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  • 60

    TermsBudget

    Expenses

    Fixed expenses

    Variable expenses

    Income

    Discretionary income

    3ObjectivesWhen you complete Chapter 3, you will be able to:

    Explain the purpose of a budget.

    Identify and calculate fixed and variable expenses.

    Calculate average monthly income and discretionary income.

    Create a monthly budget.

    Budgeting: Keeping Track of Your Money

    Chapter 3 Budgeting: Keeping Track of Your Money 61

    Your Financial IQ

    Before you read this chapter, answer the following questions to see how much you already know about budgeting.

    1. What is a budget?

    2. How do you think using a budget could help you manage your money?

    3. What does it mean to pay yourself fi rst when managing your money?

    4. How do you keep track of how much money you spend in a typical day?

    5. What is a fi xed expense?

    6. What is a variable expense?

    7. What is discretionary income?

    8. Is a budget necessary if you have a high income?

    9. What does it mean to have a surplus?

    10. What does it mean to have a defi cit?

    B f

    This sample chapter is for review purposes only. Copyright The Goodheart-Willcox Co., Inc. All rights reserved.

  • 62 Becoming Money $mart

    BudgetsIn Chapter 1, you learned some of the basics of fi nancial planning. The

    next step you will take toward your fi nancial plan is to create a budget. What is a budget? A budget is an estimate (usually by category) of expected income and expenses for a given period of time. A budget may be prepared for a week, a month, or a longer period, such as a year. A budget is a useful tool that can help you keep track of your money and spend wisely.

    In Chapter 1, you set short-term and long-term goals. These goals were based fi rst on your values, then on your needs and wants. These goals will help you as you create your budget. Go back to Chapter 1 and take a look at the goals you set. Review these goals before you move forward with the next section. Make sure these goals are appropriate for you so that you can use them to create your budget.

    Being Financially Responsible

    BudgetingA Checklist

    Do you ever wonder where your money goes? Do you get to the end of the week and fi nd that you no longer have any money to spend? It is important to keep track of money you have and what you spend to be fi nancially responsible.

    Yes No

    _____ _____ 1. Did I spend my weekly budget on needs?_____ _____ 2. Did I spend my weekly budget on wants?_____ _____ 3. Did I have money left over this week to put in savings?_____ _____ 4. Did I write down everything that I spent money on?_____ _____ 5. Did I resist buying something that I really didnt need?_____ _____ 6. Did I run out of money this week?_____ _____ 7. Did I have to borrow money to make it through the

    week?_____ _____ 8. Did I learn anything this week about my spending and

    savings habits?_____ _____ 9. Did I buy something this week that I regret?______ ______ 10. Was there something I really wanted to buy this week

    that I did not have enough money to buy?

    Chapter 3 Budgeting: Keeping Track of Your Money 63

    Check Your Understanding

    What is the purpose of a budget?

    ExpensesExpenses are amounts paid for goods or services. Do you pay for your

    school lunches? Your clothes? Your cell phone? Entertainment? These are examples of expenses.

    Expenses are categorized as either fi xed or variable. Fixed expenses are those that stay the same each month, such as amounts paid for school lunches or bus passes. Variable expenses are those that change from month to month, such as amounts paid for cell phones bills or spending for personal care items.

    As a teen, you probably do not have many expenses beyond those for your personal needs. However, as you graduate and go to college or your fi rst full-time job, you will fi nd there are a lot more expenses to consider. Items such as rent, utilities, groceries, and many other expenses will need to be tracked. Getting in the habit of tracking your spending now will help make it easier when your expenses are greater.

    Examples of fixed expenses for adults would be mortgage or rent payments and car payments.

    Having a cell phone is a variable expense that should be included in your budget each month.

    Shutterstock

  • 64 Becoming Money $mart

    Do you know where your money goes? If you are like many others, you spend it but do not always remember what you spent it for. If you want to build wealth and have a solid fi nancial plan, you must start paying attention to how you spend your money. The best way to start is to create a daily record of what you spend. If you track your spending for several weeks, you will get an idea of how much you should plan for expenses in your budget.

    Expenses can be fi xed or variable. Think about the expenses listed in the table below. Decide whether each expense would be fi xed or variable. Put an X in the appropriate column for each expense in the table.

    Expense Fixed Variable

    Cell phone

    DVD rentals

    Music downloads

    Gas for the car

    Car insurance

    Movie tickets

    School lunches

    Bus pass for school

    Gifts

    Clothes

    Eating out with friends

    Other entertainment

    Sports clothing/equipment

    Haircuts

    Monthly dues at local gym

    Give It a

    GoCategorizing Expenses

    Chapter 3 Budgeting: Keeping Track of Your Money 65

    Example 3-1To create a weekly spending record, write the amounts you spend for fi xed and variable expenses each day. Then total the amounts for each day and for the week. The weekly spending record for Carlos Acosta is shown below.

