Anatomy of a Budget

Video Testimonial

Female teenager giving testimonial: Keeping a budget changed my life! I didn’t even know what a budget was until a few years ago. Money came in, and money went out. When I spent it all, I had to borrow from credit cards.

Then my credit cards got maxed out, and I was spending a lot on interest. I asked for help and learned about a budget.

It took a few months to get in the habit of tracking everything I spent. That’s because I was spending too much! I challenged myself to stop wasting money on things that seemed minor but added up. Like $8 smoothies and $5 coffees. Rideshares instead of the bus. Whatever I saved—even if it was pennies—I put in the bank. And 3 years later, I had saved enough to buy my first car!

Interactive Video

[A man sitting at his desk, writing on a financial document. There are two piles of cash, a laptop, and a calculator next to him.]

Narrator: So, why is having a budget such a big deal? It comes down to accountability to help you manage your money. 

[A man lifting a monster truck tire as his personal trainer encourages him.]

Think of a budget like a personal trainer. It helps you set goals, create a plan, and monitor your progress.

A budget takes into account two key elements: your net income and your expenses. 

Out of that net income, you have to pay your expenses. Some expenses occur every single month; these are fixed expenses, such as rent or health insurance. [An apartment building and heart with a medical cross in the middle of it appear and are labeled “fixed.”] Other expenses change from month to month, such as electricity, gasoline or entertainment; these are variable expenses. [A lightbulb, a gas pump, and movie tickets appear and are labeled “variable.”] And some only happen when the need arises, such as house repairs or a birthday present for a friend; these are periodic expenses. [A hammer and wrench and a birthday present appear and are labeled “periodic.”]

[On screen text: Help Richard classify his income and expenses.]

Next, let’s take a closer look at the categories in a budget. Help Richard classify his income and expenses.

[Table of Richard’s income and expenses]

bi-weekly paycheck 1; Cost: $1,118; Category: ?

savings; Cost: $100; Category: ?

rent; Cost: $800; Category: ?

electricity; Cost: $60; Category: ?

water; Cost: $45; Category: ?

bus pass; Cost: $65, Category: ?

biweekly paycheck 2; Cost: $1,118; Category: ?

groceries; Cost: $442, Category: ?

cell phone; Cost: $60, Category: ?

doctor’s visit; Cost: $35, Category: ?

printer ink; Cost: $80, Category: ?

clothing; Cost: $200, Category: ?

gifts; Cost: $50, Category: ?

credit card payment; Cost: $180; Category: ?

Balance: $119

[Interactive drop-down menu.]

Select the appropriate category for each item using the drop-down menus.

Items:

• Biweekly paycheck 1: $1,118
• Savings: $100
• Rent: $800
• Electricity: $60
• Water: $45
• Bus pass: $65
• Biweekly paycheck 2: $1,118
• Groceries: $442
• Cell phone: $60
• Doctor’s visit: $35
• Printer ink: $80
• Clothing: $200
• Gifts: $50
• Credit card payment: $180

Categories:

• net income
• variable expense
• fixed expense
• periodic expense

So how’d you do? Did you place each item in the correct category? You can see that Richard has $119 of discretionary income left for the month. 

• Biweekly paycheck 1: $1,118; category: net income
• Savings: $100; category: fixed
• Rent: $800; category: fixed
• Electricity: $60; category: variable
• Water: $45; category: variable
• Bus pass: $65; category: fixed
• Biweekly paycheck 2: $1,118; category: net income
• Groceries: $442; category: variable
• Cell phone: $60; category: fixed
• Doctor’s visit: $35; category: periodic
• Printer ink: $80; category: periodic
• Clothing: $200; category: periodic
• Gifts: $50; category: periodic
• Credit card payment: $180; category: variable

(Discretionary income) Balance: $119

[Self Check]

Do you think that Richard would benefit from using a monthly budget? Why? 

Select the one that applies.

Option 1: No, he is making ends meet each month and adding to his savings.

Option 2: No, he had a lot of periodic expenses so that isn’t a typical month for him.

Option 3: Yes, he has very little discretionary income between paychecks to handle unexpected situations. (Correct answer)

Option 4: Yes, he can quickly set up a budget plan once and use it ongoing without worrying about changes.

Correct answer: Yes, he has very little discretionary income between paychecks to handle unexpected situations.

Correct feedback: Well done! Richard only has $119 left, which is not much discretionary income when an unexpected or emergency situation occurs.]

[A man holding his credit card in one hand and his smart phone in the other.]

Once a budget is set up, the essential step is to use it! Plan your spending and then stick to it to see real changes!