Budgeting

What is Budgeting?

Income Expenses Savings

Income

What is Income? Where does it come from?

What are some sources of Income?

Things to consider… Federal and State Income Tax, Social Security, Medicare

Gross Income - Taxes

= Net Income

Expenses What are expenses? What are some examples?

Exercise 2A

22%

11%22%

6%

11%

17%

11%FoodGasEntertainmentClothesCell PhoneUtility BillsAuto Insurance

Monthly Expenses

Food $200

Gas $100

Entertainment $200

Clothes $50

Cell Phone $100

Utility Bills $150

Auto Insurance

$100

Types of Expenses

Fixed

Periodic

Variable

ActivityWhat type of expense is it?

Using the pie chart you just created, decide if each expense is fixed, variable or periodic

Does the majority of your money go toward fixed, variable or periodic expenses?

Do you have primarily one type of expense?

Adjusting Variable Expenses

Variable expenses fluctuate in amount For example, you can spend more or less

on groceries depending on what you buy:

VS.

The Most Important Expense

The most important expense…SAVINGS

Increases the likelihood of reaching your SMART goals

Pay Yourself First (P.Y.F.) strategy

Pay Yourself First Strategy

Pay Yourself First (P.Y.F.) strategy Whenever you receive income,

immediately set aside a certain amount Don’t miss the money, it’s like you never

had it in the first place Savings becomes an expense to add to

your budget

Discussion Is savings a fixed or variable expense?

How might this work as each? When might you use a fixed approach? A

variable approach?

The Financial Planning Process (Review)

1. Set SMART goals2. Analyze Information3. Create a Plan4. Implement the Plan5. Monitor and Modify the Plan

What is a budget and what purpose does it serve?

A Budget is a plan that outlines an individual's financial and operational goals

It is a plan that serves to allocate resources, evaluate performance, and formulate plans

Helps to prioritize spending

$100

$300

$800

Budget-Making Tips

Establish a time-frame (weekly, monthly?)

List all money coming in as income Divide expenses by type and list (Don’t

forget P.Y.F.!) Subtract your total expenses from your

total income Analyze your budget…update it regularly

Sample Monthly Budget

Estimated Income:Paycheck (after taxes) $2000

Fixed Expenses:Savings $1400Rent $300

Estimated Variable Expenses:Food $200Gas $50

Periodic Expenses:Car Insurance ($300/6 months) $50

Total Expenses: $2000

Total Income-Total Expenses: $2000-$2000=0

Activity Jessica earns $8/hour working approximately 25

hours a week. About 30% of her pay is deducted for taxes. She earns about $15 a month in interest.

Her monthly expenses are $235 for car payment, $35-45 for cell phone, $40-60 for gas, and $50 for auto insurance. She also likes to buy games, music, clothes and electronics.

Her short-term goal costs $1000, but she has already saved $500. Her long-term goal is to attend college and she has already saved $7000.

Documentation

Checking Account Statements

Savings and Investment Statements

Pay Stubs vs. W-2 Tax Documents Insurance Statements Loan and Credit Card

Statements Receipts and

Warranties

Staying on Track

Envelope System

Track with Checking Account

Tally System

Budget Spreadshee

t

Personal Finance Software

Envelope System

Label envelopes with each of your expense categories. When you receive money, distribute it among the envelopes based on the expense amounts from your budget. When the envelope is empty, you are either done spending in that category or you must move money in from another envelope. Note the date and amount whenever putting money in and out of an envelope

Rent Car Cable

Other Tracking Methods

Tally System - Keep a tally of your spending categories and save your receipts

Checking Account Tracking – Monitor your deposits and withdrawals. As you spend cash, note how much spent and what you bought.

Budget Spreadsheet – Create a spreadsheet to track expenditures and cash inflow

Personal Finance Software

Discussion: Why budget?

Creating a budget (and sticking to it!) is a critical part of the Financial Planning Process

Helps achieve SMART goals Make the most of your

money

Due Next Class

Unit Assessment 2-1 Use your spending log from Unit 1 to develop

a budget plan for the next month