Budgeting Unit 2

Go into google classroom and open up Bell Ringer for Budgeting Picture yourself as an independent adult with a career: Do you keep a budget either formally or informally? What are things that you think about when budgeting ( income, expenses) If you were planning on going to prom what would be some of the things you would need to budget for???

A Budget is a plan for managing your money for a given period of time, A successful budget is Carefully planned Practical Flexible Written or typed Accessible Budgets help you: Set priorities Achieve goals A good budget is: Realistic Ongoing Clear

What would a budget look like for you right now What would a budget look like for you right now?? What does yours look like???

Budgets come in all shapes and sizes What do you think would be the biggest thing that your parents would have to budget for?

When creating a budget there are parts that we must define…… P.Y.F. Income Expense Cash Flow Assets Liabilities Net worth

P.Y.F. – Pay yourself first This doesn’t mean to pay yourself some exuberant salary. It does mean to set some money aside each pay period. Maybe $5 or $10 but pay yourself first

Cash Flow Statement Cash Flow statement is simply how much money do you make and how much do you spend. How much money do you make – INCOME How much do you spend - Expenses

Income Income is money you receive as payment for goods or services When talking about a budget we have to first determine how much we make Income is money you receive as payment for goods or services Hourly wages – getting paid by the hour Salary – Yearly amount ( can be paid weekly ,bi-monthly, monthly) Interest – Payment to you for the money that was borrowed from you by bank. Capital Gains – Money made from sale of asset for more than the purchase price. Commission- Money earned based on a percentage of sales. Dividends – payment for purchase of stock Interest Income

The other two are a little bit more confusing……. Gross Income – Is the total amount of money that you make before anyone gets a hold of it. Disposable income -The amount of money that households have available for spending and saving after income taxes have been accounted. ( what you have to live on) Discretionary income - The amount of an individual's income that is left for spending, investing or saving after taxes and personal necessities (such as food, shelter, and clothing) have been paid. ( This is your fun money)

How to read a paycheck stub article: Read this article

More budgeting terms Expenses – the amount that is spent to operate a business or for payment of a good or service. Fixed Expenses – Expenses that do not change from month to month Car Home Gym membership Variable Expenses-Expenses that change from month to month Gas Electric Entertainment Periodic Expenses- Expenses that occur once in a while Car breaks down Air conditioner stops working. We spend our many in all kinds of different ways but we categorize them in three areas…….

4 more types of income you hear about all the time but may not be familiar with…. Gross Pay Deductions Net Pay Lets start at the very beginning Gross Income Not the icky income but the income we make before anybody gets it. It is the total amount that is due to you…. Net Income ( pay) or Take home pay This is the amount that you are left with after everyone gets their hands on it.

So let me see if I can clear this up a little more…. Lets talk a little bit more about these….. Minus- (taxes) . Gross pay Minus Your Bills Disposable Income Discretionary Income

These items we take away from our gross pay are called deductions. There are two types of deductions Voluntary We chose to have them deducted from our pay check What would these be?? Your own retirement Some health Involuntary They are automatically taken from our checks Taxes (UGH)

Taxes ( we will revisit these later) Federal Income Tax Based on the money you make FICA ( Federal Insurance Contributions Act) 2 Parts Social Security Medicare State and local Taxes

Balancing a Budget Balancing the budget is the balance between money you make (income) and money you spend (expenses) If Income is greater than Expenses = Surplus Net Income If Income is less than Expenses = Deficit Net Loss

In simple terms it is the money going in and the money going out…. Think of it like this…… You have a glass of water If you glass has a big hole in the bottom of it you will never have water to drink that would be called a deficit If your class doesn’t have a hole in it, it will soon overflow and you will have a surplus

The nuts and Bolts of Budgeting….. Budgets are all based on something called Cash Flow. As we have already discussed money in = income, money out = expenses

We need to define some things before we can really determine our cash flow Assets Something of value to you. Cash, your home, your car Liabilities Something that you owe to someone else Car loan, home loan, student loans

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting In this activity you will: choose a potential career path determine your take-home pay set aside money to pay yourself first try your hand at an independent adult’s budget and then reflect on the process of budgeting. www.nextgenpersonalfinance.org View all NGPF's lessons on Gooru

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 1: Open the Salary-Based Budgeting worksheet, then click File → Make a copy Name your worksheet “LAST NAME, FIRST INITIAL budget” Close the original Salary-Based Budgeting worksheet Use your copy of the worksheet to record all the work for this project.

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 2: Visit PayScale’s Salary Data & Career Research Center. To locate your future career’s salary: Type the career in the box and push SEARCH. Use the lowest entry in the given salary range, because you’ll be making the starting salary at first. Remember, these are averages, so you could start lower or higher in reality. Once you find your career, record the salary as your Annual Gross Wage on step 2 of your budget worksheet.

