What’s In a Budget

A budget is made up of three major sections: income, expenses, and savings. All sources of income should be added and totaled making sure to subtract applicable taxes. Expenses should then be listed as line items, generally divided into two categories: fixed and variable. Fixed expenses include housing, credit card payments, medical insurance and all those monthly bills that no matter how much we don’t want to pay we have to.

Variable expenses also might include payments we don’t want to make, but the amounts designated to those categories are more in our control, hence the title “variable.” Food’s a must, but how much we spend each month is more up to us than how much we spend on rent, in the short run, so food goes under variable expenses. In the long run, the division between fixed and variable expenses isn’t so clear, but for a monthly budget this rationale works just fine. After expenses are totaled, the value of income minus expenses should be allocated to some form of savings.