the need for effective money management. basic economic problem zlimited financial resources and...
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The need for Effective Money Management
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Basic Economic Problem
Limited Financial resources and unlimited wants/needs
Applies to consumers, businesses and government
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Importance of Budgeting
A plan for saving and spending Helps achieve financial goalsWill help avoid credit card
problemsGood financial records must be
maintained.
Must be evaluated from time to time.
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Fixed Expense
Occur Regularly Same amount each time
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Variable Expenses
Differ each timeMay be a one time
bill/payment
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The Budgeting Process
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Set Financial Goals
1. Short-term and long-term 2. A balance sheet-or statement
of net worth Balancesheetexample.xlsCash flow statement (or income
statement) help in establishing goals.
3. The choice of lifestyle will affect the goals.
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Plan the Budget CategoriesThe cash flow statement can help establish
categories and allowances for each category. Fixed expenses- occur regularly at the same amount
ExampleVariable expenses- costs differ each time
Examples
• Savings are an essential category•Necessary for long-term goals. •Helpful for unexpected expenses such as medical
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Maintain Financial Records
A checking account will help in maintaining financial records
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Evaluate the Budget
Compare actual expenditures with budget allowances
Adjust the budget when necessary *Reasons: Change in family situationsChange in lifestyle choicesInflation, inaccurate budgeting estimates
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Characteristics of an Effective Budget
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Realistic
1. Should reflect current income.
2. Expenses should be reasonable according to income
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Flexible 1. The budget should allow for
unexpected expenses2. Savings are essential for
flexibility
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EVALUATE REGULARLY
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Planned & Communicated to all affected by the budget
- Budget should be written
- Written budget should be accessible
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SIMPLE FORMAT
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