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This lesson helps you identify and prioritize personal and financial goals.



Budgeting Pre-Quiz

Budgeting 101

Every person has basic needs, and necessary, regular expenditures, but many of us find at the end of the month that we don’t have enough money for everything that we want, let alone everything that we need. Most Americans live paycheck to paycheck, with little or no savings, and have trouble making ends meet. Once you’re living on your own your monthly income must cover rent, groceries, car insurance, the cell phone bill and, hopefully, go far enough to pay for a Friday night out or a new pair of shoes. The easiest and most efficient way to ensure that your income matches your expenses, and to avoid living paycheck to paycheck, is to create a realistic budget.

The first step in constructing a budget is to figure out how you’re spending your money. This total should include not only your regular expenses, like rent and the phone bill, but also the money you spend on eating out, for ATM cash withdrawals, or an impulse purchase at the mall. The most practical way to keep track of these expenditures is to keep a record of the things you spend money on from week to week, then compare the weekly totals and make a reasonable estimate of how much you spend each month.

Organize your expenses by putting them into general categories, like “groceries” or “entertainment.” (Most people are surprised to find, when they arrange their finances into a simple budget like this, just how large a percentage of their income they spend on relatively frivolous items like their morning latte or impulse purchases.)

Next, make a list of your expected income each month and compare that total to the amount of money you’re spending. Does your cash flow show a budget surplus, a budget deficit, or are you breaking even? If you find you want to cut back on spending, prioritizing your expenses will help you decide where you can cut back. In fact, the simple exercise of clearly identifying your expenses goes a long way towards curbing them; it’s easier to solve a problem once it is made apparent.

Finally, maintain the budget, revising it when necessary, and try to organize your expenditures so that you are saving at least a little bit of income each month. A good goal to begin with is saving 10% of your monthly income. This is money that you can use to save, invest, or share with others by making charitable contributions. If you find that it’s no sweat for you to save 10%, try increasing the amount to 15%. Alternatively, if it proves impossible to sustain your budget as is (you might find that your goal of investing 25% of your income in a mutual fund is unreasonable), reevaluate your priorities and look for places to cut back. Making adjustments is part of the budgeting process.

Remember, a good budget is practical, flexible, relatively easy to use, based on your values, and is set up to help you achieve your goals.

Budgeting Game


What Types of Goals Are There?

Goals can be short- medium- or long-range. Goals you wish to accomplish in 1-4 weeks are considered short-term. Medium-term goals may take you between 2-12 months to reach. Long-range goals are those that may take 1 year or longer to accomplish.


Why Should I Budget?

Reasons to budget include:

  1. To determine how much money you have to spend
  2. To decide how you want to spend your money
  3. To determine how to spend money in the future
  4. To learn to live on less than your full income
  5. To stay out of financial trouble


How Does a Budget Help?

A budget:

  • Puts you in control
  • Helps you create a visual spending picture
  • Helps you prevent impulse spending
  • Helps you decide what you can and cannot afford
  • Enables you to keep track of how you spend your money
  • Helps you create a savings plan
  • Helps you decide how you can protect yourself against the financial consequences of unforeseen events


What Are Some Tips for Maintaining a Budget?

Your budget will be a work in progress. Ways to make it work even better for you include:

  1. Become a good consumer
    • Learn how to get the most for your money
  1. Exercise willpower and self-control
    • Try not to indulge in unnecessary spending
  1. Develop a good record-keeping system
    • Learn how to maintain a workable budget
  1. Evaluate your budget regularly


What Tools Can Help?

Visa provides online calculators to help with the budgeting process. Visit: to check out the many calculators available. The “Rework Your Budget” calculator, the “Back to School Budgeting,” calculator, and the “Save for College” calculator are just a few that may be of interest.

Budgeting Post-Quiz