Budgeting Basics Chapter 2 Review

Budgeting Concepts

• Net Income: The amount of money taken home after taxes and withholdings.
• Variable Expenses: Costs that can change, such as groceries and gas.
• Irregular Income: When budgeting, prioritize expenses from most to least important to ensure essential expenses are met first.

Expense Types

• Discretionary Expenses: These should be evaluated considering other monthly expenses.
• Fixed Expenses: Costs that remain consistent each month.
• Zero-Based Budget: A budgeting method that accounts for fixed, variable, intermittent, and discretionary expenses based on income, ensuring every dollar is assigned a purpose.

Budgeting Behavior

• A budget guides spending by indicating what to spend money on, rather than restricting expenditures.
• The envelope system is beneficial for managing specific expenses like eating out and groceries.

Budget Priorities

• Following income, the three budget priorities include giving, saving, and spending.
• Organizing spending is crucial when creating a budget through specific categories.

Income and Earnings

• Commission: Earnings made based on a percentage of total sales.
• Wealth-Building Tool: The most significant tool for wealth accumulation is income.

Budgeting Practices

• The first expense priority in a monthly budget is typically giving.
• Approaching money with generosity leads to increased gratitude.
• Tracking expenses helps maintain adherence to a budget, identify errors, and adjust as needed.

Understanding Budgeting Tools

• A zero-based budget ensures that all money has a designated purpose, promoting more efficient financial management.