46
Book I: Taking Charge of Your Finances
Purchase big-ticket items with minimal use of credit.
Help make your family's financial dreams come true: a new home, a
great vacation, college educations for kids, a comfortable retirement.
Comparing Monthly Spending
and Income
Creating a monthly budget for your household is not a complicated process,
but it can be time consuming. Simply stated, you need to do this:
Compare your current total monthly spending to your current total
monthly income.
Reduce your spending as necessary so that it's less than your income.
Allocate your dollars appropriately so that you are able to pay all your
living expenses and debts.
Back in Book I, Chapter 1's Table 1-1, in the section "Comparing Spending and
Income," we ask you to compare your annual spending to annual income to
start getting a fix on the state of your finances. If you haven't already com-
pleted that exercise, do so now; that information is essential to the budgeting
process in this chapter. Don't worry, we'll wait here for you. Ready?
1. Divide each of the annual dollar amounts in Table 1-1 by 12 to come
up with monthly amounts.
2. Make photocopies of the spending and income worksheet in Table 3-1
(so you can use it multiple times).
3. Record each monthly amount in the appropriate worksheet space.
4. Review the dollar amounts and adjust them up or down as necessary
so they're as accurate as possible. For example, the cost of your auto
insurance may be about to increase, your child's tuition may be increas-
ing next month, or your income may be decreasing. Always assume the
worst scenario so that you build in a potential cushion.
If your annual totals don't include living expenses and debts that you
should be paying but aren't because you don't have enough money, add
them to your annual totals before you divide by 12. For budget-building
purposes, you must have an accurate picture of all your living expenses
and debts.
5. Subtract your total monthly spending from your total monthly income.
Record that amount on the worksheet; it can be a negative number.
