Money MattersMoney Mattersclass 2class 2

What is a Budget?What is a Budget?

A budget is an A budget is an

estimate of expected income and estimate of expected income and expenses for a given period in the expenses for a given period in the futurefuture

Why Prepare a Budget?Why Prepare a Budget?

A budget is a A budget is a tooltool to help you understand to help you understand where your money goes.where your money goes.

A budget allows A budget allows youyou to decide how much to decide how much and when you spend your income.and when you spend your income.

A budget allows you to make and reach A budget allows you to make and reach your financial your financial goalsgoals..

A budget is the cornerstone of a solid A budget is the cornerstone of a solid financial future. financial future.

““Budgets are all about financial freedom. Budgets are all about financial freedom. Without a plan for saving and spending, Without a plan for saving and spending, you’ll never make the most of your income you’ll never make the most of your income – no matter how much money you earn.– no matter how much money you earn.

““Budgets are very empowering”Budgets are very empowering”

““Budgets create financial security”Budgets create financial security”

““They don’t lead you away from something, They don’t lead you away from something, they lead you toward your financial goals” they lead you toward your financial goals”

Tools for Making a Budget Tools for Making a Budget

Option 1 - Pencil, Paper and calculatorOption 1 - Pencil, Paper and calculator

Option 2 - Spreadsheet SoftwareOption 2 - Spreadsheet Software Microsoft Excel, i Work NumbersMicrosoft Excel, i Work Numbers

Option 3 - Money Management SoftwareOption 3 - Money Management Software QuickenQuicken

Option 4 - Spending Management Software OnlineOption 4 - Spending Management Software Online YNAB – You Need A BudgetYNAB – You Need A Budget Mint.comMint.com

BUDGETBUDGET

What do I need to prepare a budget?What do I need to prepare a budget? List of incomeList of income List of expenses, including debt paymentsList of expenses, including debt payments

Types of ExpensesTypes of Expenses

Fixed Expenses:Fixed Expenses:remain the same each monthremain the same each month

Variable Expenses:Variable Expenses: vary from month to monthvary from month to month

Periodic Expense: Periodic Expense: Occur only once or twice a yearOccur only once or twice a year

Fixed Expenses (amount stays the same each

month)

Actual Expense

Notes

Rent/Mortgage    

Homeowner's / Renter's Insurance    

Car Payment    

Car Insurance    

Loan #1    

Child Support    

Day Care    

Cable TV    

Internet    

Total Fixed Expenses    

Variable Expenses Budgeted Expense Actual Expense

Credit Card  

Electric  

Gas  

Telephone  

Cell Phone  

Water / Sewer  

Groceries (Food Only)  

Eating out  

Household / Misc  

Tobacco / Alcohol  

Gasoline  

Bus / Parking  

Laundromat / Dry Cleaning  

Barber/Beauty Shop  

Newspapers / Magazines  

Allowance/Spending Money  

Recreation  

Pet Expenses  

Church/Charity  

Postage  

   

Total Variable Expenses  

Monthly ExpensesMonthly Expenses

Include those items that are paid Include those items that are paid periodicallyperiodically

Annual Car Tag Annual Car Tag - $144 / 12 = $12 per month- $144 / 12 = $12 per month

Quarterly Pest ControlQuarterly Pest Control - $90 / 3 = $30 per month- $90 / 3 = $30 per month

Periodic ExpenseBudgeted Expense Actual Expense

Car Repair/Maintenance  

Car Tag/Inspection  

Doctor/Dentist  

Medications/Prescriptions  

Clothing/Shoes  

Home Repair/Maintenance  

Gifts  

   

Total Periodic Expenses  

   

Total Monthly Income (+)  

Total Monthly Expense (-)  

Total Extra/ Shortfall (=)  

Creating a BudgetCreating a Budget

1.1. Identify your Identify your net monthly incomenet monthly income

2.2. Identify your Identify your monthly expensesmonthly expenses

3.3. Monthly Income – Monthly Expenses =Monthly Income – Monthly Expenses = Income greater than expenses – savings $Income greater than expenses – savings $ Expenses greater than income – debtExpenses greater than income – debt

