Budgeting Your Money

“Some Money Facts”

$ The average person spends money three times a day.

$ A movie with popcorn and a soft drink can easily cost $20

$ Just one soft drink a day for .99c adds up to $361.35 in a year

Coffee at $3 a day adds up to $1,095 a year!

Money Matters:. Money brings happiness – Money problems

bring unhappiness Money problems stay with you for the rest of

your life. $ What’s the biggest expense item for

teenagers? FOOD!

Some RecentFacts about Money!

Average in the US is 1 in 69 file for bankruptcy Rise in 18-25 year olds moving back in with

parents College students have $3,000 in credit card

debt 10% owe $10,000 or more in credit card debt Teens Today – Spend and Influence $172

billion annually ($105 of own money, $48 of family money)

Without a monthly check most families would last only 1 to 2 mos.

How do I Create a

Budget???

Developing A Budget A budget is a spending and savings plan

based on an estimate of income and expenses

Main purpose of a budget is to help you live within your means, however there are many other benefits Save towards important goals Evaluate your spending patterns/change

them Helps in keeping stable records for taxes,

investment and other purposes

Consider Financial Goals Long-term goals

Going to college Buying a house/car Building retirement

income Short-term goals

Buying a sound system

Saving for vacation Purchasing clothes

Estimate Income Make a time period

for your budget Write down how

much money you have to spend

Include any estimate of unpredictable money received

Gifts Tips Bonuses

Net Income = your take home pay (after taxes)

If earnings are irregular, you should base your calculations on the least amount of money you expect to receive

Income Gross Income

- income before taxes are removed• Net Income

• Take home pay; money after taxes are removed

EX: Gross Wages $985.00Federal Tax $135.00State Tax $ 23.00Net Wages $827.00

Estimate Expenses Now that you figured

out how much you have, figure out how much you’ll need to spend

You may be able to estimate accurately, if not your three options are:

1. Use your records to reconstruct your spending patterns

2. Keep a record of all your expenditures for one month

3. Use average annual expenditures, which are yearly averages of how consumers spend their money

Types of Expenses Fixed Expenses

Those that you have already promised to pay on certain dates and in certain amounts

Rent or car payments Flexible Expenses

Those that vary in amount and usually in frequency

Clothing purchases or medical expenses

Plan for Savings The most important item in the personal

or family budget = SAVINGS 1. Short term savings – Emergency Fund

Short term goals ie: Prom, new CD player Money put aside for unexpected needs

2. Long Term Savings Savings with interest rates

IRA Savings Accounts Bonds

Record Keeping Systems Use a simple

system Drawer Filing Cabinet Special Box Envelopes

Computer programs

Revising A

Budget At the end of a budgeting period, you should

check to see if expenses and income balance If there is money left over…

What are you going to do with it? If the money didn’t stretch far enough…

What expenses can you reduce?

Immediate Adjustments – if income and expenditures aren’t balanced Increasing Income

Find additional part-time work

Ask for a raise with your current employer

Find a new job with a higher wage

Reduce Expenditures

Review your goals Make sure you your

spending fits priorities Look at both fixed and

flexible expenses and see where cuts can be made

Adjustments through Life Just as income changes during life, so

do financial plans. Many things can put a burden on your pocketbook. Having children Saving for a house/home maintenance Will savings be enough to retire? Care for aging parents Life experiences, such as, divorce, death of

a spouse, or disability

Budgeting Problems Use a calculator to

eliminate tedious hand computations

Round off figures to nearest dollar

Use a PC with easy-to-use software

Keep your budgeting materials handy

Choose a particular day of the month to do your budgeting

Reward yourself…always end by reviewing your progress

Common Budgeting Mistakes Not planning for

predictable expenses

Not being realistic in your estimates

Not being specific enough in setting up budget categories

Taking an Annual Inventory

Analyze your total financial situation Use a Balance Sheet

Statement of assets, liabilities, and resulting net worth

Assets = Items of value that you own. Liabilities = Debts…money that you owe Net Worth = The difference between assets and

liabilities. (This can be negative).

SEE FIGURE 6-5

Net Worth