1. Salary - A fixed regular payment, typically paid on
a monthly or bi-weekly basis, by an employer to an
employee, usually expressed as an annual sum.
2. Income - The total flow of money received by an
individual or household over a period of time. This can
encompass salary, wages (hourly pay), profits from a
business, investment returns, rental income,
government benefits, etc.
language and process for discussing and
managing finances together.
3. 2. Common Budgeting Frameworks:
There isn't one single "best" framework, as the ideal
approach depends on individual needs and preferences.
Here are some popular ones we can delve into.
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2.1. Types of Income:
2.1.1 Active Income: Earned through direct work
(salary, wages, business profits).
2.1.2. Passive Income: Earned with minimal ongoing
effort (rental income, dividends, royalties).
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2.1.3. Portfolio Income: Earned from investments
(capital gains, interest).
2.2. Gross vs. Net Income
2.2.1. Gross Income is the total earning before any
deductions.
2.2.2. Net Income is the net earnings after the
deductions.
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3. Budgeting
The planning, tracking, and controlling of income
and expenditures to achieve financial goals and
maintain stability. Involves income identification,
expense tracking, budget creation, variance analysis,
and adjustment.
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3.1. Why is a Budgeting Framework Important?
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Provides Structure: It gives you a clear
process to follow, preventing budgeting from
feeling overwhelming or ad-hoc.
Aligns with Goals: A good framework
ensures your spending reflects your priorities
and helps you achieve your financial
objectives (e.g., saving for a down payment,
paying off debt, investing).
Improves Awareness: By tracking income
and expenses within a framework, you gain a
clearer picture of your financial situation.
Facilitates Control: It empowers you to make
informed decisions about your money and
avoid overspending.
Enables Flexibility: While providing
structure, a good framework should also allow
for adjustments as your circumstances change.
Supports Communication (for
households/teams): It provides a common
The 50/30/20 Rule: This simple framework
allocates 50% of your after-tax income to
needs, 30% to wants, and 20% to savings and
debt repayment.
Zero-Based Budgeting: Every peso of your
income is assigned a purpose, whether it's for
spending, saving, or debt repayment. The goal
is to have "zero" left over at the end of the
month (in theory, not necessarily literally).
Envelope System: This method involves
allocating a specific amount of cash to
different spending categories and physically
placing that cash in envelopes. Once an
envelope is empty, you can't spend any more
in that category.
Pay Yourself First: This strategy prioritizes
saving by automatically setting aside a portion
of your income before paying bills or other
expenses.
Activity-Based Budgeting: Often used in
business, this framework focuses on the costs
associated with specific activities or tasks.
While less common for personal budgeting,
the principle of tracking spending by activity
can be useful.
Value-Based Budgeting: This approach
centers on aligning your spending with your
core values and what truly matters to you.
The Snowflake Method: This involves
making small, consistent extra payments
towards debt or savings.
3. 3. Key Elements of a Budgeting Framework
Setting Clear Financial Goals: What do you want to
achieve with your money?
Tracking Income: Identifying all sources of
income.
●​ Tracking Expenses: Monitoring where your
money is currently going. This often involves
categorizing expenses (e.g., housing, food,
transportation).
●​ Creating a Spending Plan: Allocating your
income to different categories based on your
goals and chosen framework.
●​ Regular Review and Adjustment:
Periodically checking your budget against
your actual spending and making necessary
changes.
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Discipline and Consistency: Sticking to your
budget as much as possible and making it a
regular habit.
3.4. Choosing the Right Framework:
We can discuss how to determine which framework
might be the best fit for you based on factors like:
4.3. Expense Analysis: Identifying spending patterns,
areas of overspending, and opportunities for cost
reduction.
4.4. Prioritization of Expenses: Distinguishing
between needs and wants to make informed spending
decisions.
5. Investing
Complexity: Some frameworks are simpler to
implement than others.
●​ Level of Detail: How granular do you want to
be with tracking your spending?
●​ Personality and Habits: Some people prefer
the tangibility of cash (envelope system),
while others prefer digital tracking.
●​ Financial Situation: Your income level, debt,
and financial goals can influence the most
suitable approach.
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3.5. Implementing and Maintaining a Budgeting
Framework:
Finally, we can talk about the practical steps involved
in setting up your chosen framework and strategies for
staying consistent over time. This might include:
Using budgeting apps or spreadsheets.
Setting up automatic transfers for savings.
Identifying and cutting unnecessary
expenses.
●​ Dealing with unexpected expenses.
●​ Staying motivated.
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4. Expenses
This refers to the outflow of money from an
individual or household to pay for goods and services.
4.1. Types of Expenses:
4.1.1. Fixed Expenses: Costs that remain relatively
constant over time (rent/mortgage, loan payments,
insurance premiums).
4.1.2. Variable Expenses: Costs that fluctuate
depending on usage or choices (food, utilities,
entertainment, transportation).
4.1.3. Discretionary Expenses: Non-essential wants
that can be reduced or eliminated (dining out, hobbies,
vacations).
4.2. Expense Tracking Methods: Utilizing tools like
spreadsheets, budgeting apps, or notebooks to monitor
spending habits.
Allocating capital with the expectation of
generating future income or profit. Involves goal
setting, understanding savings and investment
vehicles, risk assessment, diversification, and a
long-term perspective.
6. Loan or Borrowing​
This involves receiving money from a lender with
the obligation to repay the principal amount plus
interest over a specified period.
6.1. Types of Loans: Personal loans, auto
loans, mortgages, student loans, business
loans. Note class, before you apply for a loan
make sure that you really need to have one.
For example, you will spend it to a car
because you need the car for business. Or a
house because you do not have any home to
reside with.
6.1.1. Loan Terms: Understanding the
interest rate (fixed or variable), repayment
period, fees, and collateral requirements (if
any).
6.1.2. Cost of Borrowing: Calculating the
total amount to be repaid, including interest,
and comparing loan offers.
6.1.3. Responsible Borrowing: Assessing
the need for the loan, the ability to repay, and
the potential impact on financial stability.
6.1.4. Loan Amortization: Understanding
how principal and interest payments are
structured over the loan term.
Note: It is better to have extra income rather
than having the active income alone.