Planning a Budget CHAPTER 28 MRS. SORRELL

Money Management Money is a limited resource Money is a limited resource Most people want more goods and services than they can afford Most people want more goods and services than they can afford Money management—the process of planning how to get the most from your money Money management—the process of planning how to get the most from your money Budget—a plan for using your money in a way that best meets your wants and needs Budget—a plan for using your money in a way that best meets your wants and needs Expected income Expected income Planned expenses Planned expenses Planned savings Planned savings

Five Steps to Planning a Budget Set goals Set goals What do I want to accomplish? What do I want to accomplish? In one month? In one month? Estimate Income Estimate Income Income—def. actual amount of money you earn or receive during a given time period Income—def. actual amount of money you earn or receive during a given time period Weekly allowance is income Weekly allowance is income Tips as a waitor/waitress Tips as a waitor/waitress Interest on savings accounts Interest on savings accounts

Income, con’t. Gross pay—def. total amount of money you earned for a specific time Gross pay—def. total amount of money you earned for a specific time Ex.—20 * 7.25 = Ex.—20 * 7.25 = Net pay—def. deductions are taken from gross pay for federal and state taxes, and social security taxes; AKA take-home pay Net pay—def. deductions are taken from gross pay for federal and state taxes, and social security taxes; AKA take-home pay Health insurance Health insurance Retirement Retirement Union dues Union dues Other income could come from other family members who work and contribute Other income could come from other family members who work and contribute Do not count on gifts or unusual income Do not count on gifts or unusual income

Taxes Withholding—def. subtracting taxes from a paycheck to be forwarded to the government Withholding—def. subtracting taxes from a paycheck to be forwarded to the government Federal Federal State State Local Local Social security Social security Employers are responsible for forwarding the taxes withheld to the government units that assessed them Employers are responsible for forwarding the taxes withheld to the government units that assessed them Self-employed persons pay their taxes directly to the government Self-employed persons pay their taxes directly to the government

Estimate Expenses Expenditures include rent, food, transportation, and unexpected expenses like medical care Expenditures include rent, food, transportation, and unexpected expenses like medical care Fixed expenses—def. occur regularly and are paid regularly; usually remain consistent in amount Fixed expenses—def. occur regularly and are paid regularly; usually remain consistent in amount Rent Rent Insurance Insurance Car payment Car payment Variable expenses—def. the amount and frequency may fluctuate Variable expenses—def. the amount and frequency may fluctuate Food Food Phone charges Phone charges Entertainment Entertainment Gifts Gifts

Plan for Savings Saving money will make it possible for you to meet future wants Saving money will make it possible for you to meet future wants They will protect against expenses that are not in the budget They will protect against expenses that are not in the budget Car blows a tire Car blows a tire You break a bone and have to see a doctor You break a bone and have to see a doctor Savings will help with long-term goals Savings will help with long-term goals Buy a computer Buy a computer Take a vacation Take a vacation Balance and adjust the budget Balance and adjust the budget Total estimated income should equal the total estimated expenses Total estimated income should equal the total estimated expenses Budget variance—def. the difference between how much you planned to spend and how much you actually spent Budget variance—def. the difference between how much you planned to spend and how much you actually spent

A Sample Budget Set Goals Set Goals List goals – short-term goals and long-term goals List goals – short-term goals and long-term goals Decide which goals are most important – what wants are the most important to you Decide which goals are most important – what wants are the most important to you Estimate Income – divide yearly net income by 12 (monthly budget) Estimate Income – divide yearly net income by 12 (monthly budget) Know how much money you have available each month Know how much money you have available each month Your take-home pay (net income) Your take-home pay (net income) Income from investments or rental properties Income from investments or rental properties Interest from savings accounts (if applicable) Interest from savings accounts (if applicable)

Plan for Savings Plan for Savings Have a regular, systematic plan to save Have a regular, systematic plan to save Cut expenses if necessary Cut expenses if necessary Balance and Adjust the Budget Balance and Adjust the Budget Keep accurate and complete records Keep accurate and complete records Organize expenses in categories Organize expenses in categories Total actual expenses for each item each month Total actual expenses for each item each month Balance the budget Balance the budget Compare actual totals with budgeted amounts Compare actual totals with budgeted amounts Adjust the budget Adjust the budget Make changes in the budget if necessary Make changes in the budget if necessary Ex. Decrease amounts budgeted if actual amounts were less Ex. Decrease amounts budgeted if actual amounts were less Increase amounts budgeted if actual amounts were more Increase amounts budgeted if actual amounts were more Find places to decrease Find places to decrease

Use a Computer for Budgeting Software programs are available to help with setting up and maintaining a household budget Software programs are available to help with setting up and maintaining a household budget With a computerized budget, you can: With a computerized budget, you can: Save your data each month Save your data each month Analyze expenses Analyze expenses Use “What If” situations Use “What If” situations What if your income increases or decreases? What if your income increases or decreases? What if your expenses increase or decrease? What if your expenses increase or decrease?

BudgetAnnualMonthly Income – after expenses31,2002,600 Fixed Expenses Rent payments7, Insurance payments1, Loan and credit card2, Variable Expenses Food4, Utilities (heat, electric)1, Phone/Internet1, Car repair/transportation1, Contributions/gifts72060 Health and personal care1,14095 Travel60050 Entertainment90075 Clothing1, Household3, Savings3, Total Expenses