By Selena Garrison, University of Florida
This series is aimed at getting started with the basics of budgeting. Follow along from the first post in the series to get started.
The first blog post in this financial capability series was about helping clients figure out where their money is going. Tracking all spending for at least one month is an important first step in establishing a spending plan because it gives us a clear picture of how much money is being spent, where that money is going, and where adjustments in spending can potentially be made.
Equally important, but arguably less complicated, is determining how much money is coming in.
Helping your client understand gross income (before taxes) is important for tax purposes, but helping your client identify their net (after taxes) income is what to focus on when creating a spending plan.
For members of the military, this can be a little tricky. In addition to basic pay, it is important to factor in basic allowance for housing, and basic allowance for subsistence, if applicable. The base pay in these categories likely remains the same month to month, but additional income resulting from incentives, bonuses, and special pay, such as pay for service in a combat zone, should also be factored in.
If your client is married or in a relationship where household expenses are shared, they should include the other person’s income in these calculations. Potential additional income categories depending on the family’s situation can include alimony or child support, public assistance, and SNAP benefits or WIC, unemployment, and disability, etc.
By working with clients to fill in the chart below, you can help them identify all of their monthly sources of income. For weekly household income, they can add in the four or five paychecks they will receive for the selected month. For bi-weekly household income, they can add in the two or three paychecks for the selected month. Because some months include an extra pay period, they may want to use that extra money for savings, paying down debt, or other goals.
Once it has been determined how much income is coming in and how much income is going out, you have the starting place for creating a spending plan that will enable someone to be able to get their finances under control and reach their financial goals.