PERSONAL BUDGET

BASICS
041300867 MANAGE PERSONAL FINANCES
FIN001 – BUDGETING BASICS
WHAT ARE LIVING EXPENSES?

• Living expenses are the expenses necessary for basic daily Expenses  the
living and maintaining good health. cost/amount of money
• These expenses include housing, food, clothing, healthcare, and required for something
transportation.
• The total yearly living expenses can be calculated by adding
together all expenses for that year.
KEEPING A RECORD OF INCOME AND EXPENSES
EVERY YEAR
• It is wise to keep a record of your yearly
income and yearly expenses to develop a
yearly budget. A budget helps you to not
spend too much money and possibly go
into debt.
• Keep a record of your income and
expenses for one month to help estimate
your regular expenses. This can be done
by recording your income and expenses
in a table (example below) every day for
one month.

Income (one month) Expenses (one month)

Wage $4,000 Rent $2,000
Investments $400 Electricity + Water $150
Side-Job (Tutoring) $1,000 Food $400
Car + Petrol $600
Total: US$5,400 Total: US$3,150
SURPLUS VS. DEFICIT IN A BUDGET

• A surplus budget means that your income is more than your expenses. > is greater than
• Surplus  income > expenses
< is less than
• A deficit budget means that your expenses are more than your income.
∑ is Sum Of (add
• Deficit  income < expenses all together)
• A surplus budget is a good thing, because you will not be spending more
If BUDGET is:
than you earn, which is why a deficit budget is a bad thing.
- Above 0, budget is
• To determine surplus or deficit in a budget, use the following formula: in surplus.
- Below 0, budget is
∑ 𝑖𝑛𝑐𝑜𝑚𝑒− ∑ 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠=𝐵𝑈𝐷𝐺𝐸𝑇
 
in deficit.
SURPLUS VS. DEFICIT IN A BUDGET (CONT.)
EXAMPLE
• Using the example budget before as seen in the table and using the equation seen
Income (one month) Expenses (one month)
below…
∑ 𝑖𝑛𝑐𝑜𝑚𝑒− ∑ 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠=𝐵𝑈𝐷𝐺𝐸𝑇
 
Wage $4,000 Rent $2,000
Investment $400 Electricity $150
Income = $5,400 s + Water
Side-Job $1,000 Food $400
Expenses = $3,150 (Tutoring)
Car + $600
∑ 5400− ∑ 3150=2250
 

Total:
Petrol
US$5,400 Total: US$3,150
Budget = US$2,250
Since budget is above 0, this budget is in SURPLUS.
DEFICIT BUDGET…WHY?

• There could be many reasons for a deficit budget… Some reasons are:
• Low income or No income (unemployed).
• High rent payment or High car payment.
• Too many expenses and not enough income.

• Nevertheless, there are ways to reduce expenses or increase income. Let’s first look at
some ways to reduce expenses.
REDUCING EXPENSES AND LOWERING
SPENDING
• Lower rent: find a cheaper place to live.
• Lower water + electricity bills: don’t run taps or any water unnecessarily. Monitor electricity
use, such as turning off all lights in the daytime and when you’re not home. Switch off
power sockets at the wall when not in use. Don’t use air-conditioning in cold weather, and
don’t use heaters in hot weather. Try alternatives such as fans instead of air-conditioning.
• Lower food bill: plan every meal for the week/month and buy cheaper alternatives for every
food ingredient.
• Choose cheaper alternatives where possible.
INCREASING INCOME

• Getting a second job: one of the most obvious ways to increase income would be to work
more. If you can’t get a pay rise in your current job, a second job would bring in more
money/income.
• Selling personal belongings: such as couches, clothes, old appliances (kettles,
microwaves).
• Changing current job: if you feel you could earn more money changing your current job,
this could be a choice to increase income.