Unit 1: Budgeting The Ins and Outs of

BudgetingMr. Elsesser

Introduction toFinancial Management

DO NOW:BRAINSTORM:

Answer this question…What kinds of restraints can impact a budget?

Budget FactorsOnce you establish your budget plan, it is essential for you to consider the obstacles that block your path. The following factors can impact your budget:

Limited Resources One-time Annual Expenses Needs vs. Wants Opportunity Cost Managing your Income against Fixed

and Variable Expenses

Examining Budgeting Factors…Limited Resources

How will you use your: Income Summer income and personal savings Childhood gift money Money left to you by a deceased relative

Should you use this money to achieve a short or long term goals?

Budgeting for One-Time Annual Expenses Monthly budgets should account for all annual

expenses. Even though you only make one payment a year, make

paying this bill easier on yourself by dividing the cost by 12 months or 52 weeks. Car insurance that costs $600 every 6 months can cost you

$25 a week!

Examining Budgeting Factors…Prioritize Needs and Wants

We want, we want, we want. WE NEED THIS TO LIVE LIFE!!!

Prioritize needs over wants! Develop a SPENDING PLAN:

Plan that specifies how you can obtain the things you need and want without breaking the bank! Example: Mr. E’s Authentic Chairs from

Yankee Stadium

Examining Budgeting Factors…Opportunity Cost

A possibility you give up when you make one choice over another.

Also known as a TRADE-OFF. Make sure that you weigh your alternatives

using a financial lens. ASK: How will this impact my monthly

budget???

Examining Budgeting Factors…

Analyzing Your Income over your Fixed and Variable Expenses:

Personal Income: Money that is earned or received by a single

individual. (Does not always have to be job related).

Personal Income should not exceed your Fixed and Variable expenses.

Fixed Expense: You need a car, but does it NEED to be brand new? Do you have to live in a water view apartment?

Variable Expense: Finding yourself with no spending money? Don’t eat out every night! Buy store brand goods. Rent a movie instead of going to one.

DO NOW:BRAINSTORM on BALANCING BUDGETS:

Answer this question…Identify as many factors as possible that could make it difficult for your to keep your monthly budget in balance.

Balancing Your BudgetTo keep your budget in balance, you need to practice the 3 R’s!

Reality: Assess your present situation (income and expenses).

There is only a limited amount of money to use. Prioritize your goals!

Responsibility: Once you spend money it is gone. Make smart decisions.

Be sure you can cover all your expenses. Don’t accrue debt.

Restraint: Managing money requires self-control. When you want

something—ask yourself how badly you want it? Is it a need or want? What is something bigger you can get if you give this up?

Do not be an impulse buyer. Use a shopping list!

Evaluating Your BudgetBudgets need constant evaluation. Here are some things to watch for:

What is your DISPOSABLE INCOME? Money remaining in your pay check after

taxes/deductions. What you have to spend, pay bills, or save.

Do you have a SURPLUS? Occurs when expense are less than income taken in.

Also known as DISCRETIONARY INCOME? Money that is left over for spending (luxuries), investing

or saving after fixed expenses and personal necessities are paid.

What are your options for this money? Buy stuff Put it in savings Invest

Evaluating Your BudgetBudgets need constant evaluation. Here are some things to watch for:

Do you have a DEFICIT? Occurs when expenses exceed income. Can occur when you overspend on a variable expense.

WHAT CAN YOU DO TO FIX THIS??? Borrow from savings. (should make an effort to

pay back) Adjust spending in another variable category

of budget. Readjust your strategies in saving to achieve

your short, intermediate, or long term goals. Call The National Bank of Mom and Dad (just kidding)

Purchasing StrategiesMaximize your Money! Be Smart! Don’t experience a deficit!

Comparison Shopping: The practice of comparing the price of products or services

from different vendors before buying.

Negotiation: Conferring with others to come to terms or reach an

agreement to buy/sell at a price below what is listed.

Coupons: A certificate accompanying a product that may be redeemed

for a cash discount.

Catalog Shopping: A list of items for sale. Can sometimes be less expensive

then buying at a physical store.

Internet Shopping: Buying or selling products or services over the Internet. Will

almost always be a cheaper method of acquisition.

Other Items for ConsiderationUnderstanding the Influence of Advertising and Peer Pressure on Spending.

Teens typically spend without thinking about the future. Usually no logic in decisions—they have money—they spend! Let advertisers take control of their emotions and self-doubts. Help advertisers promote through their use of social media.

Strategies to Achieve Short, Intermediate and Long-Term goals:

Treat these goals like monthly fixed bills. Pay yourself an allotment of whatever you feel you can afford.

If you cannot make payments one month due to other expenses, put what you can, if anything. towards your goal(s). You can always make it up next month.

Remember the 3 R’s!

DO NOW:BRAINSTORM:

Answer this question…What do you think the importance is of having an “emergency fund?”

What are the possible ramifications if you do not have one of these when emergency situations arise?

Guidelines to an Emergency FundEstablishing an emergency fund can be a lifesaver for your budget during times of crisis in your life. EMERGENCY FUND:Money set aside for emergency expenses.

Create this by: “Pay Yourself First”:

Routing a specified amount of money to a savings/investment account at the time your paycheck is received. Ensures you incorporate savings in your budget.

Guidelines to an Emergency FundYour emergency fund must have:

3 – 6 months of income Increases to 1 year fund as life responsibilities increase Ex: Buying a home, starting a family, etc.

Establish an emergency fund before starting to invest. Emergency funds are LIQUID.

They are cash savings accounts.

These funds protect you against unforeseen circumstances:

Ex: Unemployment, inflation, acts of God, etc.