Accounting and Finance Foundations

Unit 12

Accounting and Finance Foundations Unit 12: Budgeting and Business Plans 915

This sample budget was prepared by Dick and Jane, who are both employed. Dick is paid $700 (after taxes

and deductions) each week. Jane, who is paid every two weeks, brings home $1,000 each pay day.

Jane sometimes receives overtime pay, and Dick receives a bonus from time to time. However, since these

amounts are not guaranteed, Dick and Jane did not consider them when preparing their budget. If and

when the extra money is received, it will be added to their income at that time.

If we assume that Dick is paid four times a month and that Jane is paid twice monthly, their combined net

income would appear to be $4,800 per month. However, this approach to calculating monthly income,

which many people use, is incorrect. So, let’s look at the proper way to determine monthly income.

During the year, Dick is paid a total of 52 times—for a yearly net income of $36,400. Jane is paid 26 times

per year—for a yearly net income of $26,000. Their combined yearly income of $62,400, when divided by

12 months, yields a monthly income of $5,200. This is $400.00 a month more than the amount figured

incorrectly above.

After arriving at their total monthly net income, Dick and Jane compiled a list of all their known monthly

expenses. Here is Dick and Jane’s list*:

* The budget categories listed here are commonly included in household budgets, but they are not meant to represent a

complete list of budget categories. The categories you use in your budget should be based on your specific expenses.

Budgeting and Business Plans Student Guide

27.3.2 A Sample Budget

Item Amount

Mortgage payment 1,100.00

Auto loan 460.00

Auto insurance 200.00

Auto expenses (gas, etc.) 175.00

Groceries ($150/week) 650.00

Utilities 210.00

Telephone 65.00

Medical 130.00

Loan payment 125.00

Life/Health insurance 240.00

Entertainment 125.00

Savings 500.00

Weekly Cash ($100.00/week) 433.33

Total Expenses $4,413.33

Chapter 27