CHAPTER 8 Marina Makhover

2 Chapter Objectives To determine the costs related to owning or renting your own house or apartment. To design monthly budgets. Outline the steps involved in developing your monthly budget. To make the most of the money you earn.

Marina Makhover3 Definitions (pg 481) Utilities: services such as heat, water, electricity Tenant: a person who uses a property owned by another person Landlord: a person who owns a property, and whom a tenant has to pay rent

Marina Makhover4 COSTS OF RENTING (pg 481) Two types of costs: Fixed costs: the same every time Variable costs: vary depending on factors such as level of use of a service Depending on the rental agreement utilities and services such as heat, water, electricity and parking may be included in the rent. Otherwise the tenant has to pay for them. The tenant usually pays for her phone, cable and Internet service.

Marina Makhover5 COSTS OF OWNING Most Canadians want to have their own property: –They have to buy the property using a down payment and a mortgage loan. –Owners have to pay property taxes : each year and also when they buy a house/condo at start. –Owners have to buy home insurance to protect their home and its contents. –Condo owners pay a monthly fee to cover operating maintenance, administrative and improvement costs. –All owners pay for all utilities maintenance, and service s they use

Marina Makhover6 DESIGNING MONTLY BUDGETS (pgs 493 – 499) DEFINITIONS: Budget: a detailed plan that compares what you earn with what you spend for a set period of time. Net Income: income you have after income tax and other payroll deductions such as Canada pension Plan, Employment Insurance have been subtracted. income: the money you earn. Expenses: the money you spend.

7 Why do you need budget planning? Budgets are used to help you: spend no more than you earn see where your money is being spend focus your spending on the things that are most important to you save to meet your financial goal.

Copyright ©2004 Pearson Education,8 Budgeting and Tax Planning How a Budget Affects Savings

Marina Makhover9 PERSONAL BUDGETS Personal budgets are usually planned monthly. Monthly amounts can then be multiplied by 12 determine annual amounts. Income and expenses are recorded by type of income or expense. Money set aside for a future use is called savings and is shown as an expense. A broad category such as housing may be broken down into more specific categories such as Mortgage Payment and Utilities. Several types of expenses may be grouped under one category such as Entertainment.

Marina Makhover BUDGET TEMPLATE (pg 494) Budget ItemMonthly Amount ($) INCOME Salary Child Payment Alimonies Total Income EXPENSES Housing Transportation Food etc Total Expenses DIFFERENCE (TOTAL INCOME – TOTAL EXPENSES)

Marina Makhover11 BALANCING A BUDGET The balance is the difference when total expenses are subtracted from total income If the balance is negative, you are spending more than you earn. You need to adjust some expenses. This is called balancing the budget. If the balance is positive, you can save the money for unexpected expenses or spend some of it. Expenses and income are often estimated or predicted. The actual amounts earned/spent are then compared with the predicted amounts.

Example of Designing and Balancing a Budget Paul is studying to be an electrician. He worked full time in the summer to pay for his tuition, books, and supplies at college, but was not able to save enough for his living expenses. He receives a $4000 scholarship each school year. He also earns $650 bi- weekly at a part-time job. He has payroll deductions of $74 bi-weekly. His other expenses include rent and utilities of $450 each month, $100 transportation each month, $150 for food each month, $25 weekly for entertainment, and $100 miscellaneous expenses per month. Is Paul making enough money to go to school this year? Marina Makhover1-12

Example of Designing and Balancing a Budget - Continuing Marina Makhover1-13 It looks like Paul will be able to afford school this year!

Example 1: Interpreting a Budget (pg 495) 14

Example 2: Balancing a Budget (pgs ) Marina Makhover15

Example 3 Designing a Budget to Meet a Savings Goal (pg 498) Marina Makhover1-16

Designing a Budget (pg 500) Copyright ©2004 Pearson Education, Inc. All rights reserved.1-17

Now create your monthly budget! Marina Makhover1-18