Building Your Own Budget  Where will you be next year? (college or working) ______________  If working, how much do you think you’ll make a year? ________________ A month? ___________  If college, will you work too? __________  If yes, how much money will you make a year?___________  If no, what will you do when you graduate college?________________  What is the starting salary for that profession? _____________

Building a bug Over the last few days, we have looked at multiple aspects of economics—particularly microeconomics, including: ◦ Loans, credit, and mortgages ◦ Savings and investments ◦ Spending and risk ◦ Debt Over the few days, you will use all this knowledge to create a working budget for yourself next year OR for when you graduate from college.

What is a Budget? A Budget is simply a plan for spending money Balanced Budget: when the amount of planned spending = the amount of planned earning Budget deficit: when planned spending exceed planned earning Budget Surplus: when planned earning exceeds planned spending In order to create a budget, you must first determine the amount of money you plan on bringing in (salary). Second, you must consider everything you spend your money on...in other words, answering the important question: WHERE DOES THE MONEY GO?

Build Your Own Budget Step 1: Determine your monthly income INCLUDING TAXES Step 2: Determine all the different ways you spend your money and divide into categories Step 3: Determine how much you spend a week in each category and calculate a monthly expense (multiply weekly expenses by 4) Step 4: Match your monthly income to your monthly expenses and see where you need to cut and where you can save.

What You Will Turn In At the end of the next three days, you will turn in a complete budget in an Excel Spreadsheet or WORD spreadsheet. ◦ It should have a column for “Spending/Earning Category,” one for “Amount Spent per Month,” “Amount Earned per Month” ◦ You may use the template that can be found on my website. In addition, any website print outs that you think assisted you in your determination of your expenses (for instance, the place you would rent or a sample grocery bill), you can attach to your budget. The goal here is for you to consider all the different aspects of personal finance you have learned and apply it to yourself.

Step 1: Determine Your Monthly Income Find the average annual salary for your career choice and subtract the tax percentage you qualify for (see Tax Brackets) Take the figure and divide it by 12, this will give you your monthly income. You want to also determine health care—does your job provide health care? At what cost to you? You will need to make note of this in your budget. ◦ If your job does provide health care, assume a premium of $2500/year; if not, assume a premium of $3500/year ◦ Also, consider copayments: $20 for doctor’s visit, $50 for emergency room. ◦ Most health care does not cover dental so you need to consider a dentist is about $200 for a cleaning/visit/xrays… more for procedures ◦ Prescriptions are sometimes covered. Figure if your job covers your insurance, you get prescriptions; if it doesn’t, you won’t. Therefore its between $5-60 per prescription

Marginal Tax Rate Single--Income 10%$0 – $8,700 15%$8,700 - $35,350 25%$35,350 – $85,650 28%$85,650 - $178,650 33%$178,650 – 388,350 35%$388,350+ Tax Brackets: 2012 Federal Income Tax

WHAT WILL THE TAX BRACKET LOOK LIKE IN 2013? WELL, WE’RE NOT QUITE SURE YET…. -federal-income-tax-brackets-and-marginal-rates/

State Taxes too! If the New York taxable income is: Not over $8,000 Over $8,000 but not over $11,000 Over $11,000 but not over $13,000 Over $13,000 but not over $20,000 Over $20,000 but not over $75,000 Over $75,000 but not over $200,000 Over $200,000 but not over $1,000,000 Over $1,000,000 The tax is: 4% of the New York taxable income $320 plus 4.5% of excess over $8,000 $455 plus 5.25% of excess over $11,000 $560 plus 5.9% of excess over $13,000 $973 plus 6.45% of excess over $20,000 $4,521 plus 6.65% of excess over $75,000 $12,833 plus 6.85% of excess over $200,000 $67,633 plus 8.82% of excess over $1,000,000

Step 2: Determine Your Spending Categories Your spending categories will include all your spending, from rent to groceries to movies. Do some real thinking…think about where you will spend your money when you get out of college…think about where you spend your money now (its pretty similar…) Divide these sub-categories into larger categories, such as: ◦ Food ◦ Transportation ◦ Entertainment ◦ Personal Care ◦ Utilities ◦ Savings ◦ Investing ◦ Medical/Dental ◦ Donations

Step 3: Determine Monthly Spending/Category For each sub-category, research online and determine how much you will probably spent per month For food, use Wegman’s prices; go to wegmans.com and create a shopping list for a typical week. For Rent, you can choose where you’d want to live and find an actual place. Zwillow.com or craiglist.org can be a useful websites For Utilities, you must consider whether or not heat/hot water is included ◦ Heat included: between $60-80/month ◦ Heat not inc: between $ /month For entertainment, look at the appropriate websites in order to determine monthly expenses. Think of how much it costs per visit or purchase and how many times you plan to visit or purchase each month

Step 4: Match Spending and Income Now its time to review your current estimated budget and revamp it in relation to your current estimated income. To do this, add up all the categories together to determine your Total Spending per Month. Then, compare this figure to your Total Monthly Income. If Total Spending is more than Total Income, you’ll need to go back and cut…and remember, you need to SAVE SAVE SAVE!

Step 5: Savings and Investing You want to be sure that you have a savings account and have designated money to enter that account MONTHLY. You also want to decide if you want to invest and WHAT you want to invest in. ◦ Look at the resource packet you created ◦ Decide the level of risk you want to take with your money ◦ How much money are you willing to invest-- -will it be consistent? A one time thing? Simple? ◦ You must be specific in the amount and type of investment you plan on making.

Sample Budget CategoriesAmount Spent per MonthAmount Earned per Month Income--$1200 RGE$50-- Food Shopping$600-- Cell phone Cable/internet transportation Savings Choose Investments TotalTotal upTotal Up Once you’re done, make sure that: a)That you have at LEAST 10 categories b)Your spending, investing, and saving is = to your earnings c) Make sure that you have at least some money going into a savings account.