4.4. Balance your Budget!Balance your Budget!

Things to Keep in MindThings to Keep in Mind

1.1. Your budget should be tailored to YOUR Your budget should be tailored to YOUR needs and goalsneeds and goals

2.2. Be realisticBe realistic

3.3. Save for the unexpected. It can and will Save for the unexpected. It can and will happenhappen

4.4. Involve the entire familyInvolve the entire family

5.5. Keep it simpleKeep it simple

6.6. Don’t panic if your expenses exceed your Don’t panic if your expenses exceed your incomeincome

Evaluate and Reduce SpendingEvaluate and Reduce Spending

1.1. Is this expense absolutely necessary?Is this expense absolutely necessary?

2.2. If not, can we do without it? If not, can we do without it? • Is it a want or a need?Is it a want or a need?

3.3. If not, can you substantially reduce your If not, can you substantially reduce your spending?spending?

MONEY WORRIES...Make a Budget and Stick to IT!

Budget BombsBudget Bombs

Cut out all the fun stuffCut out all the fun stuff Be hit or miss with savingsBe hit or miss with savings Overuse debit cardOveruse debit card Pay only the minimums on cardsPay only the minimums on cards Live without emergency savingsLive without emergency savings Spend more than you earnSpend more than you earn

Envelope SystemEnvelope System

1.1. Budget each paycheckBudget each paycheck2.2. Determine which categories you will pay in Determine which categories you will pay in

cashcash3.3. Fill’er UpFill’er Up4.4. Pay with cash and keep receiptsPay with cash and keep receipts5.5. When it’s gone, it’s goneWhen it’s gone, it’s gone6.6. Don’t be tempted by debit cardsDon’t be tempted by debit cards7.7. Give it time Give it time 8.8. Have some FUN!Have some FUN!

Setting Financial GoalsSetting Financial Goals

People don’t plan to fail, they fail to planPeople don’t plan to fail, they fail to plan

People with a financial plan tend to:People with a financial plan tend to:$ save more moneysave more money$ feel better about their progressfeel better about their progress$ make better financial decisions, make better financial decisions,

regardless of their income level.regardless of their income level.

Goal setting should be a family affairGoal setting should be a family affair

Short-term Goals (2 years or less)Short-term Goals (2 years or less)

Mid-term Goals (within 2-5 years)Mid-term Goals (within 2-5 years)

Long-term Goals (5 years or more)Long-term Goals (5 years or more)

Goal setting is a terrific motivator!Goal setting is a terrific motivator!

ExamplesExamples

Build an Emergency FundBuild an Emergency Fund Get your debt under controlGet your debt under control Save for a down payment on a car or Save for a down payment on a car or

homehome Save for retirementSave for retirement Save for something important to you or Save for something important to you or

your familyyour family

Establishing an Emergency FundEstablishing an Emergency Fund

11stst goal of every family should be to establish goal of every family should be to establish an emergency fundan emergency fund

3-6 months expenses3-6 months expenses The basics are rent (mortgage), heat, lights, The basics are rent (mortgage), heat, lights,

phone, food and transportation to workphone, food and transportation to work Save each month until you reach your goalSave each month until you reach your goal Keep the money in a safe easily available Keep the money in a safe easily available

accountaccount Leave your emergency fund aloneLeave your emergency fund alone

SMARTSMART

SSpecific – pecific – what you want to achieve and whywhat you want to achieve and why

MMeasurable – easurable – how much money will you need to how much money will you need to save each monthsave each month

AAttainable – ttainable – when you want to achieve the goalwhen you want to achieve the goal

RRealistic – ealistic – it can be achieved with the time and it can be achieved with the time and money availablemoney available

