If you're starting the budgeting process, it's helpful to know the language. Here are some terms to get you started:
Your Income is the amount of money you make, typically from working. Gross income is the amount you earn before any money is taken out for social security and income taxes, insurance payments, 401(k) contributions, etc. Net Income is the amount of your paycheck, also called your Disposable Income or "bring home pay."
If you use your Gross Income for budgeting purposes, be sure to include the amount withheld, or start out with your Net Income.
Expenses, or debts, are generally broken down into two categories:
- Fixed Expenses are relatively consistent and include items like your mortgage payment/rent, car payment, and insurance cost.
- Variable Expenses include items like groceries, utility bills, and medical bills that can vary (sometimes a lot) from month-to-month.
Your Assets are the value of the things you own - automobiles, jewelry, funds in savings or investment accounts, and other personal possessions. This also includes Equity, or the difference between a debt you owe and what that item is worth. (For example, if you owe $5,000 on your car, but could sell it for $7,000, you have $2,000 in equity.)
Your Liabilities include all of the money you owe, and often includes debts like your mortgage, student loans, credit card debt, and personal loans.
Your Net Worth is a measure of wealth determined by subtracting your Liabilities from your Assets. You can have a Positive Net Worth if you own more than you owe, or a Negative Net Worth if your Liabilities are greater than your Assets.
The views, information, or opinions expressed in this article are solely those of the author and do not necessarily represent the views of Citizens State Bank and its affiliates, and Citizens State Bank is not responsible for and does not verify the accuracy of any information contained in this article or items hyperlinked within. This is for informational purposes and is no way intended to provide legal advice.