Okay, so you're ready to try this budgeting thing. Where do you start? Let's talk about some terms that will be helpful to know when you're building your financial knowledge.
this is money that you're taking in (either consistently or every once-in-a-while) like an hourly wage, tips, birthday money, paycheck, bonus, or a twenty that you find in your jeans from last year (sweet!).
these are things you are paying for. Some you gotta pay for no matter what, and some are elective expenses. And just like income, some expenses will be consistent (called fixed expenses, meaning they stay the same) and some will be one-time-deals (called flexible expenses). Expenses cover everything from your spontaneous fro-yo night to the monthly bill you owe your parents for denting your neighbor's car.
this is money that you put aside and choose not to spend. There can be a lot of reasons to have savings. You want to have a stack of cash in case of emergencies, like a car accident, a broken phone, or to build up for something big in the future like college. You also want to make sure you have money to pay your bills in case you lose your job or you have a big and unexpected expense. Having savings is a safety net to protect yourself in the future (you're welcome, future self!).
this is all the extra moolah you have after you pay all of your expenses. These are the good kind of leftovers. Like when you are so happy because there is more of your favorite meal to eat again!!
this is the amount of money you are short when expenses are more than your income. This is a bummer.
all of the money you owe to someone else (or a lot of other people). We do not want this, so stay away from debt as much as you can. I repeat: STAY FAR AWAY. We'll talk more about this later too.
the money that you take in as income before taxes or expenses are taken out.
the money you have actually earned after taxes and expenses are taken out
Confused yet? Don't worry, we'll go over each of these a little bit more and you'll begin to understand them better as we work with them. For now, just review these formulas until they make sense and you can explain them out loud to your dog (or cat, or fish, or whatever).
Money you make - Money you spend = Extra money
Talk fancy to me:
Gross income - Expenses = Net Income
(AKA: you want your gross income to be MORE than your expenses. That way you have money left over. Go you!)