Creating a Budget -- Step 2: Tracking Your Income / Step 3: Comparing Income:Expenses

Previous Topic: Creating a Budget -- Step 1: Tracking Your Spending (Part II) 

Now that youʻve had the opportunity to look at how you spend your money. Weʻre going to explore where that money comes from and whatʻs your bottom line. You probably already know whether or not you have any money left at the end of the month. However, these next two steps will reveal exactly how much you have left. You will also discover if you need to cut back on your spending or if you have any monies left over that could be used to pay off debt faster, put into a Savings or to Invest

Step 2: Tracking Your Income
List how much money you take in each month from all sources. This includes but is not limited to the following:

-  Wages from work (even under the table income)
-  TANF (Temporary Assistance for Needy Families) also known as Welfare Cash Benefits
-  SNAP (Supplemental Nutrition Assistance Program) also known as Food Stamps or EBT
-  Section 8 Voucher
-  Income from Network Marketing Company (i.e. Avon, Thirty-One, Visalus, etc.)
-  Self- Employment Income
-  Social Security Payments
-  Disability Income
-  Settlement Payments
-  Unemployment Benefits
-  Lottery Winnings
-  Any money someone gives you on a regular basis (i.e. gas money for car pooling, if you have someone on your cell phone plan and they pay you cash to cover their portion of the bill)
- Any other source of income

List both Gross Income and Net Income amounts for each source of income. This step may be very easy for some who work one job and that is their only source of income. However, it is very common that many families supplement their wages with other income. Below is an example of what tracking your income may look like.

Hopefully the total net amount of your income from all sources is higher than your total expenses that you tracked in Step 1. The next step in creating a budget is to reconcile the differences in these amounts to reveal if you have enough money to meet the basics: housing, food, health care, and insurance. 

Step 3: Comparing Income:Expenses

1. Total your Expenses from Step 1, including Fixed, Fixed-Variable and Variable Expenses.
2. Subtract your total expenses from your total net income from Step 2.

If this number is positive, then you are doing a great job. Keep it up. You may want to consider investing that extra money or putting it into a savings product. Or if you have debt, use this extra money to pay down that debt.

If this number is negative, then the next step in creating a budget will be very important for you. In this step you will analyze your spending and trim the fat. Chances are if you are in the negative that you are resorting to the use of Credit Cards to pay your bills or expenses, incurring overdraft charges on your account, having to borrow money from others, or worst yet missing payments on your bills.

Below is what comparing your income to expenses may look like, from the examples that have been shared in Step 1 and Step 2.

From this example, you can quickly tell that this family needs to trim some fat. If this is the case for you, donʻt worry. This is why you are taking the time to gain control of your finances. This is also the time to start thinking about how you spend your money. The next step will help you see where you will reduce spending so that you can make this Bottom Line Total. 

Next Blog Topic: Step 4: Trimming the Fat