Budgeting & Saving hUxttPh7_XQ

Review Terms Budget Deficit Expenditure Fixed Expense Flexible Expense Income Savings Surplus Take-Home Pay Unexpected Expense

Managing Your Money How you direct, control, & handle your money Figure out: – How much you currently have – Where it comes from – Where it goes – How much more you expect to receive in future Can make decisions on how to spend it

Budget Tool to help plan where available money goes Itemized summary of probable expenditures and income for a given period (month, week, etc.)

Preparing a Budget

Step 1: Forecast Your Income Forecast all possible sources of income – Job – Allowance – Gift – Interest on savings – Tax refunds – Etc. Can look at old pay stubs, bank statements, etc.

How to Estimate Gross Pay & Net Pay (will do in Computer Exercise) Step 1: Estimate Gross Pay Multiply your hourly wage by the number of hours worked each week (40, etc.) & the number of weeks in a month (4) Gross Pay = $7.25 x 40 hrs/wk x 4 wks/mo $1, Step 2: Estimate Deductions Multiply your Gross Pay by the estimated percentage of your pay taken out in taxes (18%) Deductions = $1, x.18 $ Step 3: Calculate Net Pay Subtract the Deductions from your Gross Pay Net Pay = $1, $ $951.20

Example BudgetedActual Income Job (Take-Home Pay)$ Other$0.00 Total Income$900.00

Step 2: Forecast Expenses Forecast fixed expenses – Expenses you must pay & have little or no control over Housing (rent, mortgage) Taxes Insurance Plan for savings – How much you need to set aside to achieve financial goals

Example BudgetedActual Income Job (Take-Home Pay)$ Other0.00 Total Income$ Fixed Expenses Rent$ Charitable Donations15.00 Renter’s Insurance50.00 Bus Fare20.00 Telephone30.00 Savings Total Fixed Expenses$575.00

Plan for living expenses – Expenses for your lifestyle – Variable Can change month-to-month You have some control over – You can adjust any of these to help meet your goals

Example BudgetedActual Income Job (Take-Home Pay)$ Other0.00 Total Income$ Fixed Expenses Rent$ Charitable Donations15.00 Renter’s Insurance50.00 Bus Fare20.00 Telephone30.00 Savings Total Fixed Expenses$ Flexible Living Expenses Household$30.00 Groceries Clothing35.00 Entertainment75.00 Dining Out25.00 Total Flexible Expenses$325.00

Step 3: Balance Income & Expenses Review expenses to ensure your income covers them – May need to revise expenses (primarily living expenses) if you cannot adjust income – May need to try to adjust income to help cover expenses

Example BudgetedActual Total Income$ Total Expenses Total Fixed Expenses$ Total Flexible Living Expenses$ Total Expenses$ Income Less Expenses$0.00

Step 4: Spend According to your Plan Stick to your budget Avoid “impulse spending”

Step 5: Compare Actual Earning & Expenses with Targets At end of time period, evaluate if you met your income and expense targets Analyze areas for shortfalls – Did you not budget enough? – Did you not stick to budget? – Did you stay focused on your goal?

Example BudgetedActual Income Job (Take-Home Pay)$ Other Total Income$900.00$ Fixed Expenses Rent$ Charitable Donations15.00 Renter’s Insurance50.00 Bus Fare20.00 Telephone30.00 Savings Total Fixed Expenses$ Flexible Living Expenses Household$30.00$25.00 Groceries Clothing Entertainment Dining Out25.00 Total Flexible Expenses$325.00$300.00

Example BudgetedActual Total Income$900.00$ Total Expenses Total Fixed Expenses$ Total Flexible Living Expenses Total Expenses$900.00$ Income Less Expenses$0.00$75.00

Step 6: Repeat the Process Using info from budget analysis, prepare new budget for new time period – Forecast income – Forecast expenses – Evaluate at end of next time period

Reaching Your Financial Goals Establish financial goal – Ensure it’s: – Realistic – Measurable (specific) – Time-limited (a “by” date) – Affordable (set $$ goal) – Ex: “Save $4,800 to buy a car within 24 months.” Break down goal into realistic steps to reach goal – Ex: “Save $200 per month from my paycheck.”

Saving for the Unexpected Unexpected expenses may arise – Car breaks down – Unexpected illness/injury with out-of-pocket medical expenses Recommend you save 10% of your income to cover unexpected expenses – 3 – 6 months of expenses should be in savings in case of an emergency

Saving for the Future Important to keep money in savings account – Can’t get stolen – Earns interest (money paid to you for depositing the money there) Bank account may have monthly fee if you don’t have minimum balance – Find out if it does; you may want to find a different type of account or different bank