Planning a Budget

Chapter 28

Did anybody see Borat this weekend?

Today’s Schedule

• Final Project Notes & Information

• Assignment of Homework• Chapter 28• Quiz

Final Project Notes & Information

• Progress Feedback• I need a copy of your first

assignment• Next assignment will be due

on Friday– Projected Income Statement (5

points)• Use a sample income statement

as a point of reference• List projected expenses &

projected revenue• How will you make the goal set

forth for you?• Due 11/10/06

Homework Assignment

• Final Project Assignment• Chapter 28

– Definitions for Key Words

Chapter 28 Learning Objectives• Explain how budgeting is

helpful• List the five steps in

planning a budget• Name different types of

income and expenses• Describe how a computer

is used in budgeting

Why It’s Important

• Budgeting Techniques help you keep track of where your money goes so that you can make it go further

• Do the best with what you’ve got

Average Monthly Household Expenses

17%

7%

2%

16%

12%

12%

10%

3%

21%Food

Clothing

Personal Care

Housing

HouseholdExpensesTransportation

Recreation

Contributions &GiftsOther

Based on $3,125 per month

Lifestyle Costs• Money is Limited for most• Most want more than they can

afford• Money Management

– The process of planning how to get the most from your money

• Budget – Plan for using your money in a

way that best meets your wants & needs

– Includes: Expected income, planned expenses, planned savings over a period of time

– Sample Budget on Excel

5 Steps to Planning a Budget

• Set your goals• Estimate your income• Estimate your expenses• Plan for savings• Balance and adjust as

needed (be adaptable)

Step 1: Set Goals

• What do you want to accomplish in the next month?– Next year?– Next Five years?

• What’s important to you?• How will I get there

financially

Step 2: Estimate Income

• Income – Actual amount you earn or receive in a time period

• Gross Pay• Net Pay• Other Income• Taxes

Gross Pay

• Total amount of money you earned for a specific time

Net Pay

• Gross Pay minus deductions

• Deductions– Amounts taken out of your

pay before you receive your paycheck

– Include: Taxes, health insurance, retirement, union dues

– Could include: Child Support, money owed to creditors, etc.

Other Income

• Could include:– Tips (do not include while

budgeting)– Other funds earned by

those within a household– Gifts, etc.

Taxes

• Withholding– Subtracting taxes from a

paycheck to be forwarded to the government

• Federal, State, Local• Taxes not withheld must

be budgeted– Lottery Winners, self-

employed persons

Step 3: Estimate Expenses

• Expenditures– Anything you spend money

on

• Must budget for known expenditures

• Must have money available for the unknown

• Fixed Expenses• Variable Expenses

Fixed Expenses

• Expenses that occur regularly and that are regularly paid

• Rent, Insurance, Car Payments, etc.

• Can change over time• Cannot reduce or avoid

them

Variable Expenses

• Expenses that fluctuate• Food, phone bills,

entertainment, gifts, etc.• Look at trends

Step 4: Plan for Savings

• Make it possible for future wants

• Can cover expenses for which you did not budget

Step 5: Balance & Adjust the Budget• Usually the most difficult step• Budget Variance

– The difference between how much you planned to spend and how much you actually spent

• Total expenses should always be less than total income– If not, you must make changes

Quiz

• What are the five steps of planning a budget? (5 points)

• What are the two types of expenses? (2 points)

• ______ is the process of planning how to get the most from your money. (3 points)

• Extra Credit – At present, De La Salle offers _____ bus routes. (1 point)