Pay attention like your life depends on this information.

Life Lessons 101

Budgeting Overview

How do you want life to be? Do you want to: Enjoy life? Struggle?

Everybody wants to be rich. How badly do you want this? Where does one begin?

What is a Budget? A plan for spending and saving money Most people think budgets are: –Rigid and inflexible –Painful – who wants to eat Top Ramen every night! –No fun! A budget does not take the fun out of having and making money

Why Budgets Make Sense Budgets help you: –Set priorities –Achieve what’s important to you A good budget is: –Realistic –Ongoing –Clear and easy to use

Budget Categories Income –Gross –Net Savings –Emergencies –Long-Term –Retirement –Short-Term Expenses –Fixed (can’t change) –Variable (may change) –Discretionary (for fun)

Income: Money Earned Gross income: An individual’s income before taxes. Net income: Income after taxes are paid. Taxes can range from 15% to 31%.

Taxes and Deductions First job pays $30,000/year. Your salary is your gross income. Take off at least 25% for taxes and other deductions. That’s what’s left for you to spend. Example: Gross salary = $30, Minus 25% taxes and deductions- 7, Net income $22, Net monthly income (take home) $ 1,875.00

Savings: Pay Yourself First Savings: unspent income Types –Emergencies: Plan to set aside a minimum of three months’ living expenses –Long-term: Large ticket items (house, car, college) –Retirement: It’s never to early to start –Short-term: Vacation, clothes, new toys

Personal Savings Rate Declining 1974 to 1984 –10% –Fell to 5% 2004 –1.8% 2005 –-0.5% 2006 –-0.2% Hasn’t been negative since the Great Depression

Personal Savings Rate Declining Currently about 3 to 4% on average Why was it 8 -10% in the 1960s, 70s, & 80s

Start Saving Young! Save $2,000 per year from age 19 – 26 –$1,035,148 by age 65 Save $2,000 per year from age 27 – 65 –$805,185 by age 65 Time value of money –Invest fewer dollars at a younger age but have 25% more

Or... Save $2,000 per year from age 19 – 39 How much might you have when you decide to retire at age 40? $1,518,745 Who wants to be able to retire at 40 a millionaire?

So, what’s the problem? By age 26 you will have accrued over $25, Can you now “sit” on that money until it is time to retire? That’s usually the problem. What if you want to wait and retire at 55. How much might you have?

Start Saving Young! Save $50 per month from age 19 – 26 –$665,000 by age 65 Save $25 per month from age 20 – 55 –Over 98,000 by 55

Income: Money Earned Gross income: An individual’s income before taxes. Net income: Income after taxes are paid. Taxes can range from 15% to 31%. Back to the Budget

Expenses Expense: A cost to meet a need or pay a debt Types of expenses –Fixed –Variable –Discretionary

Needs vs. Wants Needs are essentials –Food –Shelter –Clothing –Transportation Wants are extras –Dining with friends –Big, expensive house –Shop till you drop –Brand-new or expensive car –Cell Phone

Fixed Expenses A cost that occurs regularly and doesn’t vary in amount –Rent –Mortgage –Car payment –Insurance premium –Internet –Cable/satellite –Others?

Variable Expenses A cost that occurs regularly but may vary in amount: –Electricity –Water and Garbage –Telephone –Gasoline –Groceries –Cell Phone –Others?

Discretionary Expenses A cost determined by personal wants that may be controlled –Movies, videos, CDs –Sports –Dining out –Grooming and clothes –Vacations –Others? Wants, not Needs

Budget Summary Establish a budget: –Income –Savings –Expenses Fixed Variable Discretionary End up with a budget surplus and you’re a success!

Bottom Line... Enjoy your life Budget your life

Example: NET INCOME EXPENSES Fixed Rent Car Payment Car Insurance Cell Phone Internet Cable Savings Other SubTotal Variable Electricity Fuel Water Trash Groceries Entertainment Other SubTotal Total Expenses Difference NI - E Monthly Budget ____________ (NI) ____________ ____________ (E) ____________ Month __________

Example: NET INCOME EXPENSES Fixed Rent Car Payment Car Insurance Cell Phone Internet Cable Savings Other Sub Total Variable Electricity Fuel Water Trash Groceries Entertainment Other Sub Total Total Expenses Difference NI - E Monthly Budget ____________ (NI) ____________ ____________ (E) ____________ Month __________ John is a twenty-year-old working as an assistant store manager at McDonald’s. He is not married, has no dependents. He is on a salary of $32, That equates to about $ per week or $ per month. What is John’s monthly net income approximately? About $ based on current tax rates. Now, how would you make this budget look? First things first...

Where might he, or you, live?

Average monthly rent for a one-bedroom apartment City Rent San Antonio$ San Diego$ Seattle$ Los Angeles$ Boston$ New York$ Washington DC$ City Rent Columbus, OH$ Arlington, TX$ Memphis, TN$ Detroit, MI$ Tucson, AZ$ Wichita, KS$ Tulsa, OK$

What might he, or you, drive?

Average monthly car payment Amount Financed Monthly Payment 5 years $50,000$ $40,000$ $30,000$ $20,000$ $15,000$ Plus insurance $ $ per month

Let’s finish the Budget Consider what the following items might cost John, or you, on a monthly basis: Cell phone, Internet, cable/satellite Gas and maintenance for your car Groceries from HEB That new computer you want that you need to be saving for Utilities like electricity, gas, water, trash Money you will spend just hanging out with your friends Clothes, cosmetics, and all that stuff

Example: NET INCOME EXPENSES Fixed Rent Car Payment Car Insurance Cell Phone Internet Cable Savings Other Sub Total Variable Electricity Fuel Water Trash Groceries Entertainment Other Sub Total Total Expenses Difference NI - E Monthly Budget ____________ (NI) ____________ ____________ (E) ____________ Month __________ So, John is a twenty-year-old working as an assistant store manager at McDonald’s. He is not married, has no dependents. About $ based on current tax rates. You are “John,” how would you make this budget look?

Example: NET INCOME EXPENSES Fixed Rent Car Payment Car Insurance Cell Phone Internet Cable Savings Other Sub Total Variable Electricity Fuel Water Trash Groceries Entertainment Other Sub Total Total Expenses Difference NI - E Monthly Budget Month __May____ $2150 (NI) (E)

Your turn: