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10011 0010 1010 1101 0001 0100 1011
Unit 2: Budgeting
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Chapter 6.1
Choose Financial Goals
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Types of Financial Goals
• Money gives you purchasing power
– Money you earn is in the form of income
• People should make and follow a financial
plan
– A budget is a financial plan for dividing your
income between saving and spending options
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Types of Financial Goals
• Short- and Long-Term Financial Goals
– Short-Term = Goals to happen � year
• Short-Term Goals can usually be achieved quickly
with limited planning
– Long-Term = Goals to happen � year
• Long-Term Goals usually require larger amounts of
money and more planning
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Types of Financial Goals
• Examples of Short-Term Financial Goals
– Taking a vacation this summer
– Buying a new pair of jeans this weekend
– Saving money for Christmas presents
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Types of Financial Goals
• Examples of Long-Term Financial Goals
– Paying for college
– Purchasing a home
– Putting money into a retirement fund
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Types of Financial Goals
• It is important to balance short-term spending
with long-term success
– What does this mean?
– If you only spend money for short-term,
immediate spending, you will fail to save money
which will help you eventually achieve long-term
goals
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Types of Financial Goals
• Budgeting is one way to ensure we balance
short-term spending with long-term success
– Budgeting requires trade-offs and opportunity costs
• How do you make a good budget?
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Types of Financial Goals
• A successful budget…
– Understand your life-span goals
– Prioritize your life-span goals
– Rank your life-span goals
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Chapter 6.2
Track Income and Expenses
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Keep Financial Records• Track your income
– Paycheck stub
– Written account of allowances and income from
other sources where you don’t receive a pay stub
– Bank statements with records of interest earned
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Keep Financial Records
• Track your spending
– Sales receipts
– Credit card statements
– Bank statements from checking and saving
accounts
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Keep Financial Records
• Establish a filing system
– Categorize spending
– Paper or computerized
• Keep effective records
– Filing system should be organized and neat
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Keep Financial Records
• Using financial records efficiently
– Study records of your earning and spending to
develop a successful budget
– See where spending habits could be controlled
in order to reach long-term goals more quickly
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Fixed v. Flexible Expenses
• Both will need to be included in your
budget
• Fixed Expenses
– Spending that you have committed to make
• Flexible Expenses
– Spending you can choose to make
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Fixed v. Flexible Expenses
• Fixed Expenses
– Let’s say you purchase a car…
• Your car payment is a fixed expense
• Your car insurance is a fixed expense
• These expenses are due on a specific date, and the
amount is usually constant
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Fixed v. Flexible Expenses
• Flexible Expenses
– Things you choose to spend money on
• A new CD or MP3 Player
• Designer jeans
• Soda and junk food
• Movie tickets and popcorn
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Fixed v. Flexible Expenses
• Flexible Expenses
– Although everyone NEEDS food and clothing –
we have choices on spending for these
necessities
• Generic brands v. Name brands for example
• Name brands also known as Luxury Goods
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Fixed v. Flexible Expenses
• Flexible Expenses
– Luxury Goods
• Items that have special qualities that make them
more expensive than alternative goods
• Diamond v. Cubic Zirconium
• Hollister Jeans v. Levi’s
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Chapter 6.3
Your Budget Worksheet
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Create Your Budget Worksheet
• What is a Budget Worksheet?
– A planning document in which you record
expected and actual income and your short-term
spending habits
• Usually for a period of one month
• Compare how you THINK you will spend your
income v. how you ACTUALLY spend it
• MOST people spend more than they think they
will
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Create Your Budget Worksheet
• Step 1
– Create your worksheet
• 4 Columns
• Column 1: Income and Expenses (Spending
Categories)
• Column 2: “Expected Amount”
• Column 3: “Actual Amount”
• Column 4: Over or Under Amount (+ or -)
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Create Your Budget Worksheet
• Step 2
– Estimate your Income
• Be sure to always use NET income not GROSS
income
– WHAT IS THE DIFFERENCE??
• Include income from other sources
– Allowances
– Odds Jobs that you are committed to performing
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Create Your Budget Worksheet
• Step 3
– Estimate your Expenses and Savings
• List Fixed and Flexible Expenses
• Plan your Saving
– Do not just “save” whatever is left over at the end of a
month
– Plan a fixed amount to save every month
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Create Your Budget Worksheet
• Step 4
– Record your Actual Income and Expenses
• During the month, as you receive your income and
pay your expenses, record those “actual” amounts on
your Budget Worksheet
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Create Your Budget Worksheet
• Step 5
– Calculate the Difference
• Compare what you wrote for expected income and
expenses to actual income and expenses
• SUBTRACT the expected amount from the actual
amount
– Record the difference in the Over or Under column
– Make sure if the difference is negative you use the (-)
symbol!
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Budget Pitfalls
• Few consumers have realistic budgets!
– They are too specific, and become too much
trouble.
– Unrealistic predictions of income & expenses
– Don’t lump too many things under your
miscellaneous expenses – Categorize!
– Consumers simply give up – Plan time each
week to maintain your budget!
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Chapter 6.4
Create Your Budget
for the Year
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Evaluate your Budget Worksheet
• Adjust your Spending
– Reduce flexible expenses when you can
• Make several “plans”
– Each plan should give you different choices
– i.e. Less flexible spending, more saving
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Budgeting for the Year
• REMEMBER: The purpose of a budgeting
worksheet is to help you understand your
spending and saving habits
• Budgeting for a year can help you plan
steps in achieving long-term goals
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Budgeting for the Year
• A budget worksheet for a year combines
your income, expenses, and savings for a
full year
• Total Income = Expenses + Savings
– Review and adjust your budget so the equation
is equal!
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Budgeting for the Year
• Relate your goals to your budget
– i.e. If a long-term goal is college, saving money
specifically for college every year is important
– Adjust for changing goals
• Your goals will change with time – so should your
budget!
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Budgeting for the Year
• Prepare a family budget
– Many families share income and expenses, so
plan a budget together
– Compromise!
• In order for some long-term goals to be met, other
goals may have to be given up or set back