Background: Many people live beyond their means. Then, when financial catastrophe hits unexpectedly, those people often lose whatever financial security they have. Preparing and maintaining a budget is an important habit and a critical tool for planning ahead. See example of how this should be prepared in the weekly file on D2L.

Exercise: You represent a household with a monthly net income of $2,900. Rent costs $650 per month, car payment is $400 per month, and insurance is $80 per month. You should assume that one member works 30 miles away and the car goes 30 miles for each gallon of gas used. Student loan payments equal $240 per month and utilities total about $270 per month, depending on the season.

Step 1: You will prepare a budget to include the above expenses as well as additional expenses for groceries, clothing, entertainment, and miscellaneous items.

Step 2: It has just been announced that, due to an economic downturn, monthly net incomes will be reduced by 20 percent. Make a plan for cutting expenses, where necessary, to accommodate the pay cut.

Step 3: Explain which areas of the budget were cut? Why? What types of items can be eliminated from monthly purchases? When money is short, are there any monthly bills that can be paid late? What are the implications of that?