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 3: Calculate your monthly Gross Wage. Gross Wage (monthly) = Annual Gross Wage / 12 Record on your budget spreadsheet. *While “wage” and “salary” are different (in how your are paid), for this activity both refer to the money earned from working **From this point on, you’ll use MONTHLY amounts for all budget entries.

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 4: Use the ADP Salary Paycheck Calculator to find your Net Pay (the wage you actually take home each month, after deductions). To do the activity correctly, choose the state you’ll be living in and then use these values: Gross Pay = Your Gross Wage (monthly) → PER PAY PERIOD Pay Frequency = Monthly Federal Filing Status = single (unless you’re married) # of federal allowances = 1 (unless you have dependent children) Leave all other values as they are. Record “Net Pay” on budget spreadsheet under “Net Wage (monthly)”

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 5: “Pay yourself first” by putting aside a percent of your net salary into a savings account. Choose one of the percents below, and calculate how much you’ll be saving off your net salary. 5% → this is low, but better than nothing 10% → this is a good goal for your first career; increase later 15% → terrific savings goal! Savings = Net Wage (monthly) * % savings (remember 5% = .05)

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 6: It’s never too young to start saving for retirement. You want to set aside another portion of your net salary to put toward retirement. 5% → this is low, but better than nothing 10% → this is a good goal for your first career; increase later 15% → terrific retirement goal! Retirement = Net Salary (monthly) * % retirement (5% = .05)

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 7: Calculate the total amount you’re saving each month. Total Monthly Savings = Monthly Savings Account + Monthly Retirement

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 8: Calculate the monthly amount you have to budget. **Savings is NOT an expense; it’s the money you’re setting aside for your own future. However, it’s also money that you shouldn’t spend on other things each month, so it gets taken out BEFORE you do your monthly budget. Monthly Amount to Budget = Net Salary (monthly) - Total Savings

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 9: RENT To determine how much you will spend on rent, choose the type of living situation you see yourself in. Option A: Live at home Option B: Live in an apartment/house by yourself Option C: Live in an apartment/house with roommates Go to the slide for your choice to determine your rent cost.

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 9A: RENT (Live at home) Option 1: If you’re planning to live at home or with other relatives, estimate how much they’re going to charge you per month. Better yet, ASK! Do not assume they’ll let you live rent free! Record the answer in Monthly Rent. If you’re planning to live on your own or with roommates, continue on.

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 9B: RENT (Live in an apartment/house by yourself ) If you want to live completely on your own, use the Rent Comparison Tool on RentJungle to calculate your Monthly Rent: a) In APARTMENT ADDRESS, input the city you would like to live in after college. b) Under BEDROOMS, select STUDIO OR ONE BEDROOM c) Under CURRENT OR LIKELY RENT, indicate how much you would like to pay per month. Look at your Monthly Amount to Budget and be sure not to spend more than 25% on Housing. d) Under QUALITY OF BUILDING, use the number of stars as a proxy for the quality of the building (5 stars is the highest rating). d) Select "FIND OUT INSTANTLY" e) On next page, under HOW MUCH SHOULD YOU PAY, you will be given a range of rental rates (e.g., “monthly rents for 1 bedroom apartments range from $780 to $1,040 per month). Take the average of these two figures as your MONTHLY RENT.

STEP 9C: RENT (Live in an apartment/house with roommates) Option 3: If you are willing to live with roommates ($ saving!), use the Rent Comparison Tool on RentJungle to calculate your Monthly Rent: a) In APARTMENT ADDRESS, input the city you would like to live in after college. b) Select # of BEDROOMS based on total number of people living there (you + roommates) c) Under CURRENT OR LIKELY RENT, indicate how much you would like to pay per month. Look at your Monthly Amount to Budget and be sure not to spend more than 25% on Housing. d) Under QUALITY OF BUILDING, use the number of stars as a proxy for the quality of the building (5 stars is the highest rating). e) Select "FIND OUT INSTANTLY" e) On next page, under HOW MUCH SHOULD YOU PAY, you will be given a range of rental rates for your city (e.g., “monthly rents for 2 bedroom apartments range from $780 to $1,040 per month). Take the average of these two figures as your MONTHLY RENT. Monthly Rent = rent price / # of people living there

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 10: Renter’s Insurance You want to have renter’s insurance, to cover replacement of your belongings in case of theft or apartment-wide damage (flood, fire, etc). Unless you have a lot of expensive stuff, you can budget $20 for Renter’s Insurance.

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 11a: Utilities If you’re living with family, they may expect you to chip in full or partial amounts. (Ask what you owe) If you’re living on your own, you’ve got to pay the full costs. With roommates, you get to split a lot (but not all) of these costs. Remember to divide those bills by the # of people!

