managing your income
Making a plan for your income is a smart way to manage your money. There are two elements to consider - your income and your expenses.
Disposable Income - the money you have left to spend or save after your taxes and other required deductions are taken.
Financial Plan - a set of goals for spending, saving, and investing the money you receive.
Learn more about financial plans here.
developing a budget
The next step toward achieving your financial goals is to prepare a budget.
Budget - Spending and saving plan based on your expected income and expenses.
Preparing a Budget
To prepare a budget, you should estimate your income and expenses and set a savings goal. If expenses plus savings exceed income, you should adjust your saving or spending accordingly.
Expenses
There are two types of expenses, fixed expenses and variable expenses. You are required to pay these regardless of income change.
Fixed Expenses - expenses where the cost does not change monthly.
Variable Expenses - Expenses where the cost does change monthly.
Personal Records
There are four types of personal records you should keep. These include income and expense records, a net worth statement, a personal property inventory, and tax records.
Net Worth Statement - shows a person's net worth based on his or her assets and liabilities.
Liabilities - Money or debts you owe to others.
Personal Property Inventory - a list of the valuable items you own, along with their purchase prices and approximate current values.
Tax Records usually include the tax return itself, W-2 forms, and other receipts verifying income and expenses listed on each return.
Legally Binding Agreements
Once you grow older and your finances become more intricate, you will likely enter a various amount of legally binding agreements. Learn more about legally binding agreements here.
Contract - a legally enforceable agreement between two are more people.
Other common legal agreements will include;
- Credit accounts
- Mortage loans
- Rental agreements
Enforceable Contracts - a contract that has agreement (offer and acceptance), consideration (an exchange or something of value), contractual capacity (legal ability), and legality (lawful purpose).