Planning a Budget Chapter 28

Money Management Money is a limited resource Most people want more goods and services than they can afford Money management—the process of planning how to get the most from your money Budget—a plan for using your money in a way that best meets your wants and needs Expected income Planned expenses Planned savings

Five Steps to Planning a Budget Set goals What do I want to accomplish? In one month? Estimate Income Income - actual amount of money you earn or receive during a given time period Weekly allowance is income Tips as a waiter/waitress Interest on savings accounts

Income, con’t. Gross pay - total amount of money you earned for a specific time Ex.—20 * 7.25 = 145.00 Net pay - deductions are taken from gross pay for federal and state taxes, and social security taxes; AKA take-home pay Health insurance Retirement Union dues Other income could come from other family members who work and contribute Do not count on gifts or unusual income

Taxes Withholding - subtracting taxes from a paycheck to be forwarded to the government Federal State Local Social security Employers are responsible for forwarding the taxes withheld to the government units that assessed them Self-employed persons pay their taxes directly to the government

Estimate Expenses Expenditures include rent, food, transportation, and unexpected expenses like medical care Fixed expenses - occur regularly and are paid regularly; usually remain consistent in amount Rent Insurance Car payment Variable expenses - the amount and frequency may fluctuate Food Phone charges Entertainment Gifts

Plan for Savings Saving money will make it possible for you to meet future wants They will protect against expenses that are not in the budget Car blows a tire You break a bone and have to see a doctor Savings will help with long-term goals Buy a computer Take a vacation Balance and adjust the budget Total estimated income should equal the total estimated expenses Budget variance - the difference between how much you planned to spend and how much you actually spent

A Sample Budget Set Goals List goals – short-term goals and long-term goals Decide which goals are most important – what wants are the most important to you Estimate Income – divide yearly net income by 12 (monthly budget) Know how much money you have available each month Your take-home pay (net income) Income from investments or rental properties Interest from savings accounts (if applicable)

Balance and Adjust the Budget Plan for Savings Have a regular, systematic plan to save Cut expenses if necessary Balance and Adjust the Budget Keep accurate and complete records Organize expenses in categories Total actual expenses for each item each month Balance the budget Compare actual totals with budgeted amounts Adjust the budget Make changes in the budget if necessary Ex. Decrease amounts budgeted if actual amounts were less Increase amounts budgeted if actual amounts were more Find places to decrease

Use a Computer for Budgeting Software programs are available to help with setting up and maintaining a household budget With a computerized budget, you can: Save your data each month Analyze expenses Use “What If” situations What if your income increases or decreases? What if your expenses increase or decrease?

Budget Annual Monthly Income – after expenses 31,200 2,600 Fixed Expenses Rent payments 7,800.00 650 Insurance payments 1,200 100 Loan and credit card 2,220 185 Variable Expenses Food 4,800 400 Utilities (heat, electric) 1,920 160 Phone/Internet 1,500 125 Car repair/transportation 1,860 155 Contributions/gifts 720 60 Health and personal care 1,140 95 Travel 600 50 Entertainment 900 75 Clothing Household 3,000 250 Savings Total Expenses 31200 2600