrawal date occurs four or five times during the month. This variance does not need to be compensated for as it will even out over the course of the year.

As each budget expense is paid, the amount is deducted from the item's budgeted amount. If the amount paid is less than the budgeted amount, a balance will remain. On the other hand, if more than the budgeted amount is paid, the account will go negative (will be less than zero). For expense items that have been configured using an average amount this is the normal case. The account will have a balance when the payment is less than average, and that balance will be available when the payment is greater than average.

Any payment for an item that is not listed in the budget is deducted from the expendable account balance. Any extra income, from any source, is added to the expendable account. The expendable account thus becomes a sort of savings account from which money can be withdrawn as needed.

At the end of each month Dick and Jane start over with a new piece of paper. The budget is again listed, but this time each item's budgeted amount is added to the balance left over (if any) from the previous month. If a negative balance is shown, it is subtracted from the budgeted amount and the new amount is listed. If it becomes necessary, an amount of money can be transferred by subtracting a dollar amount from any account and adding the same amount to the account needing it.

If after several months it is noted that any budget item is repeatedly going over or under budget a correction needs to be made. The budgeted amount for the month is changed to an amount that is closer to what is actually being spent. Any change will, or course, change the amount credited to the expendable account at the beginning of each month.