Budgeting Techniques Ch. 16 – 2 PoB 2011

 Budget – allows you to meet your personal goals with a system of saving and wise spending  Having a plan for saving will help you do the following:  Live within your income  Make wise budget decisions  Plan for financial emergencies  Develop money management skills  Achieve your financial goals Budget Activities

1.Set financial goals 2.Plan budget categories 3.Maintain financial records 4.Evaluate your budget The Budget Process

 Your financial goals should take a SMART approach –  Specific  Measurable  Action-Oriented  Realistic  Time-Based  Writing down short-term and long-term goals will help you decide how to spend and save your money Set Financial Goals

SMART Approach

 First part of the budget: Savings  Then, consider two types of living expenses:  Fixed Expenses – costs that occur on a regular basis and are for the same amount of each time  Examples: rent, mortgage payments, and insurance payments  Variable Expenses – involves living costs that differ each time and may not be as easy to estimate  Examples: food, clothing, and utilities Plan Budget Categories

 Allowance – is the amount of money you plan to use for a certain budget category  Eight Divisions 1.Savings 2.Food 3.Clothing 4.Household 5.Transportation 6.Health and Personal Care 7.Recreation and Education 8.Gifts and Contribution Plan Budget Categories

Family Budget for One Month

 After planning, records income and expenses to find out if the plan is working  Expenditures are recorded during the month  If neccessary, balancing of checkbook Maintain Financial Records

 Actual spending is compared with the budgets amounts  Budget Variance – any difference between these amounts  Deficit – if actual spending is greater than planned spending  Surplus – when actual spending is less than the budgeted amount  Category-by-category comparison allows you to find areas where to changes in the budget may be appropriate Evaluate Your Budget

 Must be realistic  Should be flexible  Should be evaluated regularly  Must be well planned and clearly communicated  Should have a simple format Successful Budgeting

Family Income and Expense Record

1.What are the main purposes of a budget? 2.What are eight commonly used budget categories? 3.What are five characteristics of an effective budget? Review