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Budgeting IQ
It’s time to get smart about managing your money! Regardless of your age or income
level, creating a budget is an important first step in creating positive financial habits. Just
as you study for an exam, you also need to study your income and expenditures in order
to establish a workable financial plan.
A simple budget includes tracking your monthly income and monthly obligations.
Income includes sources such as your take home pay from your job, tips, alimony, child
support payments you receive, or unemployment benefits. Any money that you receive
on a regular basis should be included as income in your budget. Monthly obligations or
expenditures are the payments you are required to make each month. When
determining your monthly payments, use the minimum amount due. For example, if you
owe $5,000 on a credit card and the monthly minimum payment is $100, use $100 for
budgeting purposes even though you will be encouraged to pay more than the
minimum if you have money left over.
The money that is left over after you subtract your expenses from your income is called
“discretionary income.” Some people call discretionary income “fun money” since it is
the money available for entertainment or to buy gifts. Smart students don’t use all their
discretionary income for fun however; they establish a “rainy day fund” for emergencies,
or to pay down debt, save for retirement, or cover educational expenses.
If your monthly expenses exceed your monthly income, don’t panic! You are going to
school so that one day you can graduate and obtain a better paying career. In the
meantime, get creative. Sell your unwanted items on eBay or host a garage sale with
other students. Take a part-time job that works around your school schedule. Get a
roommate or set up a babysitting coop to save on childcare expenses. Tightening your
belt may be a bit uncomfortable in the beginning, but graduating with less debt will save
you countless financial woes in the future.
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Section 8 – Responsible Borrowing and Budgeting