Overview
Main Menu Name: Budget
Serves as a statement of income and expenses. It calculates the percentage of income and expenses attributable to each item, as well as cash available for new savings or investment. The calculator totals annual income, fixed, and variable expenses.
In this article:
Background
Budgeting can be defined as the ability to estimate the amount of money to be received and spent for various purposes within a given time frame. From a planning perspective, budgeting is a deliberate program for spending and investing available resources. It is both the starting point for financial planning and the yardstick against which actual investment results can be measured.
Budgeting starts with a working budget model, in essence a financial "X-ray" of what is occurring now. This is accomplished by summarizing income sources, listing expenditure categories, and breaking down various sources of income by percentages.
Expenses should be subdivided into "fixed" and "discretionary" expenses. Fixed expenses are essential and not significantly reduced without an uncomfortable change in living standard. Discretionary expenses may be eliminated or curtailed within a relatively short period of time. Both types of expenses must be totaled and shown as percentages in order to illustrate "where the money is going."
The final step is to compare total annual income and expenditures to determine net saving or net borrowing in terms of both dollars and a percentage.
Once the mathematics are completed and analyzed, pragmatic approaches must be found to increase income, decrease spending, or both in order to increase financial security through additional (or more appropriate) investments.
Consider three printouts, one based on the way things are now, the second on a "lowest potential income-highest likely expenditure" situation, and a third on a "highest likely potential income-lowest likely expenditure" situation.
Why should I use this calculator?
- Evaluate income sources.
- Evaluate expenditure patterns.
- Distinguish between earned and unearned income in terms of amount and source.
- Rearrange and control spending patterns.
- Identify excessive borrowing or poor financing terms.
- Measure progress from one time period to another.
- Establish wealth accumulation goals.
- Monitor cash drain or cash flow results of specific investments.
Getting Started
Budgeting can be defined as the ability to estimate the amount of money to be received and spent for various purposes within a given time frame. From a planning perspective, budgeting is a deliberate program for spending and investing available resources. It is both the starting point for financial planning and the yardstick against which actual investment results can be measured.
Budgeting starts with a working budget model, in essence a financial "X-ray" of what is occurring now. This is accomplished by summarizing income sources, listing expenditure categories, and breaking down various sources of income by percentages.
Expenses should be subdivided into "fixed" and "discretionary" expenses. Fixed expenses are essential and not significantly reduced without an uncomfortable change in living standard. Discretionary expenses may be eliminated or curtailed within a relatively short period of time. Both types of expenses must be totaled and shown as percentages in order to illustrate "where the money is going."
The final step is to compare total annual income and expenditures to determine net saving or net borrowing in terms of both dollars and a percentage.
Once the mathematics are completed and analyzed, pragmatic approaches must be found to increase income, decrease spending, or both in order to increase financial security through additional (or more appropriate) investments.
Consider three printouts, one based on the way things are now, the second on a "lowest potential income highest likely expenditure" situation, and a third on a "highest likely potential income lowest likely expenditure" situation.
Entering Data
The Income and Expenses Report has three tabs that must be completed (Annual Income, Fixed Expenses, and Variable Expenses). Most of this information may be obtained from cancelled checks, pay stubs, charge account receipts, or any other documentation relevant to any particular income or expense.
- Enter Income amounts on a before-tax basis.
- For Income Taxes, include federal, state, and local taxes.
- For Real Estate Taxes, include both real and personal property taxes.
- For Medical/Dental Expenses, include health insurance premiums and all other non-reimbursed medically related expenses.
- For Debt Repayment, include the total of all installment loans, auto loans, and other loans for which there is a specific contractual obligation.
- For Contributions, Gifts, include not only tax deductible donations to recognized charities but also non-deductible gifts to family members and other individuals.
- For Savings, include any amounts intended for unplanned emergencies and major purchases such as a car, central air, etc.
- For Investments, include any long-term goals such as college education and retirement.
Results
The program calculates the percentage of each category (annual income, fixed expenses, and variable expenses) attributable to each income and expense item. It totals the entries in each tab and calculates the net amount available for future savings or investment.
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