People spend money. But many people don’t know how to track how much they’re spending or how to prioritize it.
Income and Expenses
Making and spending money is a part of everyday financial life.
Managing your money successfully relies on figuring out your income and expenses. This boils down to how much money you have coming in, and how you’re spending the money you have. Using those two factors, you can compare your resources with the amount of money you spend on a monthly basis and plan what you expect to spend in the future. It also allows you, if necessary, to determine where you can cut costs so you can save, invest, or get out of debt.
Sources of Income
In most cases, income comes from salary or wages, government benefits, such as Social Security, and investment income. You may also have savings to draw on, or gifts from family members. But income can be variable, which is one of the reasons that budgets are not set in stone. Earnings in particular frequently change: Most people expect that earnings will increase over time the longer they are in the working world, gaining more experience and earning power.
Just as fast as income arrives, money goes back out to pay for a seemingly endless list of expenditures, including housing, utilities, phone and internet, transportation—and that’s just basic monthly expenses. There’s also insurance, healthcare and child care, credit card bills, groceries, and clothing, among countless other things that chip away at income.
In addition to the funds going out to pay bills, expenses that should be built into a spending plan are set amounts – ideally figured as a percentage of your income—to build a savings account, grow an investment portfolio, and plan for retirement.
The Numbers in Black and White
There are just a few simple steps involved in getting a handle on your monthly income and expenses:
Record your monthly income.
List your fixed monthly expenses.
Calculate nonmonthly fixed expenses, or bills that you pay every quarter or six months.
Compile a list of your variable monthly expenses.
Compare what’s coming in with what’s going out.
Your ability to spend on necessities, as well as on things you would like to have or do, depends on the number you come up with as the first step in this process. If you don’t have enough income, or if you spend more than you have, your cash flow will be negative, rather than positive.
Turning a negative cash flow into a positive one is the only way to lead a secure financial life and set the stage for a secure financial future. It is true that some reasons for a negative cash flow may be beyond your control. But there are others that you should be able to avoid, like allowing variable and discretionary expenses to outstrip your income.
If you see that there’s a shortfall, there are two ways to reverse the situation:
You can reduce your spending.
You can increase your income.
It would certainly be handy to increase your income — though it would still be possible to have a negative flow with a huge income if you weren’t careful. But in reality, it’s a whole lot easier to reduce your spending to match the income you do have.
Creating a spending plan is a flexible, evolving process. It helps you draw a precise picture of what you have available to spend, compared with what you can afford to spend, along with what you’re actually spending. Having a practical spending plan helps ensure that your income and expenses exist in a balance that works in your favor.
Income and expenses can exist in harmony, but it takes effort and commitment.
While First Southern National Bank hopes you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.
Neither Banzai nor its sponsoring partners make any warranties or representations as to the accuracy, applicability, completeness, or suitability for any particular purpose of the information contained herein. Banzai and its sponsoring partners expressly disclaim any liability arising from the use or misuse of these materials and, by visiting this site, you agree to release Banzai and its sponsoring partners from any such liability. Do not rely upon the information provided in this content when making decisions regarding financial or legal matters without first consulting with a qualified, licensed professional.