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Money Management - Head Matters


7. Step 2: Record

Create income and expense records

Again, let’s practice the steps using the records of our character, Henry. He knows he’s always short of money before the end of the month, but he has never figured out exactly how much he is short or where his money goes. He’s determined to gain control over his finances and to stop letting his money control him. First, he gathers his pay stubs, bank statements, savings account statements, financial aid award documentation and any other income-related documents. Then, he identifies his total average monthly take-home pay—that is, his net pay after deductions have been subtracted from his gross pay.

Gross vs. Net
Although you may make $15 per hour, you may only take home $11 per hour after taxes are removed from your paycheck—you may take home even less if you receive any benefits that are taken out of your paycheck automatically. Be sure to include your net pay when you are calculating your income for budgeting purposes.

Income Source Monthly Take-Home Pay
Salary: Employer 1 $2,135
Salary: Employer 2  
Tax refund (total divided by 12) $30 
Interest from savings  
Total Take-Home Pay  $2,165


Next, Henry gathers his checkbook, bank records, credit card statements, and receipts, and then records his monthly expenses. Some expenses, such as food and rent, are paid every month; other expenses, such as car insurance, may come due every three or six months. To create a monthly budget, you need to divide the amount due by the number of months the bill covers. For example, Henry would divide a $600 car insurance bill that is paid in two $300 installments every six months by 12 to realize that he needs to set aside $50 per month.

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