MoneyCounts: A Financial Literacy Series Budgeting Fundamentals Dr. Daad Rizk MoneyCounts: A Financial Literacy Series 240D Outreach Building University Park PA

MoneyCounts: A Financial Literacy Series Learning Objectives 5 steps to budgeting –Set up SMART goals –Collect financial information –Track money coming in –Track money going out – Review cash flow and set up a budget

MoneyCounts: A Financial Literacy Series On Budgeting Theo's Budget [YouTube]

MoneyCounts: A Financial Literacy Series What is Budgeting? Budgeting is the process of creating a plan to spend your money. It is spending less than earning as you plan for your financial goals How do I allocate my income to pay my expenses? Where did my money go? Why am I always broke? A financial tool to help manage cash flow! Budgeting is never “ONLY” about money! What is Budgeting?

MoneyCounts: A Financial Literacy Series Budgeting is simply balancing your expenses with your income. If they don't balance and you spend more than you make, you will have a problem Many people don't realize that they spend more than they earn and slowly sink deeper into debt Why is it important?

MoneyCounts: A Financial Literacy Series To meet your financial goals To achieve financial security To prevent financial crisis To get out of financial crisis Goal is to maintain financial stability in good times and financial sustainability in hard times An important component of financial success Adopt a budget prior to financial crisis When Should you budget?

MoneyCounts: A Financial Literacy Series Step 1 – Start by setting smart goals Short term & long term goals/personal, educational, social, financial and recreational –What are my values, my needs, what is my life situation? –What are my goals, what do I hope to accomplish? –Before you plan, picture the destination The Budgeting Process – Step 1

MoneyCounts: A Financial Literacy Series SMART – GOALS Prioritize goals using the SMART Model = Specific = Measurable = Attainable = Realistic = Timely Goals should be crystal clear in their definition

MoneyCounts: A Financial Literacy Series Step 2 – Get Organized Collect Financial Information Pay Stub Bank Records Financial Aid AwardsInsurance Tuition and Fees BillsGroceries Receipts Bookstore BillsEating Out Receipts Credit Card BillsPersonal Utility Bills Pets ElectronicsMiscellaneous The Budgeting Process – Step 2

MoneyCounts: A Financial Literacy Series Step 3 – Money coming in/ Income & Borrowing Wages, Salaries Family Help Interest Income Other Income Grants and Scholarships –Loans –Perkins –Subsidized –Unsubsidized –Other Loans The Budgeting Process – Step 3

MoneyCounts: A Financial Literacy Series Step 4 – Money going out/Saving & Spending Saving –At least 10% of net income –Pay yourself first –Establish/ keep an emergency fund –Invest and plan for retirement The Budgeting Process – Step 4

MoneyCounts: A Financial Literacy Series Step 4 – Money going out / Saving & Spending Spending –Know needs from wants, what are my spending habits? How do I make spending decisions? –List all spending – Tracking process Fixed & Variable »Tuition, Fees, Books »Housing and Groceries »Car expenses, Electronics, Insurance, Eating out, Personal, Pets, etc. »Periodic expenses, gifts, entertainment, Charity, etc. The Budgeting Process – Step 4

MoneyCounts: A Financial Literacy Series The Budgeting Process – Step 4

MoneyCounts: A Financial Literacy Series Step 4 – Money going out / Saving & Spending Saving is 10% of income – pay yourself first Spending Housing should not exceed 30% of your net income Meals and eating out should not exceed 20% of your net income Utilities should not exceed 5% of your net income Car expense should not exceed 10% of your net income Electronics, phone, Internet should not exceed 5% of your income All other expense is 20% of your net income The Budgeting Process – Step 4

MoneyCounts: A Financial Literacy Series Balancing Act –Use Loans only to pay for tuition, fees, & books –Use income to pay for housing, food, electronics, entertainment, insurance, credit cards, car expense, gas, personal, pets & miscellaneous Do a monthly budget, use accurate figures/amounts Avoid “PILS” Penalties, Interest, Late fees & Surcharges Keep a saving account Shop based on Needs not Wants Pay Credit Card in full each month Allow for some fun items, but stick to your budget The Budgeting Process – Step 5

MoneyCounts: A Financial Literacy Series The Budgeting Process – Step 5 Earning and Borrowing Net income Family support Grants and Scholarships Loans –Perkins –Subsidized –Unsubsidized Saving and Spending Saving, emergency fund Tuition, fees and books Housing and utilities Car expense Phone, Internet, electronics, videos Loan origination fees Insurance, medical, entertainment

MoneyCounts: A Financial Literacy Series Recommended Budget as a percentage of Net Income Income - Cash In100.00% 1. Saving10.00% 2. Housing30.00% 3. Utilities5.00% 4. Food20.00% 5. Transportation10.00% 6. Entertainment5.00% 7. Debt10.00% 8. Other10.00% Budget as a % of Net Income

MoneyCounts: A Financial Literacy Series Budget as a percentage of Net Income Budget as a % of Net Income

MoneyCounts: A Financial Literacy Series Use a Monthly Calendar Use Black color for income Use Red color for expenses Helps you visualize the entire month Helps you evaluate timing of payments Helps you improve your budget strategies

MoneyCounts: A Financial Literacy Series Tracking Expenses

MoneyCounts: A Financial Literacy Series Budget Worksheets

MoneyCounts: A Financial Literacy Series financialliteracy.psu.edu/ Financial Literacy Website!

MoneyCounts: A Financial Literacy Series Thank You! Comments and Questions Dr. Daad Rizk MoneyCounts: A Financial Literacy Series 240D Outreach Building University Park PA