Finance- PLANNING & BUDGETING “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.” Warren Buffett

Assessing Risk:

Budgets A ___________________________, is a plan for managing your money during a given period of time. A budget is created by taking all your _____________________________________ . If you have a positive # then you are doing well.

Create a budget by:

Practice Jason makes $3500 every month. His monthly expenses are $500 for rent, $250 for insurance. On Average, he spends $300 a month on groceries, and 10% of his income on eating out. This month, he has an accident and has to pay $2,000 for medical care How much does he have left at the end of the month?

Examine your Financial Situation Ask yourself 3 Questions Where does my money come from? Work? Parents? Investments? How much money do I get? Per month? Per year? Where is all my money going? Movies? Food? Coffee? Clothes?

Establishing a Budget Almost 60% of millionaires use a budget to manage their money The first step in developing a budget is to ________________ Budget = Roadmap Consider length of time

What do you want out of life? The curse of options The importance of goals Know what you want Don’t wait for things to happen Curse of options – Choices can be overwhelming…leave us wondering what “might” have been.

“SMART” STANDS FOR:

In order to meet your goals… …you need to have a plan! KNOW ___________ VS _______________ HAVE _______________ GOALS HAVE A ___________________– a set plan for spending, saving, and investing the money you earn. Helps you: Evaluate options for your money. Avoid wasteful spending Organize your financial resources Avoid money worries by planning ahead

Poorly-written goal I want to have more money for vacations. Well-written goal I will save $5,000 by New Year’s Day and will take a trip to Hawaii with my family.

A SMART Goal Save $25 so I can take my friend out for pizza. 1st of next month Short term $25.00 $7.50 $25.00 $7.50

Activity: Your Goals Create a SMART GOAL FOR one of them. I want to save for: ______________ I want to be able to retire at age___: Create a SMART GOAL FOR one of them. Start with “I want to…. Estimated Costs & timeframe _________________ 1. ________________

REVIEW The goal-setting acronym S.M.A.R.T. stands for which of the following? Secure, Marketable, Assertive, Results, Time-bound. Specific, Measurable, Attainable, Results-oriented, Time-bound. Specific, Measurable, Attainable, Results-oriented, Thought-based.

1. By evaluating your monthly budget, you can learn how to a 1. By evaluating your monthly budget, you can learn how to a. keep your personal spending under control. b. make better investments. c. earn more money. 2. The two things you must keep track of in order to understand your budget are a. your income and your spending. b. your wages and your bank interest. c. your wages and your credit card debt. 3. A negative monthly cash flow means that a. your investments are losing value. b. you are spending more money than you are taking in. c. you are taking in more money than you are spending. 4. Trey smokes 1.5 packs of cigarettes per day and pays about $3.50 per pack. His monthly spending on cigarettes is closest to a. $50. b. $100. c. $150. 5. Kira drinks about 6 cans of soda each day, generally buying them from vending machines at an average price of $1.25. Her annual spending on soda is closest to a. $500. b. $1500. c. $3000.

What does “P.Y.F.” mean, and how can it benefit you?

A Strategy Why? Pay Yourself First! Creates a habit Set aside money for saving before spending any money Save then spend! Creates a habit Saving is not what is left at end of month Why?

Save Save 10% (PYF): just saving 10% of any cash you receive will add up fast and will not leave a dent in your normal spending. Leave it be! Don’t take money from your savings just let it sit and forget about it. Sometimes it helps to have an account at a different bank so that you aren’t accessing it often. A medical emergency or a job loss could push many households to the financial brink. When faced with financial shock, including car bills, home repairs or medical emergencies, 41% said they don't have enough saved to pay a $2,000 bill. Without a fund that they can immediately tap, half of households said they would use credit cards and more than a third would borrow money to bail themselves out. But that comes at a cost.

Emergency savings: We all need it. How to build it starting now Safety Savings: always have a certain amount of money you never use saved for emergencies. The amount of money a family should save for emergencies is equal to at least: The best place for your emergency fund is in a liquid (easily accessible) account. IE: a bank account

Cliff’s Wonderful Financial Adventure Cliff has been out of school for five years now and he still has not managed to organize his personal finances so he can move out of his parent’s house. Cliff is seeking your advice to develop a budget so he can save money and move out on his own. Cliff’s gross income is $54,000 a year If Cliff uses the suggested PYF % guideline, what amount will Cliff save each year?

Review One of the best ways to save money is to: a. get a second, part-time job b. deposit your income tax refund in the bank c. quit going out on weekends d. pay yourself first The first step in developing a budget is to: get a job establish goals estimate expenditures open a checking account A _______________ is a plan for managing your money during a given period of time. A long term goal is: Save for retirement Buy a car in next 6 months Open a checking account next week

Types of expenses= Money going out ________________cost the same amount every time. EX: Income Taxes, Your parents’ rent/mortgage (home loan), car loan, ______________fluctuate in amount EX: Food, cell phones, utilities _____________are ones you don’t pay every month, and can be either fixed or variable. EX: some people pay their car insurance (a periodic expense) every six months instead of every month. Magazine subscriptions, entertainment (movies, clothes, etc), donations Paying for auto repairs is an occasional and variable expense—you only pay for repairs when something happens to your car, and the expense will vary depending on what kind of work is needed.

EXPENSES REVIEW In Alberto's budget, the rent he pays for his apartment is considered a. fixed income. b. variable income. c. fixed expense. d. a variable expense.

Determine how much money is left after the EXPENSES have been met” Income per Month: $2100 Groceries: $300.00 House Payment: $500.00 Entertainment: $150.00 Electricity: $75.00 Cable: $75.00 Car: $370.00 Gas: $100.00 Car Insurance: $100.00 Cell Phone: $100.00 PYF (SAVINGS): 10% of monthly salary __________________

What Type of Expense Is It? Categorize the expenses shown in the table below as fixed, variable, or periodic. Description Periodic? Variable? Fixed? Groceries Piano lesson fee Cable TV bill Magazine subscription renewal Car loan payment

Disposable Income The difference between the cash received (income) and cash paid for necessary or essential expenses is called ________________.  Discretionary Income = When your income is less than your essential expenses, your disposable or discretionary income is negative. If this occurs, you should reduce the amount budgeted for essential expenses.

Periodic Expenses What is the problem with a periodic expense? It makes the expenses higher in some months than others.