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 11b: Utilities Cable/Satellite (Choose 1) Internet Home Phone Cell Phone (Choose 1) Gas/Electric Budgeting 6.1 Budgeting Basics Salary-Based Budgeting Average Cost $38 Broadcast TV $0 Basic Cable $80 Premium Cable $125 Average Cost $20 Voice Only $40 Voice & Data $75 Average Cost $163

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 12: Calculate your total monthly budget for the cost of living. Cost of Living = Rent + Renter’s Insurance + Cable/Satellite + Internet + Home Phone + Mobile Phone + Electricity/Gas

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 13: Public Transportation (Busses, Trains, etc.) If you’re living in a city that allows you to get where you need via Public Transportation, and you’re not going to have a car at all, use one of the figures below: **If you will only use public transportation, skip to Step 18 TRANSPORTATION COST IN ST. LOUIS New Orleans, Los Angeles $90 Honolulu, New York $135 Chicago $105 Washington, DC $195 Miami, San Francisco $120 I’m going to use a car instead $0

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 14: Car Payment If you’re going to have a car, choose one of the following Car Payments (3 year loan, 4.75%): **If you are using public transportation, you pay $0 for a car Cost of a Car that you wish to Drive $8,000 car -- $240/mo $10,000 car -- $300/mo $15,000 -- $450/mo $20,000 car -- $600/mo $30,000 car -- $900/mo $45,000 -- $1340/mo

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 15: Car Insurance Assume between $164 (good rate, no accidents/violations, or less coverage) and $333 per month (worse rate, accidents/violations, or premo coverage)-- you must be insured! Use this website to find a quote https://www.thegeneral.com/quote/ STEP 16: Car Maintenance Assume $100 per month -- some months will be $0, but some will be expensive!

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 17: Gas Estimate how many miles you’ll drive per day and use this chart to find your gas prices (based on $3.55/gallon and 23.6mi/gallon): Miles Per Day Monthly Cost of Gasoline 25 $113 35 $158 45 $203

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 18: Calculate your total monthly budget for transportation. Cost of Transportation = Public Transportation + Car Payment + Car Insurance + Car Maintenance + Gas

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 19: Choose which meal plan you’re likely to follow for the cost of Groceries: Thrifty Low Cost Moderate Cost Liberal Cost Females $167 $211 $259 $332 Males $188 $242 $303 $373

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 20: Choose which plan you’re likely to follow for the cost of Dining Out: $10/meal $15/meal $20/meal $30/meal 1 meal/week $40 $60 $80 $120 2 meals/week $160 $240 3 meals/week $180 $360 5 meals/week $200 $300 $400 $600

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 21: Calculate your total monthly budget for food. Cost of Food = Groceries + Eating Out

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting Calculate the cost of your insurance STEP 22: Health Insurance If you are single: Average $999/yr Remember to divide by 12 to get the monthly cost STEP 23: Dental Insurance - $25/month STEP 24: Vision Insurance - $25/month

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 25: Haircare If you already know how much you pay for a haircut, enter it. If you’re not sure, use the US averages: Men $28 Women $44 **If you only get a haircut every 3 months, divide the cost by 3. STEP 26: Other Grooming/Hygiene Everyone’s different, but let’s assume $25/mo for other hygiene, medication, grooming, or personal needs.

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 27: Gym Membership Remember, the first step to wealth is health! If you don’t workout, or you do it free outside or at home, $0. Otherwise, assume $58/mo for a gym membership.

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 28: Calculate your total monthly budget for health. Cost of Health = Health Insurance + Dental Insurance + Vision Insurance + Haircuts + Other Grooming/Hygiene + Gym Membership

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 29: Student Loan Payments If you did not go to any post-high school schooling, or you somehow did so without any student loan debt, congrats on paying $0/month! Please use this website in determining your debt and where it falls on this chart http://ticas.org/posd/map-state-data-2015#overlay=posd/state_data/2015/mo Debt $10,000 $20,000 $30,000 $40,000 $50,000 Monthly Loan Payment $115 $230 $345 $460 $575

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 30: Discretionary Spending So far, your budget is neglecting FUN STUFF (clothes, going out with friends, entertainment, new technology, gift giving, donations, travel, vacations, a morning coffee, etc). In the Wants category, record how much you’d like to be able to spend on these items (total) per month.

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 31: Monthly Spending It’s time to figure out how much you’re spending each month: Total Costs = Cost of Living + Transportation + Food + Health + Student Loan + Wants

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting STEP 32: Balance At the end of the month, how do your finances look? Do you spend less than you earn? You have a surplus, or money left over -- that’s good! Do you spend more than you have in your budget? You have a deficit, or expenses not covered by your earnings -- that’s bad! Balance = Monthly Amount for Budget - Total Costs

Budgeting 6.1 Budgeting Basics Salary-Based Budgeting Now that you’ve done the budget once through, you have a basic understanding of the components of a typical adult’s budget. Next, continue on to the Salary-Based Budgeting Reflection (next resource in this lesson). Use your Salary-Based Budgeting Worksheet and this presentation as reference.

Last few things to think about… When creating a budget should we use Gross Pay or Net Pay?? Please go back and look at the different type of income – Disposable and Discretionary What is surplus and deficit? What are the three major types of expenses? PYF?? Net Pay vs Gross Pay Budget ( Actual vs Budgeted) and Variance…