What Does a Spending Plan Look Like?

Question: What does a Spending Plan (budget) look like?

Answer: A typical Spending Plan would be laid out like this:

Net Income 100%
Pay Yourself First (Savings) 10%
Housing 30%
Transportation 15%
Health & Medical, Giving, Retirement, Debt Paydown, et cetera 20%
Lifestyle 25%

Complete Answer: Most of us would have the above categories in our individual Spending Plans. Because we all have different values, interests and priorities, your Spending Plan will be unique to you. The above Plan is only provided as a guide. Additionally, your income and expenses vary from month to month. You get to decide what categories are included and how much is spent for each in your Plan.

Financial Literacy Knowledge/Skill: Using the above categories as a starting point and categories that are unique to your circumstances, you should be able to clearly state how much (percent of net income) and where you are spending each month.

Comments or Questions: Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and questions you may have about managing your money (Financial Literacy).

Next Week’s Topic: Is your current Spending Plan working for you?

 

How do taxes affect your Spending Plan?

Question: How do taxes affect your Spending Plan?

Answer: You have already answered that question.

Complete Answer: Taxes decrease the amount of money you have to spend in your Spending Plan. If you can describe your income and expenses for one month, the “money your received” (income) is in reality your “net pay”. Net pay, also known as disposable income, is the amount of money you get after taxes have been subtracted from your gross pay (total amount of money you earn). It is of critical importance that you understand that your spending plan is based on the money you have to spend (net pay) and NOT the money you earn (gross pay).

On the subject of taxes:

  • If you receive an income tax refund at the end of the tax year, too much was withheld from your pay. If you have to pay additional income tax, not enough was withheld from your pay. You get to decide. Contact your employer if you want to adjust the amount of money withheld for taxes from your pay. It costs nothing to do so.
  • My personal goal is to have the exact amount withheld from my pay that I owe.
  • If you come into a chunk of money and think you might owe taxes on it, contact the Internal Revenue Service (federal) and your state department of taxation for the forms to make estimated tax payments. Again, there is no cost to you. You get to decide.
  • Whenever I receive income of which no part was withheld for taxes, I make estimated tax payments or simply put money aside in anticipation of taxes owed.
  • The best advice concerning taxes came from Jesus, “. . . repay to Caesar what belongs to Caesar . . . “.2  Pay the taxes you owe and be done with it.

Financial Literacy Knowledge/Skills: Your Spending Plan is based on your NET INCOME. Pay the taxes you owe and go from there.

Comments or Questions: Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and questions you may have about managing your money (Financial Literacy).

Next Week’s Topic: What does a Spending Plan (budget) look like?

 

 

Do you need a budget?

Question: Do you need a budget?

Answer: No, you already have one!

Complete Answer: Simply put, a budget is how you spend your money. If you receive money (income) and spend money (expenses) you have a budget.

I try not to use the term budget because it has such a negative connotation, i.e. “that’s not in the budget”, “I can’t buy this or that”, “I can’t buy fun stuff because fun stuff is not in the budget” etc. I prefer the term spending plan. As the name implies, a spending plan is how you plan to spend your money.

So what is your spending plan? Would you be able to clearly explain to someone your income and expenses for the month?

Financial Literacy Knowledge/Skill: You should be able to describe your spending plan for one month. For example, “This is the amount of money I take home (income) each month and this is how I spend the money (expenses).”

Comments or Questions: Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and questions you may have about managing your money (Financial Literacy).

Next Week’s Topic: “How do taxes affect your spending plan?”

 

Do you have to know how to manage money?

Question: Do you have to know how to manage money?

Answer: No. If you don’t make any decisions about money, then you don’t need to know how to manage money. I suppose it would be similar to driving a car—if you never drive a car, then you do not need to know how to drive a car.

Complete Answer: If someone else makes financial decisions for you, there is no need for you to know how to make good financial decisions. For example, a baby makes no financial decisions, those decisions are made by the parents. As we grow older, usually around the early teens, we are given the opportunity to start making decisions about money—how to spend our lunch money, what shoes we like, what movie we would like to see… By the time we are adults, we have to make most, if not all, the decisions about our money. So it follows that if you will be making decisions about money, you would benefit from a basic understanding of money management, “financial literacy.” These decisions will impact your financial well being now and in the future.

Luckily, we live in a country that values freedom, and this includes freedom in the market place—we get to spend or not spend our money however we wish. This coincides with a basic tenant of the Church that we all have free will, and that includes freedom to make decisions about money. We have the freedom, as well as the right, to make financial decisions

Financial Literacy Knowledge/Skill: Money management skills (financial literacy) will help you make  prudent1  financial decisions.

Comments or Questions: Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and questions you may have about managing your money (Financial Literacy).

Next Week’s Topic: “Do you need a budget?”