CHAPTER 6 BUDGETING How Will You Use Your Money? · ECONOMIC EDUCATION FOR CONSUMERS Chapter 6 Create Your Budget Worksheet ... Steps in Preparing Your Budget Worksheet Step 1:

ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6

WHAT’S AHEAD

6.1 Choose Financial Goals

6.2 Track Income and Expenses

6.3 Your Budget Worksheet

6.4 Create Your Budget for the Year


LESSON 6.1

Choose Financial Goals

GOALS►Identify your financial goals.

►Explain how your goals might affect your family and

community.

© 2010 South-Western, Cengage LearningSlide 2


KEY TERM

budget



Types of Financial Goals►Budget

►A plan for dividing income among spending and saving

options.

►Short-term financial goals

►Something you hope to achieve within a year

►Long-term financial goals

►Something you hope to achieve over a period of years

►Balancing short-term spending with long-term success

► If a person’s short-term goals do not contribute to his/her long-term

goals, it is unlikely that these goals will ever be achieved.



Your Goals Affect Others►Your family and your goals

►Your current family

► College expenses – parent loans

►Your future family

► Spouse, kids

►Your community and your goals



LESSON 6.2

Track Income and Expenses

GOALS►Describe how to set up an effective filing system for

your records.

►Explain the difference between fixed and flexible

spending.



KEY TERMS

fixed expense

flexible/variable expense

luxury good



Keep Financial Records►Track your income

►Track your spending

►Establish a filing system

►A good filing system needs to be comprehensive, easy to

use, and easy to maintain.

►Effective record keeping

►How to use financial records



Fixed and Flexible Expenses►Fixed expenses: amounts you are committed to spend

► Must be paid and therefore must be included in a spending plan

► Example: mortgage, property taxes, insurance

►Flexible/ Variable expenses: amounts that you can choose

to spend or not to spend

► Flexible expenses may be important, although not required, and

should be included in a spending plan, but not to the extent that they

prevent payment of a fixed expense.

► Example: clothes, entertainment



Fixed or flexible/variable expenses?►Monthly mortgage

►Car insurance

►Cable bill

►Movies

►Jeans

►Cell phone bill

►Electric bill



Luxury Goods►Luxury goods: goods that have special qualities that

make them more expensive than alternative goods.

►Example: A new sports car is much more expensive than

a used compact car.



LESSON 6.3

Your Budget Worksheet

GOALS►Identify steps you should take to create a budget

worksheet.

►Explain common problems with budgeting.



KEY TERM

budget worksheet



Create Your Budget Worksheet►Budget Worksheet: a planning document on which

you record your expected and actual income and

spending over a short time.

►Purpose is to compare how you think you spend your

income with how you actually spend it.

►Maintaining an accurate and complete record of

income and spending will enable an individual to

construct an appropriate one-month budget

worksheet.



Steps in Preparing Your Budget

Worksheet►Step 1: Create a worksheet

►Step 2: Estimate your income

►Step 3: Estimate your expenses and savings

►Step 4: Record your actual income and expenses

►Step 5: Calculate the differences



Step 1: Create a Worksheet►List your sources of income and categories of spending

and savings.

►Personalize your worksheet by adding other categories.

►Add the amounts you expect to receive, spend, or save

during a month.

►Record the amounts you actually receive, spend, and

save.

►Calculate the difference.





Step 2: Estimate Your Income►Estimate income that occurs in the same amounts and

at regular times throughout the year.

►Be sure to use your net income from your paycheck

stubs – the income you bring home.

►Estimate Uneven Income

►Income may not be the same every month.

►Example: Servers/Tips, Part-Time, Bonus pay

►Be sure the Income is Real

►Think of all sources of income during the year.

►You can’t spend or save what you don’t have.



Step 3: Estimate

Your Expenses and Savings►Look in your records for your fixed and flexible

expenses.

►Plan for Uneven Expenses:

►Expenses can occur unevenly throughout the year.

►Many expenses are paid only once or twice a year.

►Example: Car Insurance, Property Taxes

►Charitable Giving

►Plan your savings

►Savings needs to be planned – it should not just be the

“left over” money.



Step 4: Record Your Actual

Income and Expenses►As you receive income and make purchases each

month, file your records in your filing system

►At the end of the month, get out your records and your

budget, and then record your actual income, expenses,

and savings.



Step 5: Calculate the Differences►Subtract the expected amount from the actual amount

in each row and record the difference.

►Positive numbers means that you spent or received

income more than you expected in that category.

►Negative number means that you spent or received

less than expected in that category.



Monthly Budget Example► Joan created and implemented a monthly budget worksheet for herself.

► Calculate monthly income, expenses, and savings for a 4-week period.

► Total Monthly Income: ________________________

► Total Monthly Expenses: _______________________

► Money left over for Savings: _____________________© 2010 South-Western, Cengage LearningSlide 22

Income

Paycheck (net) $175/week

Expenses

Eating out $50/week

Birthday gifts $75/month

Movies $20/week

Clothes $100/month

Personal care items $30/month

Savings ?/month


Budget Pitfalls►Few consumers have realistic budgets.

►Some people get too specific.

►Some people don’t predict the correct amount of their

flexible expenses.

►Some people lump too many expenses under

miscellaneous.

►Some people give up on budgets because they think

budgets take too much time and effort.



LESSON 6.4

Create Your Budget for the Year

GOALS►Evaluate and adjust your budget worksheet.

►Explain why consumers should create and update

yearly budgets.



KEY TERM

audit



Evaluate Your Budget Worksheet►Adjust your spending

►If your spending exceeds estimates, you can either adjust

your spending estimates or change your spending habits.

►You should choose whichever option best meets your

long-term goals.

►Make several plans

►Completing several budget worksheets will show how

various spending and saving options and allows you to

select the one that works best for you.



Budgeting for the Year►Review and adjust your budget

►Relate your goals to your budget

►Adjust to changing goals

► Complete a budget audit

► Audit: A type of review in which a budget is check both for

accuracy and to determining whether it is helping to achieve

goals.

►Family budget

►Planning together

►Compromising

►The budget cycle© 2010 South-Western, Cengage LearningSlide 27


Sample Family Budget

Slide 28 © 2010 South-Western, Cengage Learning

Home 44.0%

Clothes 13.7%

Savings 5.0%

Entertainment 5.2%

Food 9.8%Utilities 9.5%

Car 12.8%

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CHAPTER 6 BUDGETING How Will You Use Your Money? · ECONOMIC EDUCATION FOR CONSUMERS Chapter 6 Create Your Budget Worksheet ... Steps in Preparing Your Budget Worksheet Step 1: