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In Own your Life – Financial Goals, we went over setting financial goals and motivational practices to help increase your chances of success. You should have your goals set and ready. If not, please go back to Own your Life – Financial goals and start there. Now it’s time to find out your income and expenses. This process will take some time and commitment from you. Before we can budget we need to find out where how much money we make and where is it going now. This is the scariest part of your budget. The unknown. The fear that keeps people from trying a budget. Don’t let it bother you. You need facts to conquer your fears. Eliminate any fears of losing or having to cut back. That’s not part of the exercises. You’re finally going to see the truth and the truth will set you free.


Calculating Income

If you do not know how much you make you are not going to know how much you can afford to spend, and since most people do not make the same amount month in month out, it is important to figure out a dependable average. You also need to make sure that you are receiving the most out of each paycheck. Is more than you can afford being deducted from your paycheck? Do you usually receive a large tax refund? Getting the most out of your income could be the difference between your budget working and not.

 Are you getting the most out of each paycheck? There are two easy ways to determine if you are having too much withheld.

If your last tax return is greater than $1200

If the difference between your gross pay and your net pay is greater than 30%

These are just simple rules to determine if too much is being deducted. If either is the case, you will need to talk with your payroll/HR department/Tax preparer to get assistance in determining the correct allowances.  If you do not have someone to consult with. Then you can use the following website to calculate the correct number of allowances.



How much can you depend on every month?

Salaried – This is the easiest to calculate. If you are paid on a salary, then you are receiving the same amount monthly. Just use your new income for the budget.

Hourly – If you’re paid by the hour and if your hours fluctuate, you need to do a three-month average to obtain your net income. If your hours are set per week, then just added up your net income per paycheck to obtain the figure you need. (DO NOT INCLUDE OVERTIME INCOME) Overtime is not consistent and is the true killer of personal budgets. Only use your overtime income to get caught up or savings. You earned it, so use it wisely.

Tips/Commission – Whether you wait tables or are paid commissions based upon sales, you will need to look at a longer time frame to calculate a dependable average. The time of year and the state of the economy can have a big impact on the amount you earn. Average the last six months or longer to figure out the amount you will use.

Seasonal – Maybe your work outdoors or you are a teacher who gets paid nine months of the year. Due to the impact of weather or other factors, you will need to look at the longest time to get a dependable average. I suggest to take the past 12 months and divide it by 12. This is about the best you can do.

No matter how you get paid, it is very important to determine a figure you can count on for your budget. The Estimate vs Actual Game will help you determine that figure.


Finding Personal Expenses

Expenses are those dollars you spend throughout the year to cover the costs of living. Expenses come in all shapes and sizes and are different with each individual or family. In order to set up a budget, you need to figure out what your specific expenses are.

The best way to find out these specific expense answers is to play the Estimate vs Actual Game. We will take the next 30 days figuring out income and expenses and not a budget. Make sure you pay all your required obligation and live your life normally during this time frame to obtain an accurate result.

Print out the game and instructions for: Estimates vs Actual Game

The game will open your eyes to all your monthly expenses and make it much easier to set up a workable budget.


Understanding Personal Expenses

There are three different types of expenses we deal with in our lives. Fixed, Flexible and Periodic expenses. Understanding the difference and how to handle them are the key to success. Let’s break it down for a complete understanding of your expenses.

Fixed expenses are payments amounts that don’t change monthly. Such as a mortgage, car payment, and insurance. Do not round this figure up. Be accurate with exactly what the real payment is. The extra dollars you save from not rounding up will help you balance your budget.

Periodically expenses do not happen monthly. They are expenses you pay throughout the year but must be included on your monthly budget. For Example, Property Taxes, Homeowners Insurance, Car Insurance, and Vacation. Please take the amount due and divide it by how many time you pay this expense monthly.

Flexible expenses are where reality hits the road. Time to find out where you stand. People overlook some of their personal expenses because it’s just part of everyday life. Not anymore. All expenses must be accounted for to have an accurate budget.  Only you know your expense, so be as accurate and honest you can. Here is a list of flexible expenses and how they apply in your budget.

Grocery – This figure includes all food, cleaning supplies and personal items purchased at the grocery store. Some people purchase all their needs in one place.

Toiletries – If you purchase your personal supplies outside of the grocery store.

Eating out – Is an expense that is overlooked more than most. If you plan on eating out, you must a lot an amount to the expense. Over the next 30 days, you will find out if the is excessive or not.

Lunches – Lunches seemed to be left off personal budgets. They get included in your grocery section. But the truth is, we all eat out at lunch from time to time. Just need to keep track of this expense. Learn to a lot of money to cover this expense.

Entertainment – Movies, Plays, Netflix, Sports, Dining out and any other form of entertainment you pay for monthly.


Monthly gas and repairs should be added to your budget. Gasoline is currently dropping to the lowest level in 5 years. Chances are it will go back up. So once you figured out your monthly gas expense, add $20 to it. This will protect you from any more increases.

Tobacco & Alcohol – This is where you list all your personal habits. If any habits are part of your budget, we must allot money for them. Over the next 30 days, you will find a true cost for your habits.

Medical Expenses – Include your Doctor co-pays and monthly Prescriptions cost.

Hair / Beauty Care – You may not purchase cosmetics or get a haircut monthly. Some people are every 6 weeks.  So only list down your estimate cost for this 30 days period.

Mad Money – Yes Mad Money! This is the money we spend without even thinking about it. Coffee, Donuts, lottery etc. Start asking for the receipt and mark down what you bought. Again, be honest with yourself. You are the only one who can accurately track this expense. This expense can make or break your budget.

Utilities – First, I recommend converting most of your utilities into a fixed expense, by setting up even billing plans. Having a fixed amount will make it much easier to budget. Utilities change during the seasons. So it’s important to track your utilities and record the amounts due per month. This will help out next year determined the amount needed to budget for that specific month.

Savings is the Key – If you are not saving money on a regular monthly basis than you are literally one emergency away from being back in debt. Savings must be another bill you pay each month, just like your rent or car payment. You have future bills that you are going to have to pay that you won’t be able to cover with one paycheck; unexpected expenses, vacation, repairs, maintenance, illness, holidays. Savings or more debt are your only two options. These things are going to happen, it is not a matter of “if” but “when and how much”. So, make sure that you start thinking about those costs for the next year, breaking them down into a monthly amount. Then add savings to your budget.

Piggy bank

After the Game – Now you know exactly what your Flexible Expenses are. Knowing what all your true expenses are will help keep a workable budget from failing. Now that you know your expenses, it’s time to create a workable budget for next month.

If you have any questions or concerns, please feel free to call A Debt Coach at 888-767-9155. All our advice is free and geared to help you succeed.