How will you spend your money? BUDGETING PROCESS How will you spend your money? "A budget tells us what we can't afford, but it doesn't keep us from buying it." — William Feather

Choose Financial Goals Most things you want in life requires money. Things you value most are worth working for. A budget is a plan for dividing income among spending and saving options. Most budgets are based on short-term and long-term goals.

Short-term/Long-term Goals Short-term Goals: are goals you plan on achieving within a year. Should limit spending on short-term goals, for long-term Short vacation New T.V. Long-term Goals: are goals beyond a year. Usually correspond with life-goals College Home

Goals Be Realistic – a student working part-time is not likely to be able to afford a new car every couple of years. Be Stated in Specifics – “I plan/want to save $5000 for a down payment to buy a house” Have a Time Frame – “I plan/want to pay off my credit card within the next 18 months.” State the Action to be Taken – “I plan/want to start an automatic deposit savings account with monthly withdrawals from my checking account.”

Balancing Spending Save income for life-span financial plans. Control short-term spending. Save now for later. Spending now can take you away from your long-term plans. People who evaluate each step, are more likely to reach their intended goals.

Balancing Spending cont. A good budget still allows you to enjoy yourself now, and helps you achieve your life goals. Budgeting requires you to prioritize (or rank) goals.

The Budgeting Process Keep Financial Records: By tracking spending you can see where your money goes. Then you can estimate your income and expenses. Track your income (examples not in notes) (examples: pay stubs, bank statements) Track your spending (examples: receipts from stores, bills, debit card receipts) Establish a Filing System: By keeping accurate records you can easily find information and keep track of receipts. Keep all files in one place.

You don’t want to base your budget Determining Income You don’t want to base your budget on your gross pay! Gross Pay: the salary or wages you earn before taxes and deductions have been withheld. Net Pay: is the amount of money you take home after taxes and other deductions have been subtracted from your gross pay. (what you can spend)

Determining Net Worth Assets: What you own. Liabilities: What you owe. Assets – Liabilities = Net worth Depreciated value: the decrease in value of an item over time

Fixed and Flexible Expenses Fixed Expenses: are amounts you have already committed to spend. Car payment, mortgage, insurance, cable, etc… You know how much you will have to pay each month. You can plan ahead to save money. Doesn’t have to be a monthly bill, can be yearly, semi-annually or every other month.

Fixed and Flexible Expenses Flexible Expenses: amounts that you can choose to spend or not to spend. Opportunity Costs: what do you give up now, when you don’t choose to spend your money. (not in student notes) Clothes, some household items, music, electronics. Luxury Goods: are goods that have special qualities that make them more expensive than alternative goods. Example: sports car, jewelry Almost always considered flexible.