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Income and Expenses

A big part of budgeting is identifying income and listing expenses.

In this topic, you'll learn:

  • How to identify various sources of income.
  • How to identify and list expenses.
  • How to use this website's Monthly Budget Calculator.

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A complete and accurate understanding of your income and expenses is the first step in mastering your financial life. It's easy to estimate your income and expenses, but those estimates are often out of sync with how you actually earn and spend your money.

One of the most important tools offered by this site is the Monthly Budget Calculator. It helps you get an understanding of your income and spending priorities by asking you to enter figures for each category. It also gives you personalized feedback on spending categories that can often be sources of unexpected savings.

Whether you choose to use the calculator or another tool, you'll first need to estimate your income and expenses.

To get started, make a list of all of your income sources. For many people, this will simply be a paycheck, but there could be other sources of income depending on your unique situation. Single parents could receive child support, retired individuals could receive Social Security payments, and students could receive "income" from student loans. Other sources of money used for monthly expenses could include tax refunds, bonuses, paid overtime, interest and dividends on savings or investments, and planned disbursements from savings.

For budgeting purposes, use your net income rather than your gross income - that is, your take-home income after taxes are either withheld by an employer or otherwise accounted for. If you receive non-guaranteed income like bonuses, refunds, and commissions, it's best to be conservative when estimating those income sources. Also, if your income varies month to month, it's a good idea to keep your estimates in the low range of your expected income.

Once you've identified all your sources of income, enter them into the calculator.

Expenses are what you spend money on, including both needs and wants. Identifying the difference between needs and wants can be a challenge for anyone - food, for example, is obviously a need, but does "need" extend to eating out or buying certain brands? Those are choices only you can make.

To help you get a handle on needs versus wants, it can help to categorize our expenses by type:

  • Fixed expenses typically vary little from month to month. Mortgage or rent payments are classic examples, but others could include utility bills, car payments, and any type of monthly insurance payment.
  • Variable expenses can fluctuate from month to month, giving you more control over how much you choose to spend. Grocery bills, dinners out, and monthly subscriptions are all variable expenses. If you're looking to trim spending, variable expenses are often the easiest to cut.
  • Periodic expenses can be either fixed or variable, but either way, they aren't paid on a monthly basis. One example could be car annual or semi-annual insurance payments, but others could include holiday gifts, vacations, home repairs, or seasonal clothes shopping. Maintaining a spending plan is a great way to avoid surprises or setbacks when paying these expenses.

All of these types of expenses (and more) are included in the monthly budget calculator. For fixed expenses, you can enter those based on figures from your bank and/or credit card statements. Variable expenses can be unpredictable, so it's best to set a planned amount for each category - understanding that you'll likely need to adjust your estimates up or down after you track your actual spending over time. For periodic expenses, you can choose to average out the expense over a number of months by creating a "monthly" expense or you can set a monthly amount that you'll save toward them.

Understanding the Budget Calculator
If you choose to use this website's Monthly Budget Calculator, your figures will be saved for future reference. Most people find that their initial estimates for some categories were either too low or too high, so our calculator makes it easy to come back and tweak your budget as needed.

You'll get personalized feedback based on your budget figures. We'll calculate your cash flow, showing how much your income exceeds your spending or how much money you could be losing each month. We'll also show how much of your spending goes to variable expenses and how much you could potentially save by making small changes.

Since your first pass on creating a budget will likely include estimates for several categories, it’s a good idea to track your actual spending for a month or two. Then you'll be in the best possible position for adjusting your budget based on your spending needs and financial goals.

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About First Service Federal Credit Union

First Service is open to everyone who lives, works, worships or attends school in Franklin, Delaware, Fairfield, Licking, Madison, Morrow, Pickaway, or Union County! You can open your account with as little as $5. Simply visit any of our branch locations during regular business hours to join or open your account online. It's that easy!

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