Budgeting

“Pay Yourself First”

Personal Budget

Working Tool

Take Control

Directs flow of cash received towards financial goals

Must be Flexible!

Takes discipline

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NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit Two – Budgeting: Making the Most of Your Money

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NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit Two – Budgeting: Making the Most of Your Money

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Reasons for a Spending PlanReasons for a Spending Plan ……Helps you determine where you are spending your Helps you determine where you are spending your

money currently.money currently.

……Helps you decide where to spend your money in the Helps you decide where to spend your money in the future. future.

……You have an organized way to save for things that cost You have an organized way to save for things that cost more. more.

……Puts you in control of your financial future, beginning Puts you in control of your financial future, beginning NOW.NOW.

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People Without a Budget…People Without a Budget…

……Are less likely to know what they have.Are less likely to know what they have.

……Have no plan, often coming up short Have no plan, often coming up short before their next paycheck or allowance.before their next paycheck or allowance.

……Are almost certain to have no plan to Are almost certain to have no plan to save for more expensive spending goals.save for more expensive spending goals.

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SSAAVVEE

etting aside money for “big ticket items”etting aside money for “big ticket items”

voids borrowing, which costs you a lot! It’s avoids borrowing, which costs you a lot! It’s a

ery wise thing to do, becauseery wise thing to do, because

very time you pay yourself first, you are very time you pay yourself first, you are developing adeveloping a saving habitsaving habit that leaves you with that leaves you with more money to spend later on for things that are more money to spend later on for things that are really important to you!really important to you!

PAY YOUR$ELF FIRST!PAY YOUR$ELF FIRST!

2 Parts of Budgeting

1. Income: Money Received from any source (limited source)

2. Expenses: Money spent to satisfy needs/wants

GROSS VS NET

Gross pay is the total amount you earn before any deductions are subtracted.

$6.50 X40=$260.00

Net pay is the amount you “take home” after deductions.

Overtime is time worked beyond the regular hours

A standard workday is 8 continuous hours with scheduled breaks plus an unpaid lunch period.

A standard work week is 40 hours in a 5 day period of time.

OVERTIME

Fair Labor Standards Act states that:

“employers must pay hourly workers for overtime at the rate of 1 1/2 times the regular rate of pay.”

So… if regular pay is $6.50- then overtime would be $9.75.

40 hours x $6.50 = $260.00

5 hours X $9.75 = $48.75

Gross pay = $308.75

Paycheck Stub

Salaried employees do not receive additional pay for overtime work.

Their gross pay is the same month after month.

The employer divides the salary into equal amounts for each pay period.

Under the “YTD” heading, your gross pay is added up throughout the year.

Income- Payroll Deductions

Money subtracted from Gross Income: Union Dues Health Insurance Savings plans Taxes

Taxes are the largest deductions-required by law

4 Payroll Taxes

1. Federal Income Tax

2. State Income Tax

3. Social Security Tax (FICA) May be able to collect at age 62, average payout $1,230

per month4. Medicare Tax (FICA)

Can collect at age 65FICA- Federal Insurance Contribution ActEmployees match contributions of employers to SS

Progressive Income tax

Employee: Pat Doe Gross income: $240

SSN: 000-00-0000 Deductions:

State Income Tax $8.60

Federal Income Tax

$21.00

FICA $14.88

Medicare Tax $3.48

Total Deductions $47.96

Net Income $192.04

Example:

W-4 Form Withholding Allowance Certificate

NET PAY

When all deductions are taken out of your gross pay, the amount left is your net pay.

Net pay is the amount of money you can actually spend.

Net pay is often called “take-home pay” because it is the amount you can actually use as you wish

Regular wages or salary + Overtime= Gross Pay

Gross Pay - Deductions = Net Pay

W-2

Federal W-2 Wage & Tax Statement

Employees receive at beginning of year

Itemizes money earned & withheld by IRS

Based on previous year income

Employee can determine if paid too much/ too little to IRS Tax refund- too much Taxes owed- too little

IRS

Internal Revenue Service

Responsible for collecting taxes

When & how to file your tax returnSingle tax payers who earn less

than $8,925 do not have to file a tax return

Gather your W-2 and any other documents you need

Complete a 1040EZ if you are single or married with no dependents and have income less than $50,00

Go to irs.gov for more info & forms

April 15 is the deadline to file!

2nd part of Budgeting: Expenses!

Money spent to satisfy needs/wants

Working Budget: Expenses & income balance

Expenses should not exceed income

Limited resources- choices on how to spend money

Opportunity costs vs. delayed gratification

Expenses included in Budget

Fixed:Savings- PYF (Leftover

approach never works) Example: Car payment InsuranceSame amount of

payment each time

Variable: Examples: Gas,

Food, Entertainment costs, clothing

Can change month to month

How to Build a BudgetHow to Build a Budgetl Decide on a time frame for tracking expenses Decide on a time frame for tracking expenses

(week, two weeks, month).(week, two weeks, month).

l List all money you have coming in (income).List all money you have coming in (income).

l Make categories for all expenses.Make categories for all expenses.

l Subtract total expenses from income.Subtract total expenses from income.

l Study your budget and your financial plan to make Study your budget and your financial plan to make sure it fits with your plans and goals.sure it fits with your plans and goals.

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