MoneyCounts: A Financial Literacy Series Budgeting Fundamentals Dr. Daad Rizk MoneyCounts: A Financial Literacy Series 301 Outreach Building University Park PA 16802 dar39@psu.edu 814-863-0214

learning objectives Learning Objectives 5 steps to budgeting Set up SMART goals Collect financial information Track money coming in Track money going out Review cash flow and set up a budget

On Budgeting On budgeting Bill Cosby on budgeting

what is budgeting? What is Budgeting? What is Budgeting? Budgeting is the process of creating a plan to spend your money. It is spending less than earning as you plan for your financial goals How do I allocate my income to pay my expenses? Where did my money go? Why am I always broke? A financial tool to help manage cash flow! Budgeting is never “ONLY” about money!

why is it important? Why is it important? Budgeting is simply balancing your expenses with your income. If they don't balance and you spend more than you make, you will have a problem Many people don't realize that they spend more than they earn and slowly sink deeper into debt

when should you budget? When Should you budget? To meet your financial goals To achieve financial security To prevent financial crisis To get out of financial crisis Goal is to maintain financial stability in good times and financial sustainability in hard times An important component of financial success Adopt a budget prior to financial crisis

the budgeting process – step 1 Step 1 – Start by setting smart goals Short term & long term goals/personal, educational, social, financial and recreational What are my values, my needs, what is my life situation? What are my goals, what do I hope to accomplish? Before you plan, picture the destination

S M A R T SMART – GOALS Prioritize goals using the SMART Model = Specific = Measurable = Attainable = Realistic = Timely Goals should be crystal clear in their definition S M A R T

The budgeting process – step 2 Step 2 – Get Organized Collect Financial Information Pay Stub Bank Records Financial Aid Awards Insurance Tuition and Fees Bills Groceries Receipts Bookstore Bills Eating Out Receipts Credit Card Bills Personal Utility Bills Pets Electronics Miscellaneous

The budgeting process – step 3 Step 3 – Money coming in/ Income & Borrowing Wages, Salaries Family Help Interest Income Other Income Grants and Scholarships Loans Perkins Subsidized Unsubsidized Other Loans

the budgeting process – step 4 Step 4 – Money going out/Saving & Spending Saving At least 10% of net income Pay yourself first Establish/ keep an emergency fund Invest and plan for retirement

Step 4 continued The Budgeting Process – Step 4 Step 4 – Money going out / Saving & Spending Spending Know needs from wants, what are my spending habits? How do I make spending decisions? List all spending – Tracking process Fixed & Variable Tuition, Fees, Books Housing and Groceries Car expenses, Electronics, Insurance, Eating out, Personal, Pets, etc. Periodic expenses, gifts, entertainment, Charity, etc.

The Budgeting Process – Step 4 Step 4, slide 3

step 4, slide 4 The Budgeting Process – Step 4 Step 4 – Money going out / Saving & Spending Saving is 10% of income – pay yourself first Spending Housing should not exceed 30% of your net income Meals and eating out should not exceed 20% of your net income Utilities should not exceed 5% of your net income Car expense should not exceed 10% of your net income Electronics, phone, Internet should not exceed 5% of your income All other expense is 20% of your net income

The Budgeting Process – Step 5 Balancing Act Use Loans only to pay for tuition, fees, & books Use income to pay for housing, food, electronics, entertainment, insurance, credit cards, car expense, gas, personal, pets & miscellaneous Do a monthly budget, use accurate figures/amounts Avoid “PILS” Penalties, Interest, Late fees & Surcharges Keep a saving account Shop based on Needs not Wants Pay Credit Card in full each month Allow for some fun items, but stick to your budget

The Budgeting Process – Step 5 Earning and Borrowing Net income Family support Grants and Scholarships Loans Perkins Subsidized Unsubsidized Saving and Spending Saving, emergency fund Tuition, fees and books Housing and utilities Car expense Phone, Internet, electronics, videos Loan origination fees Insurance, medical, entertainment

Budget as a % of net income Recommended Budget as a percentage of Net Income Income - Cash In 100.00% 1. Saving 10.00% 2. Housing 30.00% 3. Utilities 5.00% 4. Food 20.00% 5. Transportation 6. Entertainment 7. Debt 8. Other

budget as a % of net income, slide 2 Budget as a percentage of Net Income

Tracking Expenses tracking expenses

Budget Worksheets

MoneyCounts: A Financial Literacy Series Thank You! Comments and Questions Dr. Daad Rizk MoneyCounts: A Financial Literacy Series 301 Outreach Building University Park PA 16802 dar39@psu.edu 814-863-0214