Budgeting, Saving and Spending Personal Finance Budgeting, Saving and Spending

Planning A good budget requires planning Four-step process: 1. Assess Needs A) Evaluate your current financial situation. B) Make two lists: a WANT list and a NEED list. 2. Set Goals 3. Make a Plan 4. Take Action

Get SMART A realistic goal is SMART Specific - Smart goals are specific enough to suggest action. Measurable - You need to know when you have achieved your goal, or how close you are. Attainable - The steps toward reaching your goal need to be reasonable and possible. Relevant - The goal needs to make common sense. You don't want to struggle or work toward a goal that doesn't fit your need. Time-related - Set a definite target date.

Building a Budget 30% Housing 18% Transportation 16% Food 8% Miscellaneous 5% Clothing Medical Recreation Utilities 4% Savings Other Debts This chart shows some rough guidelines on how much of your income should go toward different expenses.

Acquiring Income From jobs Parents/allowance Friends Hourly wage X hours worked Parents/allowance Friends Government/social assistance Investment/interest Child/spousal support Stock market Lottery/gambling

Expenses Fixed expenses - occur regularly, and the amounts generally don’t fluctuate from month to month. Flexible expenses – occur regularly but at varying amounts Discretionary expenses - Discretionary expenses are those expenses you choose to incur.

Savings Saving is putting aside money for future use (investing) Opposite of consuming (withdrawal)A savings plan is Systematic or regular way to reach a financial goal Why save? Emergency needs Goals Short term Long term Security & Future Needs

Investments Investments and “yield” Called “rate of return” (ROI) Expressed as an annual % of original investment Eg. $1,000 at 6% interest Earns $60 in the first year Total investment now worth $1,060 (1,000 + 60)

Interest on Investments Simple Interest Calculated only on principal initially invested Eg. $1000 @ 5% Interest Yr. 1 - $50, total investment $1,050 Interest Yr. 2 - $50 , total investment $1,100 Interest Yr. 3 - $50 , total investment $1,150 Etc.

Compound Interest Calculated on principal plus interest reinvested Eg. $1000 @ 5% Yr 1 $1,000 + 50(1000*5%) = $1,050 Yr 2 $1,050 + 52.50(1050*5%) = $1,102.50 Yr 3 $1,102.50+55.13(1102.50*5%) = $1,157.63 Comparison, Simple vs. Compound Interest After 3 years $1150 vs. 1157.63 The $7.63 represents interest on interest (compounding) Calculation of Compound Interest: Final Principal = Starting Principal X (1 + Interest Rate)Compounding Periods

Types of Savings Savings Accounts Term Deposits Guaranteed Investment Certificates (GIC) RRSP Registered retirement savings plan RESP Registered Education Savings Plan

Saving What are you saving for?

Emergencies You forget to lock your bike and someone steals it. Your parents say that your carelessness is your problem. You have to replace the bike. If you don't have money, you're walking.

Common Expenses Clothes CDs Movies Pizza Christmas? Birthdays? Where's all the money going to come from? If you're smart, you've been saving for a couple of months just to get you through expensive times.

Future Purchases You can dream about owning that CD burner or start saving for it now. Ever want to own a car? Where are you going to get spending money for college? While cars and college may seem far off, they're only a few years away.

Investing Any money you don’t spend on expenses can go towards investments Investments then become another way of earning money if you are wise with your investments

How do you hang on to your cash so you don't just buy impulsively?

Buy it or Not? You don't want to run out of your spending money before you get paid again. Many adults moan about having more expenses per month than they have money They're out of cash by the 21st and they don't get paid again until the 1st of the next month.

Resist impulse buying Get into the habit of asking yourself questions before you buy. Do I really need this item? If I don't need it, do I at least really want it? Am I sure that I'll use it? Wear it? If I buy it now, will I have enough money for other things I might need later on — this week, this month, next month? Will this purchase take money away from paying off any debts I might owe?

6 ways to save Smart shoppers save while they spend. Don't shop as entertainment. Shop the sales. Wait for the sale. Shop at places other than the mall Go to matinees and discount theaters Check out purchases that perform tasks