Lesson Two: Categories and Decisions

Objectives:Students will • practice budget decision making.• Use Excel to compute budget

limitations

IntroductionThe budget-planning process can be compared to a puzzle. You move pieces around until they fit. Of course, “FIT” means to avoid overspending and ideally having money left over.

When planning a budget, many people subtract a portion of their Net Monthly Income to save. This ensures that money will be set aside for long-term goals before they have a chance to spend it on something else.

Next, many budget for primary expenses such as housing, utilities, transportation (car payments, fuel, insurance), health insurance and medical expenses.

Decisions made on primary expenses, or those necessities, obviously affect secondary expenses.

You can only spend what you have left. You can only spend as much on entertainment as your budget allows, or be willing to give up on something else it you want to spend more.

Economist define this as opportunity cost - the next best thing given up when making a choice.If more money is needed for clothes, then less could be spent on dining out or recreation.

Budget decisions in one category will affect decisions in other categories.

Open your budget categories file.

Open the budget Guidelines file from the common drive. Use formulas to find the minimum and maximum amount to be budgeted in each category.

Copy the definitions into your Word document.

Primary expenses- expenses that have a very high priority and are generally paid first.Secondary expenses- expenses for lower priority goods and servicesFixed expenses- expenses that do not change from month to month such as auto insurance or rentVariable expenses- expenses that vary from month to month such as entertainment, car repairs, or doctor bills.

Small Group ActivityCreate the table below in Word. With your group, add each budget category to the table. Then open the Budget Wise PDF file from the common Answer questions 1-8 under the table on your Word document

Budget WisePrimary Expenses Secondary Expenses

1. .2. .3. .4. .5. .6. .7. .

1. .2. .3. .4. .5. .6. .

Everyone’s life situation is different. One person may be single with no children, while someone else may be divorced with two children, and another married with one child. The cost of living also varies greatly from one location to another. Incomes will vary depending on career or occupation a person has chosen.

Budget decisions must be made on income and expenses. Most of us will have expenses in the categories we have been discussing but not necessarily each month.

Small Group ActivityCreate an Excel spreadsheet for the Art of Budgeting pg. 75-76 of your workbook. Answer questions 1-5 on your Excel document.

Independent Activity. Identify the primary and secondary expenses for Laurie as well as the fixed and variable expenses on a Word document.

Laurie’s ExpensesPrimary

ExpensesSecondary Expenses

Fixed Expenses

Variable Expenses

SummaryWhat are components of successful budgets?

What are examples of primary and secondary expenses?

What is the difference between fixed and variable expenses?