Course Catalog / BMU 040 / Lesson 2 of 5

BMU 040

Quick review

1. What did you write down for each buy?

See the answer

The day, the amount, and what it was for.

2. Which ways of paying count?

See the answer

All of them: cash, card, apps, and auto pay.

Why this matters

A budget is a plan you write down to decide how you will spend your money each month. Consumer.gov says it shows how much you make and how you spend it.

In this lesson you will list your income and bills, subtract, and see what is left over or short. Then you will sort needs and wants and find one change.

Start with what you already do

You already make money choices every day, like paying rent before you buy a treat.

Common belief: A budget means I can never buy anything fun.

What is actually true: A budget has room for wants too. The CFPB says a wise habit is to cover all your needs first, then spend on wants.

Key words

budget

A written plan for how you will spend and save your money each month.

need

Something you must have, like housing, food, power, or a way to get to work.

want

Something nice to have that you can live without, like eating out or extra streaming.

Three steps to a budget

Consumer.gov gives three steps. Gather your pay stubs and bills first.

1. List your bills and expenses. Rent, power, water, phone, food, gas, and the groups from your log.
2. List your monthly income. Use your pay stubs. Add other money, like child support.
3. Subtract. Income minus expenses. The answer should be more than zero.

If your pay changes each month, Consumer.gov says to add up last year's income and divide by 12. That gives you a monthly estimate.

Left over or short?

This budget is $60 short. If the number is less than zero, you spend more than you make. Look for things you can change. These numbers are made up.

Needs and wants

Needs are things like housing, food, power, a way to get to work, and savings. Wants are things that are nice but you can live without. The CFPB says to cover needs first.

Text version of this figure

Build the budget. Income minus expenses, then one change.

1. Step 1, List income: Pay stubs and other money in.
2. Step 2, List expenses: Bills plus groups from your log.
3. Subtract: Left over, or short?
4. Step 3, Sort needs and wants: Cover needs first.
5. Pick one change: A want to cut or trim each week.

Source: Consumer.gov Making a Budget; CFPB needs and wants worksheet (Oct 29, 2026).

Worked example: Dana's change

Dana's budget is $60 short. Her log showed $46 a week on food out.

• She marks food out as a want.
• She packs lunch three days a week.
• That saves about $25 a week, or about $100 a month.
• Now her budget has about $40 left over.

Dana is a made up example. Your numbers will be different.

Practice: Balance a budget

Here is a made up monthly budget. Take home pay is $1,900.

1. Rent $950, food $400, phone and bills $380, fun $250. Add the costs.
2. Is she over or under, and by how much?
3. Name one change that fixes it.

Check your practice: feedback

1. $950 + $400 + $380 + $250 is $1,980.
2. Over by $80. $1,980 minus $1,900.
3. Cut fun from $250 to $170. Or trim food by $80 with a list and unit prices.

Common mistakes

• Guessing at income. Use your pay stubs, or last year's income divided by 12.
• Leaving out bills that come once a year. Divide them by 12 and add them each month.
• Cutting every want at once. Pick one change you can keep.

Check your understanding

Take it as many times as you like. Pick an answer, then open the feedback.

1. Lee makes $1,800 and spends $1,900 a month. What is true?

1. He has $100 left over.
2. He is $100 short.
3. His budget is fine.

See the answer and feedback

B is correct. Yes. He spends more than he makes.

A: Expenses are bigger than income. Review Left over or short?

C: Short means he needs a change. Review Left over or short?

2. Which is a need?

1. Rent
2. A new game
3. Movie tickets

See the answer and feedback

A is correct. Yes. Housing is a need.

B: That is nice, but you can live without it. Review Needs and wants.

C: That is a want. Review Needs and wants.

3. Jo's pay changes each month. How can she guess her monthly income?

1. Use her best month only
2. Skip income on the budget
3. Divide last year's pay by 12

See the answer and feedback

C is correct. Yes. Consumer.gov suggests this.

A: That will be too high most months. Review Three steps to a budget.

B: Income is step 2. Review Three steps to a budget.

Next up

Next you will compare banks, credit unions, and other ways to keep money. Go to Lesson 3: Banks, credit unions, and fees.

Stuck or have a question? Ask BMU Learner Support.

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