Create a Budget for Your Income and Necessities

To create a budget, you need to compare your regular income to the cost of necessities. If you find that your income is less than you need to pay for necessities, you will need to find a way to lower costs or increase income. If you find that your income is greater than the cost of necessities, you have money left over to spend on discretionary (optional) items.

Income is all the money you bring in each month, including salary and tips, and money you receive on a regular basis from family, investments, or any other source. What it doesn't include are special gifts, bonuses, or windfalls. You can't count on such income, so it's wise to leave it out of your budget.

Necessities are those items or services you absolutely must buy with your income. Necessities include basic food, clothing, shelter, heat, and medical care. Other necessities relate to your daily obligations. For example, you may need transportation in order to make a living, or you may need to purchase a uniform in order to keep your job. In some case, necessities may also include loans or educational costs.

Using Budget Sheets to Manage Income and Necessities

Budget sheets, or spreadsheets, are a great visual tool for tracking income and costs. With a single glance, you can see what you spend and how your costs compare to your income. Furthermore, research has shown that those that budget are more likely to be financially healthy. To get started, you'll need to collect all your pay stubs and other income information as well as your receipts for a whole month. If you use a debit or credit card to pay for necessities, that information will be on your monthly statement. If not, you'll need to collect the receipts yourself.

Track Your Income 

This sheet is where you'll track the money you bring in each month. If you're not sure (because, for example, you earn tips that vary each month) you'll need to keep a careful record for at least a couple of months. For now, though, you can estimate your tips.

Income Source Monthly Income
Source 1:
Source 2:
Source 3:

Track Your Necessary Expenses 

This worksheet consists of all the bills you have to pay, although not all categories (like property taxes) will apply to all people. Many of these costs can also be reduced by shopping around. The miscellaneous categories are for you to fill in personal nondiscretionary costs, like elderly care.

Necessary Expense Monthly Estimate Actual Expense
Rent or Mortgage
Utilities (electric, gas, heat)
Water and Sewage
Trash Pickup
Health Insurance/Co-Pays
Auto Insurance
Auto Repairs/Maintenance/Fuel
Public Transit
Phone (Landline and Cell Phone)
Loan Repayment
Homeowners/Renters Insurance
Homeowners Association Fee
Property Tax
Life Insurance
Hair Cuts
Basic Toiletries
Child Care
Misc #1
Misc #2

Next Steps for Money Management

Working out the relationship between your income and your necessary expenses means you're well on the way to managing your budget. If you found that your necessary expenses are the same as or greater than your income, you'll need to find more ways to save.

Before starting to cut your costs, though, it's important to get a full picture of what you really spend. Very few people spend only on necessities. Discretionary, or optional, expenses are part of everyone's life. They include the money you spend on dinner with a friend, birthday gifts, and vacation.

If you're like most people, you'll want to save some money to give yourself more flexibility. The good news is saving money comes easily once you know the areas you need to target.

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  1. Jing Jian Xiao and Barbara O'Neill. "Mental Accounting and Behavioural Hierarchy: Understanding Consumer Budgeting Behaviour," Page 11. International Journal of Consumer Studies.

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