what is budgeting? incomeexpensessavings. what is income? where does it come from? what are some...
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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
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
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