Minds on.

A budget can help you:

  • keep track of your income and expenses;
  • stay on top of your monthly bills;
  • be prepared for unexpected expenses;
  • avoid overspending;
  • figure out how much you need to save to meet your financial goals.

Income and expenses are two of the most important words when it comes to making money and budgeting for what you need to buy.

Income: The money you earn from working or from investing.

Expenses: The money you spend on things. Expenses include the things you have to pay for (like your rent if you are renting), as well as the things you choose to pay for (like your smartphone service).

Action.

You will need to learn to budget if you want to:

Watch this short video:

Update on Anita

Do you remember Anita from the last unit? She was thinking about getting ready to move out? Well, she decided to take the apartment. It was the one that was going to cost $879 per month.

Anita’s next move was to create a monthly budget, because she was still worried about being able to pay all her expenses and still have some money left over for other things. She tried to collect as much information as possible about her income and expenses before starting to work on her budget.

Open up her blog and read through her most recent activity and insights about moving out.

In her blog Anita used a certain type of budget, we will be using the same one for the remainder of the course.

Scroll through the images below to review some of the components in Anita's budget, and see how much money she dedicated to each of her expenses.



Different Types of Expenses

There are different types of monthly expenses.

Some expenses represent wants, and some represent needs. Some expenses are always the same each month, while others change month-by-month.

Discretionary and Non-Discretionary Expenses

Expenses that represent wants are known as discretionary expenses.

Expenses that represent needs are called non-discretionary expenses.

Examples:

Fixed and Variable Expenses

Non-discretionary expenses may be fixed or variable.

Fixed expenses are expenses that stay the same or almost the same every month.

Variable expenses are expenses that change every month.

Examples:

Variable expenses are expenses that change from month to month.

For example, you need to pay your gas bill, but the gas bill will likely be higher during the winter months when your gas heater is running every day, keeping your house warm. However, in spring and fall, you may need the furnace on only a few days. In the summer, it won’t run at all. Also, you can control that expense by setting your thermostat down, from 22 to 20, and wearing a sweater, or by turning your thermostat down when your are going to bed or going out.

Now that we have some understanding of these terms, we can see how rent could be called a non-discretionary and fixed expense.

Take a look at Anita’s budget spreadsheet again. For each item in the Expenses section of her budget, decide if it is discretionary or non-discretionary, and fixed or variable expense.



The following activity will check your understanding of some specific discretionary/non-discretionary and fixed/variable expenses.

Long Description

test text.