Planning Your Income

Income can be separated into gross, take home, and available categories:

Gross income is simply your gross pay, or salary, you are employed by someone else. It can be a regular salary, or an irregular one in the form of commission, bonus payments, or some combination of the two. Of course, you never see this figure because of taxes and so forth.

Take home income is the amount that actually it onto your paycheck and into your checking account. Items like federal, state, and local income taxes, FICA (Social Security and Medicare), and the like are taken out. This isn't a tax book, so we aren't going to delve into withholding strategies, but we do recommend withholding what you think you need or just a little more (a tax refund can be a nice way to buy something you want or need without creating a budget bomb).

Available income is what you make available for mal monthly expenses. It's what's left after you follow our recommendations and set aside a must fund, a rainy-day fund, a want fund, and, as things get better, growth and retirement savings. If you have a fixed monthly salary, your situation is relatively simple. If your income is irregular, however, you need to set up an income-management plan that includes an income-reserve account. Take home and available income will be outcomes of this plan, with the income reserve account used to smooth out the bumps.

Managing Expenses

Setting up different types of savings funds can help you live a smoother, less tumultuous financial life. No more scrambling to find extra cash to fix the car— you budgeted for that. No more last-minute scrimping to pay the property tax bill— it was in the budget and you've got the cash. As long as you keep some sort of written record of which money is earmarked for what, one main savings account is all that's necessary.

You already have a handle on your past income and expenses and your future goals. You've already set up wise methods for spending and saving, and you've started your budget by outlining an income plan. Where to now? Get the expenses down, create some allowances, and make some adjustments. As for expenses and obligations they are controllable in the long run, depending on lifestyle choices you make. In the short run, they are big expenses that must be budgeted for. Some, such as property taxes or car insurance, might be paid only a few times a year on a predictable schedule. Managing them means making sure they are in the budget and paid on time.

Unlike the must-pay category, the key to this kind of expense is that under most circumstances you can decide how to spend it, where to spend it, and when to spend it. Smart shopping and smart consumption come into play here to make the budget go farther. How can you control all these budget items? By using simple, common sense. If you buy top-of-the-line cuts of beef, high-priced convenience foods, and bottles of swank wine at the grocery store, you will spend more in that category than the diligent guy who shops only the outer aisles (where all the fresh stuff is, no prepackaged foods). If you send your kids off to school with a bologna sandwich and an apple, you're spending less than the parent who reaches for the “Lunchables” ready-made package. If the lights burn brightly in your home at all hours and the heat is cranked way up, your utilities bill will indeed be higher than the folks who turn the light off when they leave the room and wear a sweater indoors, when necessary. So yes, you do have control over this part of your budget, and the more attention you pay to it, the more control you can exert! With your efforts, the size of these budget items could well dwindle over time.


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