Budgeting Techniques

Key TermsBudget

Fixed Expenses

Allowance

Budget Variance

What Is A Budget?

A budget allows you to meet your personal goals with a system of saving and wise spending

The Main Purposes of a Budget

Live Within Your Income Achieve Your Financial

Goals Buy Wisely Avoid Credit Problems Plan For Financial

Emergencies Develop Good Money

Management Skills

Different Budgets For Different People

Paper and Pencil

Software Programs (Quicken)

General Ledger

Customize to Fit Your Lifestyle

The Four Step Budget Process

Setting Financial Goals Planning Budget

Categories Maintaining Financial

Records Evaluating Your Budget

Setting Financial Goals

Financial goals help you decide where you would like to be financially and develop your budget accordingly

Identify Short-Term Goals

Car

Identify Long-Term Goals

College / Institution of Higher Learning

Gross Income vs. Net Income

Net Income (Take Home Pay) the amount received after taxes and other deductions have

been subtracted from your total earnings

Gross Income the actual amount of income received before any taxes are

subtracted from your total earnings

Fixed Expenses

Costs that occur regularly and are for the same amount each time Rent / Mortgage Payments

Insurance Premiums

Car Loan Payments

Utility Bills

Variable Expenses

Living costs involving differing amounts each time and are usually more difficult to estimate than fixed costs Food

Clothing

Utilities

Medical Expenses

Planning Budget Categories

Savings Amount set aside for future goals or emergencies

ALWAYS SAVE 10% OF YOUR NET PAY

Planning Budget Categories

Allowance The amount of money you plan to use

for a certain budget category

$1,120 Home Mortgage Payment$400 Car Payment$200 Diapers / Formula$105 Digital Cable$150 Vehicle Gas Expense

Planning Budget Categories Savings

savings accounts, government bonds, stocks, and other investments Food

eating out / grocery shopping Clothing

shoes, dry cleaning, sewing supplies and repairs Household

rent, mortgage payments, taxes, insurance, gas, electricity, telephone, household supplies

Transportation automobile payments, insurance, automobile upkeep and operating costs, auto and

drivers’ licenses Health and Personal Care

medical and dental expenses, medications, eyeglasses, hospital expenses, children’s allowances

Recreation and Education books, magazines, newspapers, concerts, vacations, school expenses, hobbies,

radio, television, computer software, club dues Gifts and Contributions

donations to church, personal gifts

How Much Should I Set Aside For Each Category?

What is your income

What is your family size

What are the ages of your children

What is the current cost of living in your area

What are your work related expenses

What are your Goals (Short and Long Term)

Evaluating Your Budget

Budget Variance The difference between the actual spending category and

the budgeted amounts category

Deficit

occurs when actual spending is greater than planned spending

Surplus

occurs when actual spending is less than planned spending

Evaluating Your Budget

A variance in the actual amount spent and the budgeted amount does not automatically mean a change in your spending plan is necessary

Your budgeted amount may still be appropriate with a slight deficit or surplus occurring every couple of months in certain categories

**CAR EXPENSES

**HOME EXPENSES

Characteristics Of A Successful Budget

Must Be Realistic—it should reflect your current income and planned spending

Should Be Flexible—when unexpected expenses arise, your spending plan should be able to handle these living costs

Should Be Evaluated Regularly—every few months, an individual or family should evaluate the budget to determine if it still is appropriate

Characteristics Of A Successful Budget

Planned and Clearly Communicated All members of a family should discuss financial

goals, wants and needs, and plans for spending. In addition, the best spending plan should be written so that all affected by it can review its components

Should Be Simple If it is too detailed and difficult to understand,

family members may not be willing to use the spending plan

Review Questions

What percent should you plan to save?

What category do you take savings from?

The amount budgeted for savings and other expenditures is called?

What is a budget deficit?