Budgeting 101 Many Americans do not know how to manage their money to keep themselves out of debt, let alone to save money. Budgeting can help!

Purpose Budgeting is important so you know what you make and how much you spend. If you find that you are spending more than you earn you are in big financial trouble! But if you have extra money, then you need to decide what to do with it: save or invest?

50/30/20 Most financial advisors will tell you to follow a 50/30/20 rule: -50% to NEEDS (housing, food, utilities, transportation) -30% to Wants (Clothing, fun, entertainment, eating out, etc) -20% to Savings (Retirement, savings, investment) By following this guideline you can ensure you have money put away for Just in case. But here is the key… The 50/30/20 is on AFTER tax comes out of your check!! Do the math: on a $2600 a month Gross income, what are your net earnings at a 30% tax rate? Net: $2600.00 Gross: $1820.00

Budgeting methods There are a number of different budgeting methods people use to save money, pay their bills and make sure they have covered everything. To use this method, consumers will cash their check then put it into several different envelopes. Once the envelopes are full, they are used and that’s it. This is important for the “fun” envelopes.

Paying Debt Unfortunately many people get themselves into debt and need to pay back their debts. The envelope system can be a good start, but if you are in debt you have to decide how to pay it back using either the interest first method or the low to high method. The interest first approach is more logical and saves you money, but for most Americans it is the Snowball method that actually gets them to pay off ALL their debts! Interest first Low-to-High (snowball) Pay back accounts that have the highest interest rate first, regardless of principal. Pay back the smallest debt, then roll those payments over to the bigger debts. https://www.youtube.com/watch?v=GURdOhWSbOM-- Dave Ramsey

Other Budgeting Methods While the envelope method is popular among many people, they don’t like always needing or having Cash for all their bills. Technology has made this easier by inventing a number of different apps and websites.

Calendar However, the first step in EVERY budget decision is to figure out how much you make and spend. Then you can make adjustments to get yourself on track. I recommend creating and maintaining a calendar to track your expenses and when debts are due. At the end of each day write what you have spent money on, label when bills are due and how much, and when you get paid.

Budgeting project To help you figure out your expenses I have created a budgeting narrative for you. You will need to keep a checking register to keep track of your income and expenses.

Why are checks important for individuals?

Check Writing Remember that checks are ways to transfer money from your checking account to another person or a business. You must be careful when writing checks because they give people access to your money. The benefit to checks, however, is that you do not need to send cash. You can also post-date checks, meaning they cannot be cashed until the date on the check. Many people forgo using checks these days in favor of using credit and debit cards. However, it is important to have the skill to write and read a check.

How do Checks work?

A completed check would look like this. Always represent change as a 2-digit number over 100. In other words, how many pennies out of 100. (11.32 eleven dollars and 32/100) **Always include the account number for payments on items such as loans, mortgages, and utilities**

Don’t forget to fill out the register! You must keep track of expenses and deposits into your checking account. The best way to do this is with a checkbook register. Make sure you log each of the transactions into the register. Money going OUT of the account is a withdrawal Keep a running total in the last column When writing a check we put the check number here Money going IN to the account is a deposit

Use the register and the blank checks : It is June 1st and your checkbook starts with a balance of $1082.98. You typically owe $650 a month for rent, but you already paid ahead for the entire summer (June, July and August). However, you still owe the electric company $156.47 for your heat and lights in June. Pay the June bill with a check, but the subsequent months will be direct bill pay. You are on the budget plan so you pay the same amount every month. Your electric company account number is 336-592 and the bill is due by the 15th each month. You are also planning a trip to Florida in July and have booked a room for $368.12 with your credit card. Now you must pay off your Visa credit card, but don’t forget you also used the credit card to pay for $28.19 in gas last week. Pay it all off with a check; your account number is 4809653584. By paying it off right away, you avoid interest fees. PAYDAY! You receive your paycheck directly deposited into your account the 2nd Friday of each month. Your June paycheck was excellent and totaled $1,950, but you used it all to pay your rent ahead. The July pay period was a good one and you earned $1,212.64. In August you only earned $850.00 because of the week of vacation in Florida. Unfortunately, you forgot you had to buy a $200 birthday gift for your dad, but thankfully your sister Brittany is going halfsy with you! Write a check to pay her off (July). Finally, you have some bills that come out automatically each month. Use the register to make sure you don’t run out of money: gym membership $10/month, Netflix $8.99/month, Hulu $8.99/month, Car insurance $56.00/month, internet $35.48/month, car payment $205.00/month, phone bill $104.00/month, and you have authorized your bank to automatically move $25 each Friday to your vacation savings (pay attention, some months have 5 Fridays!)