    Weekly Spending RecordCarlos Acosta

    For the week of September 10, 20--

    Amounts Spent

    Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Total

    Fixed Expenses

    School lunches

    $2.75 $2.75 $2.75 $2.75 $2.75 $13.75

    Bus fare to work

    1.35 1.35 $1.35 4.05

    Savings deposit

    20.00 20.00

    Total Fixed Expenses

    22.75 4.10 2.75 4.10 2.75 1.35 37.80

    Variable Expenses

    Birthday gift for sister

    5.50 5.50

    School music fee

    22.00 22.00

    New music CD

    8.95 8.95

    Lunch with friends

    11.45 11.45

    New T-shirt 7.29 7.29

    Total Variable Expenses

    8.95 5.50 22.00 11.45 7.29 55.19

    Total Expenses $22.75 $13.05 $8.25 $26.10 $14.20 $1.35 $7.29 $92.99

  • 66 Becoming Money $mart

    You Do the Math 3-1The weekly spending record for Carlos Acosta for the week ending September 17 is shown below. How much has Carlos spent for the week? Total the amounts for each day and for the week.

    Weekly Spending RecordCarlos Acosta

    For the week of September 17, 20--

    Amounts Spent

    Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Total

    Fixed Expenses

    School lunches

    $2.75 $2.75 $2.75 $2.75 $2.75

    Bus fare to work

    1.35 1.35 1.35

    Savings deposit

    15.00

    Total Fixed Expenses

    17.75 4.10 4.10 4.10 2.75

    Variable Expenses

    School workbook

    18.95

    New music CD

    10.85

    Lunch with friends

    10.00

    New clothes 35.49

    Total Variable Expenses

    18.95 10.85 10.00 35.49

    Total Expenses

    Check Your Understanding

    Are most of your expenses fi xed or variable? Give two examples of variable expenses that you may have during a month.

    Chapter 3 Budgeting: Keeping Track of Your Money 67

    It is important to keep track of how you spend your money. Record your expenses from last week in this chart. You will need to write the categories for your expenses. Then total the amounts for each day and for the week.

    Weekly Spending Record

    Name: _______________________________________________________________________________________

    For the Week Ending: _________________________________________________________________________

    Amounts Spent

    Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Total

    Fixed Expenses

    Variable Expenses

    Total Expenses

    Give It a

    GoTracking your Spending

  • 68 Becoming Money $mart

    IncomeIn planning a budget, an important step is to estimate what your income

    will be. Income is money you receive. Pay from a job, a birthday gift, and an allowance are examples of income. In the following examples, you will work with a monthly budget and monthly income amounts.

    Average Monthly IncomePay from a job is a major source of income for many people. Your net pay

    may not be the same every week or every month. If you have a part-time job, you may work a different number of days or hours each week. If you have a full-time job, you might sometimes be sick and not work a full week. To create a monthly budget, you will need to calculate your average monthly net pay. To fi nd average monthly net pay, divide the total net pay by the number of months.

    Total Net Pay Number of Months = Average Monthly Net Pay

    Example 3-2You receive weekly paychecks from your job. Your paychecks for three months were for the amounts shown below. What is your average monthly net pay for this time period?

    Month Net Pay Amounts Totals

    May $98.00

    75.50

    125.50

    145.50

    $444.00

    June 165.75

    190.60

    98.00

    201.35

    655.70

    July 125.50

    165.75

    98.00

    118.75

    508.00

    Total Net Pay $1,607.70

    Number of Months 3

    Average Monthly Net Pay $535.90

    Chapter 3 Budgeting: Keeping Track of Your Money 69

    You Do the Math 3-2You receive weekly paychecks from your job. Your paychecks for three months were for the amounts shown below. What is your average monthly net pay for this time period?

    Month Net Pay Amounts Totals

    May $108.00

    125.00

    79.00

    135.50

    _________

    June 122.50

    100.50

    135.75

    75.50

    _________

    July 98.00

    56.50

    126.75

    130.00

    _________

    Total Net Pay _________

    Number of Months _________

    Average Monthly Net Pay _________

    You may not have a regular weekly job during the school year. Thus, your income may vary and come from many different sources. After you have calculated your net pay, you can record your total income using a table similar to the one shown in Figure 3-1.

    As a teen, your income is probably not very high. However, after you graduate and have a career, your income should increase. Learning to manage your income now will help you as you make more money in the future.

