Balancing the Budget: Fitting It All In!

“What does it mean to be financially responsible?” What was the last big purchase you made? What decisions and research went into the purchase? Are you still happy with the purchase?

What is Budgeting? “A budget is a written record of the money that flows in and out of your household every month.”

Then -- You have to decide … Do You Need It or Do You Want It? Needs are the very basic things we must have to survive. Wants are the things that make life more interesting and fun, but you could live without them if you had to.

What are spending plans? Spending Plan ◦A financial statement used to assist in money management comprised of income and expenses Income - money earned or received Expenses - money spent ◦Fixed Expenses - stay the same every month, due on a certain date ◦Flexible Expenses - vary month to month, can be decreased or eliminated

Creating a Personal Budget Track your expenses Figure out the amount of money you’re spending What do you have to spend? What are you spending that is not a necessity?

Two Types of Expenses 1. Essential or Fixed expenses – HAVE to have in order to live: mortgage or rent, insurance for auto & home, car payments, taxes Essential or Variable expenses: car maintenance, gas, food, electricity, phone 2. Non-essential expenses–DON’T HAVE to have in order to live: Video games, books, movies

Monthly Budget Example

Major expenditure Percentages Identify the average percent of net income spent in a specific category Use as a guide when making spending decisions ◦Percentages should be adjusted to meet individual values, needs and wants Other includes items such as: ◦Clothing ◦Personal care ◦Entertainment ◦Donations

Disposable vs. Discretionary Knowing the difference is important to budgeting

Disposable Income Gross Income minus Taxes This money leftover goes to the Essential Expenses. Let’s list some…remember the two categories under Essential Expenses?

Discretionary Income Discretionary Income = Gross Income - Taxes - Necessities Or Discretionary Income = Disposable Income - Essential Expenses How will you spend yours?

Connection to Your Budget Keep in mind the difference between Disposable Income and Discretionary Income when doing your budget. Review for the class: 1. What is discretionary income? 2. What is disposable income?

Federal Taxes

First tax bracket: $9,075 X 10% = $ Second tax bracket: ($19,000 – $9,075) X 15% = $1, Total income tax:$2, Here ’ s how tax brackets work, an example Say you ’ re single with no dependents, and your taxable income is $9,000. What if your taxable income is $19,000? As a Single filer, you ’ re now in the 15% tax bracket. That doesn ’ t mean you pay 15% on all your income, however. You pay 10% on the first $9,075, plus 15% of the amount over $9,075. Here ’ s the math:

Social Security & Medicare Payroll Tax Responsibilities Employer Pays & Employee Pays Social Security withholding = 6.2% Medicare withholding = 1.45%

State Tax – progressive taxes

Insurance HeathDisabilityLife What is it? Provides financial protection for injury and illness Replaces a portion of income if unable to work because of injury or illness Provides a specific sum of money to beneficiaries if an individual dies When is it needed ? Always! Almost always If others depend upon an individual for financial support (families with children) My be provided by the employer

Balancing Act At the end of the month, break everything down into categories. Is your income greater than your expenses? YES! – Great, then you can save. NO! – There’s a problem!

Expenses Greater Than Income? What can you cut out?

What To Do with Your Surplus Plan ahead and save when you can! Have financial goals: college, new car, vacation, paying off credit cards, saving for a home, etc.

Your Detailed Planned Budget