TTrackable – rackable – specific time framespecific time frame

GOAL TYPE TIME AMOUNTAMOUNT EACH Month

Emergency Fund Mid-term 2 years $2500.00 $104.00

Christmas Gifts Short-term 12 months $600.00 $50.00

Down Payment on a house Long-term 5 years $12,000.00 $200.00

Money Habits of MillionairesMoney Habits of Millionaires

1.1. Millionaires buy used cars.Millionaires buy used cars.2.2. Millionaires make their kids take out loansMillionaires make their kids take out loans3.3. Millionaires do not see themselves as richMillionaires do not see themselves as rich4.4. Millionaires do not all own vacation homes Millionaires do not all own vacation homes 5.5. Millionaires tend to love what they doMillionaires tend to love what they do6.6. Millionaires believe in delayed gratificationMillionaires believe in delayed gratification7.7. Millionaires track their moneyMillionaires track their money8.8. Millionaires don’t need to flaunt their wealthMillionaires don’t need to flaunt their wealth9.9. Millionaires shop with a listMillionaires shop with a list

Budget ExampleBudget Example

Monthly Income $

Monthly Expenses  

Rent $  

Savings $  

Car Payment $  

Utilities $  

Phone $  

Food $  

Fun $  

Clothes $  

Miscellaneous $  

Total Expenses $

Savings PlanSavings Plan

SAVE, SAVE, SAVESAVE, SAVE, SAVE

Start now no matter how small your savingsStart now no matter how small your savings Pay yourself first, use automatic deductionsPay yourself first, use automatic deductions Put your savings into a separate account that Put your savings into a separate account that

does not have ATM accessdoes not have ATM access Put any pay raises, bonuses or tax refunds into Put any pay raises, bonuses or tax refunds into

savings after you complete your emergency savings after you complete your emergency fund. fund.

Simple InterestSimple Interest

Interest RateInterest Rate - the stated rate of interest paid each year - the stated rate of interest paid each year

$1,000 x 6% (.06) = $60 per year$1,000 x 6% (.06) = $60 per year

Value after 12 years = 1,720Value after 12 years = 1,720

$1,000$1,000 principalprincipal$ 720$ 720 interest earned ($60 x 12 years)interest earned ($60 x 12 years)$1,720$1,720

Compound InterestCompound Interest

APYAPY(Annual percentage yield) (Annual percentage yield)

takes into accounttakes into account

the compoundingthe compounding

effect of interesteffect of interest

YEAR $1,000.00 x 6% = $ 60.00

1 $1,060.00 x 6% = $ 63.60

2 $1,123.60 x 6% = $ 67.42

3 $1,191.02 x 6% = $ 71.46

4 $1,262.48 x 6% = $ 75.75

5 $1,338.23 x 6% = $ 80.29

6 $1,418.52 x 6% = $ 85.11

7 $1,503.63 x 6% = $ 90.22

8 $1,593.85 x 6% = $ 95.63

9 $1,689.48 x 6% = $ 101.37

10 $1,790.85 x 6% = $ 107.45

11 $1,898.30 x 6% = $ 113.90

12 $2,012.20

The Rule of 72 – calculate how many years The Rule of 72 – calculate how many years it will take for compounding to double your it will take for compounding to double your money at a specified interest rate.money at a specified interest rate.

72 / interest rate = years to 72 / interest rate = years to

double your moneydouble your money

For example, let’s say you have $1,000 and For example, let’s say you have $1,000 and you want to know how long it will take to you want to know how long it will take to double your money @ 6% interest per double your money @ 6% interest per year.year.

72 / 6 = 12 years 72 / 6 = 12 years $2,000$2,000

If you deposited an additional $100 per year If you deposited an additional $100 per year into your account you would reach $2,000 into your account you would reach $2,000 in just 6 years!in just 6 years!

The magic of compounding interest is that The magic of compounding interest is that you earn interest not only on the principal, you earn interest not only on the principal,

but also on the interest you accumulate but also on the interest you accumulate each year.each year.

The Value of TimeThe Value of Time

Many people struggle to get from one paycheck to Many people struggle to get from one paycheck to the next, but not saving now will hurt you later.the next, but not saving now will hurt you later.

$50 per month in a retirement account at 5% $50 per month in a retirement account at 5% interest will be worthinterest will be worth

$21,000 in 20 years$21,000 in 20 years $42,000 in 30 years$42,000 in 30 years $76,000 in 40 years$76,000 in 40 years