Budgeting basics

Gross income

The amount of money BEFORE TAXES!!!!

NET INCOME

The amount of money AFTER taxes.

What you “Take home”

Calculate the taxes to be taken out……based on your gross

salary • 10% on taxable income from $0 to $8,925,

plus 15% on taxable income over $8,925 to $36,250, plus 25% on taxable income over $36,250 to $87,850, plus 28% on taxable income over $87,850 to $183,250, plus

What is a budget?

• It is a way to help you live as well as you can with the money you have.

A plan for how you will spend your money

An expense is money you spend

2 types of expenses:

Fixed expenses

Flexible expenses

Fixed expenses

• Remain the same each month

Example:

Rent/mortgage

Car payment

Student loans

Flexible expenses

Can change monthly

Example:

Utilities

Food

Clothing

Components of a Spending Plan

• Expense is money spent • Money going out of the

gumball machine– Fixed expenses may have a

fixed amount due each month and are contractual

– Flexible expenses can vary each month in the amount owed and are not contractual What are two fixed

expenses and two flexible expenses you

currently have?

Typical Spending Plan Expenses

30%

18%16%

7%

18%

10%Housing TransportationFoodInsuranceOtherSaving

What variables may cause these percentages to be different?

• A reference• Provides

guidance• Based upon net

income

Unbalanced budget?

• Not enough money to pay to bills

• Not able to save money

• Possible debt

How can a budget help you?

Lets you know where you’ve spent your money

Allows you to set aside money for bills and expenses

Can help prepare you for unforeseen events

Makes it easier to save money

How to create a budget?

• Set goals (ex. I want to save $1,000 in the next year for a car)

• Figure out your income

• Calculate your expenses (food, rent, cell phone bill, etc)

• Subtract income minus your expenses

Having a plan • Financial planning is a

process individuals engage in to achieve long-term financial success while having a quality standard of daily living

• A spending plan is a paper or electronic document used to record both planned and actual income through expenditures over a period of time

Spending Plan Development

Process

Sarah’s budget for May

• Sarah’s income is $1200/month NET income Her monthly expenses include:

$350 for rent$200 for car payment/insurance $30 for cable$100 student loans $80 utilities$50 gas for car $100 for food$40 savings$50 for entertainment

How her month actually went..end of May

$350 for rent$200 for car payment$30 for cable$100 for student loans$100 utilities$150 for food (she had friends over for dinner)$70 on a new outfit $100 for entertainment $50 on mom’s birthday$80 gas for car

How did she do?

• Did she have enough money?

• What could she have done differently?