Personal Finances 101 Textbook: None. Course will be based on online essays and materials. Instructor: Mba Mbulu
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Steps Toward Personal Financial Triumph
Step #1 : Establish Your Income
Step #2 : Make Out A Budget
How To Establish Your Income
There is a difference between your Salary and your Income. Your salary is your gross pay, but your income is much less than that. Your income is your Salary minus taxes minus all other payroll deductions. In short, your Income is that part of your salary that you actually get to spend.
If your salary is $20,000 per year, your income will probably be no more than $14,000 or $15,000, depending on your specific situation. Many individulas spend according to their salary. By the time they realize they don't have the income to support their spending, they're deep in modern-day debt (modern-day debt is debt that grows outrageously because of modern-day add ons like excessive interest, burdensome late fees and crippling penalties).
How To Make Out A Budget
Establishing a budget is a fairly simple process; sticking to the budget is where the difficulty lies. Before individuals can stick to their budget, they must develop the proper attitude and follow through. Hopefully, information will be presented in this course that will help them do both. In the final analysis, each person will determine his/her own fate.
(1) A budget must revolve around your Income, not your salary. Additionally, your budget must revolve around money that comes in at regular intervals. If you receive or expect to receive a bonus or hit the number for $400 or $500, it should not be included in your budget. It should be added to your emergency fund, saved or used to pay off or reduce a burdensome debt, but it should not be included in your budget.
(2) Establish your budget around your Income Cycle. Your budget, in fact, will consist of two sheets of paper. One sheet will contain your short range financial picture, the other your long range financial picture. The short range picture will restrict itself to your Income Cycle, while the long range picture will cover several Income Cycles. That way, you can keep a clear picture of what your money is supposed to do now and how that is impacting on what it is supposed to do in the long run. Let's go through an example.
Suppose you get Income on a weekly basis. That automatically defines your Income Cycle as weekly and necessitates a weekly budget. That budget will include a short range financial picture that is weekly in nature, and a long range financial picture of whatever length you determine is most beneficial. Let's play it safe and establish a month long financial picture.
Make a list of all of the sources of Income and Expenses. (If your budget is weekly but some of your expenses are monthly, you have to put money each week into a put aside account so that it will total the amount needed when that bill becomes due.) Due this on both the weekly page and monthly page. After that, you must Prioritize those Expenses. Prioritizing Expenses revolves around determining whether or not those expenses have to be incurred. If an expense has to be incurred, it has to be paid. If an expense does not have to be incurred, de-prioritize it. By de-prioritizing it, you are admitting that, if necessary, that expense can be eliminated altogether. So, simply by prioritizing your expenses, you could be performing an activity that could reduce your expenses and better enable you to make ends meet.
After prioritizing your expenses, concentrate on the ones that have to be incurred. Those are the expenses that have the first claims against your income.
Reread this section, get your list together, prioritize it and think about what your next step will be. More in the next class.
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