Compare Monthly income (or savings) to spending – eye opening

Goal Setting

This step is all about creating your spending goals, or how much of your savings/earnings you want to spend each month. This goal can also include how much of your earnings you want to save a month as well. These goals are important for creating a budget since it sets the bar for spending and savings.


How much is your monthly income versus how much you are spending each month? This is going to be the benchmark or bar that you want to compare your budget to in order to determine how much you need to decrease your spending. So, take that total average monthly amount from Step 4 and use that to compare to your monthly net income/allowance. The net amount is the total after taxes. In other words subtract (income – monthly expenses) = how much is overage or how much is left for savings.

Living on savings

If you are currently living on savings at this point you can also figure out how long you have until that savings is spent. To determine this you take your total savings and divide by the monthly expenditure, this number is how many months at the current rate before you are out of money. This calculation is important since it is the starting point and after creating and implementing a budget you can see how much longer your savings will last.

Important step to Gage improvement

This step of looking at current expenditure in comparison to savings/earnings is important to calculate. This amount is going to enable you to determine your spending goals, and also to show you your starting point and then how much you have improved.


When I first did this I was astounded at how much I was spending compared to income. Over the past year I have been able to cut my household spending by about 75%, so it is possible even with a full house.

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