Economics / Unit 12: Personal Finance
12.2 Budgeting
Notes
A budget is a plan for spending and saving income. It helps you live within your means and reach goals.
- Fixed expenses stay about the same each month (rent, a phone plan, a car payment). Variable expenses change (food, gas, entertainment).
- Separate needs (housing, food, transportation) from wants (streaming services, eating out).
- A common guideline is the 50/30/20 rule: about $50\%$ of net income for needs, $30\%$ for wants and $20\%$ for savings and paying down debt.
- Worked example: with net income of $3,000 a month, the guideline gives $1,500 for needs, $900 for wants and $600 for savings.
- "Pay yourself first": move money to savings as soon as you are paid, before spending on wants.
- An emergency fund covers unexpected costs such as car repairs or job loss. A common goal is 3 to 6 months of expenses.
- Track spending, compare it with the plan, and adjust. Spending more than you earn leads to debt.
Practice
Using the 50/30/20 guideline, how much of a $2,200 monthly net income should go to savings and debt payments?
$0.20 \times 2{,}200 = 440$.
Which is a variable expense for most people?
Grocery spending changes from month to month.
Tia's monthly expenses are $1,800. Under the common guideline of 3 to 6 months of expenses, her emergency fund goal should be:
$3 \times 1{,}800 = 5{,}400$ and $6 \times 1{,}800 = 10{,}800$.
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