  • 70 Becoming Money $mart

    Carlos kept track of his income for a month using this table.Figure 3-1

    Monthly IncomeCarlos Acosta

    For the Month of September, 20--

    Source Amount

    Pay

    Part-time job $368.42

    Babysitting 15.00

    Yard work for neighbors 45.00

    Allowance 40.00

    Gifts 25.00

    Total Income $493.42

    Review your income from last month and record the numbers in this chart. Write categories for your income in the fi rst column and amounts in the second column. Total the Amount column.

    Monthly Income

    Name:

    For the Month of:

    Source Amount

    Total Income $

    Give It a

    GoTracking your Income

    Chapter 3 Budgeting: Keeping Track of Your Money 71

    Discretionary IncomeAfter you total your expenses and subtract from your income, hopefully

    you will have money left over. This extra money is called discretionary income. Discretionary income is money that remains after you have paid for regular or needed expenses. This is money that you can put in savings or use for leisure or other activities. It is also called disposable income. If you do not track your income and expenses using a budget, you may fi nd that you have no discretionary income. To calculate discretionary income, subtract your total fi xed and variable expenses from your income.

    Income Fixed and Variable Expenses = Discretionary Income

    Example 3-3In Example 3-1, you learned how to calculate weekly expenses. In the fi rst example, the weekly expense total for Carlos Acosta was $92.99. Suppose Carlos spends this much every week. Will he have enough money to cover his expenses based on his September income as shown in Figure 3-1? What will be the amount of his discretionary income?

    Weekly spending $92.99Number of weeks 4Total monthly expenses $371.96

    Monthly income $493.42Monthly expenses 371.96Discretionary income $121.46

    You Do the Math 3-3In the You Do the Math 3-1 activity, you found the weekly expenses for Carlos. If Carlos spends this much every week, will he have enough money to cover his expenses based on his September income as shown in Figure 3-1? What will be the amount of his discretionary income?

    Weekly spending _________

    Number of weeks _________

    Total monthly expenses _________

    Monthly income _________

    Monthly expenses _________

    Discretionary income _________

    Money that remains after expenses are paid is also referred to as a surplus. When there is not enough income to pay all expenses, this is called a deficit. You may recognize the terms surplus and deficit from when government spending is discussed on TV.

  • 72 Becoming Money $mart

    Creating a BudgetAfter you have tracked your spending for a few weeks, you will see a pattern.

    This pattern of spending will help you decide how much you need for movies, lunch, and other items that you purchase during the week. Once you have an idea of how much you need for specifi c items, you are ready to create your budget. A budget will remind you how much you want to spend each week.

    To create a budget: Select a time period for the budget, such as one month. List the amounts of income for the period and total them. List the fi xed and variable expenses for the time period and total them. Subtract the total expenses from the total income to fi nd discretionary income. If the discretionary income amount is a negative number, reduce expenses.

    Remember that as your income and expenses change, so will your budget. A budget is a working document. You will want to review it often. There is no set format for a budget. The one in Figure 3-2 shows a budget for a typical teen.

    1. Using your information for income and expenses, create a budget for one month. Use a spreadsheet program (or write the information on paper if you do not have access to a spreadsheet). Refer to Figure 3-2 for the column headings, labels, and types of information you should enter.

    2. Save the budget fi le on the hard drive or other storage as directed by your teacher. Use a unique name for your fi le. For example, if your name is Chad Parker, save the fi le as C Parker Nov Budget. Each month you will be able to update the budget amounts as needed.

    Give It a

    GoCreating a Budget

    Now that you have completed your budget, you have taken a big step in planning for your future. By keeping track of your income and planning what you will spend, you will have some control over your fi nances.

    Have you heard the saying pay yourself fi rst? This saying means that you should budget for savings before you budget for spending. If you do not plan to save money in your budget, you probably will not have money left over to save. Follow the tips in Figure 3-3 to help you stick with your budget.

    Chapter 3 Budgeting: Keeping Track of Your Money 73

    Budget for Carlos AcostaFigure 3-2

    Carlos AcostaBudget

    For the Month of June, 20--

    Income

    Pay from part-time job $268.42

    Babysitting 25.00

    Yard work for neighbors 50.00

    Allowance 30.00

    Gifts 25.00

    Total Income $398.42

    Expenses

    Fixed Expenses

    Savings 100.00

    Bus fare to work 16.20

    School lunches 55.00

    Total Fixed Expenses 171.20

    Variable Expenses

    Miscellaneous 40.00

    School fees 18.00

    Entertainment 40.00

    Clothing 50.00

    Eating out with friends 45.00

    Total Variable Expenses 193.00

    Total Expenses 364.20

    Discretionary Income $34.22

    Check Yo ur Understanding

    Wh...