|
Anyone who earns an income should have a budget. The amount earned is of little relevance. Budgeting has many advantages, chief among which is the ability to determine whether non-discretionary expenditure exceeds income. Non-discretionary expenses are those that have to be made to maintain your present standard of living. Discretionary and non-discretionary expenses will vary from individual to individual, however certain categories will be consistent from one person to another:
1. Rent / Mortgage payment
2. Motor vehicle loan/lease payment
3. Utilities (Light/Water/Gas/Oil)
4. Telephone (Wireless/Land)
5. Food
6. Clothes
The categories above should be among the first items included in your budget. For the time being, you should ignore discretionary expenses. Use Microsoft Excel or any other spreadsheet application and prepare two columns; the first should be labeled Income/Expense category and the second should be labeled Amount $. You should determine the period for which you’re preparing the budget; weekly, monthly, quarterly etc.
The first cell in the first column should have Income and below that you will list your different incomes. Example:
Total Income
|
|
|
| Salary |
$5,500.00 |
| Part-time employment |
$400.00 |
| Investment Income |
$100.00 |
| Total |
$6,000.00 |
Now that you have your incomes listed, you should now list all your non-discretionary expenses:
Non-Discretionary Expenses
|
|
|
| Rent/Mortgage |
$1,900.00 |
| Car loan/lease pymt |
$400.00 |
| Utilities |
$150.00 |
| Telephone |
$180.00 |
| Food |
$360.00 |
| Clothes |
$400.00 |
| Total |
$3,390.00 |
Food and clothes will have to be estimated, but that should not prevent you from being fair in your estimates. The other items should be easy to determine, as they are billed to you each month.
In this example, the total income is $6,000 and total non-discretionary expense is $3,390. Excess income is $2,610 and this amount will be used to determine your discretionary expenses.
The first item in the discretionary category should be savings. There is a long-standing debate on whether savings should be considered a non-discretionary or discretionary expense. While the arguments on both sides are strong, it is really left to the individual. Saving is a very important part of financial management, and it behooves the individual to recognize its importance for present budget management and future earnings.
How much should be saved depends on your net income after non-discretionary expenses, however it is a good idea to save at least 25% of your monthly income. In our example, total income is $6,000, so at least $1,500 should be saved and the balance can be used for non-discretionary expenses. The table below lists all income and expenses, including savings:
Total Income & Expenses
| Total Income |
$6,000.00 |
|
| Non-discretionary expenses: |
| Rent/Mortgage |
$1,900.00 |
| M/V Loan/Lease |
$400.00 |
| Utilities |
$150.00 |
| Telephone |
$180.00 |
| Food |
$360.00 |
| Clothes |
$400.00 |
| Surplus income after Non-Discretionary expenses |
$2,160.00 |
| Savings |
$1,500.00 |
| Available for discretionary expenses |
$1,110.00 |
| Discretionary expenses - Examples |
|
| Dinner w/friends |
$90.00 |
| Movie tickets etc. |
$60.00 |
| Cable TV |
$45.00 |
| Club/Sports Bar etc. |
$150.00 |
| Special pair of shoes etc. |
$120.00 |
| Internet charges |
$22.00 |
| Vacation |
$225.00 |
| Total Non-Discretionary expenses |
$712.00 |
| Surplus after all expenses |
$398.00 |
|
