1. Budgeting: How will you use your money? CLP Chapter 6

2. Exploding Myths: T/F? Financial Success depends on luck more than planning Spending small amounts of money now will affect your life-span financial success Your spending decisions do not affect anyone but yourself

3. Why Do Budgets Get a Bad Rap? Does the mere mention of the word “budget” conjure up images of drudgery and deprivation? You’re not alone. Most people think budgets are  Rigid and inflexible  Painful – who wants to eat Top Ramen every night?  No fun!

4. Why Budgets Really Do Make Sense? A good budget should help you set priorities and achieve what’s important to you. Not what’s important to your banker, your best friend, or your relatives. A good budget should be  Flexible: It should change as your needs change.  Ongoing: It’s not a one-time event. A budget should be part of your everyday life.  Clear and easy to use: 12 page spreadsheets are out!

5. Budgets: Where to Start  Be clear on what you make and how much you spend.  Anticipate all of your potential expenses.

6. The Budget Process Create Your Budget for the Year Choose Financial Goals Track Income and Expenses Prepare Budget Worksheets Review and Adjust Your Budget Worksheet THE BUDGET PROCESS

7. Choose Financial Goals  Types of Financial Goals  Budget  A plan for dividing income among spending and saving options  Based on long and short term goals  The first step to budgeting is consider the important goals you have set in your life-span goals  Requires trade-offs and opportunity costs

8. Short- &- Long Term Financial Goals  Short Term- goals you hope to achieve within a year  Ex. Buying a $200 TV  Long Term- goals you hope to achieve over more than a year  Ex. Paying for college

9. In Class Activity  In small groups, think of some life-span goals and list them  Choose one to work on further.  Then, as a group, think of short-term goals that would help you achieve your chosen life-span goal  List as many as you can

10. Balancing Short Term Spending with Long Term Success  Controlling short term spending, which may not seen to matter much, is the most crucial for long term success  Saving now can help you achieve your life-span plan  People who evaluate each small step are likely to reach their intended goals

11. Your Family & Your Goals  Your Current Family  Parents can help achieve life-span goal  Ex. Helping you pay for college if your goal is to be a doctor  Your Future Family  80% of you will marry before the age of 25  Decisions you make today can affect the person you marry as much as they affect you

12. Your Community & Your Goals  People who are successful in their personal lives also contribute to the welfare of their community  Ex. A parent who achieves their goals are a good example to their child which in turns may be a better citizen  While you are achieving your life-span goals, you are helping others along the way

13.  Make a list of your current long-term financial goals.  Then, write a paragraph about how achieving your goal will benefit you, your family, and your community

14. Commercial of Budgets  Plan and present a commercial “selling” the advantages of having a budget  Can include who benefits from budgets  How budgets affect other people  Myths of budgeting  Or anything else you can think of  Or anything else you can think of

15. The Budget Process Create Your Budget for the Year Choose Financial Goals Track Income and Expenses Prepare Budget Worksheets Review and Adjust Your Budget Worksheet THE BUDGET PROCESS

16. Track Income & Expenses Keep Financial Records  Track Your Income  Track the amount of money that you come across every month  Track Your Spending  Keep all receipts, credit card statements, and returned personal checks

17. Establish a Filing System  Needs to be organized, complete, and easy to be located  Be sure to file each record as you receive it or enter it on your computer  Get a filing cabinet or organizer for easier accessibility

18. How to Use Financial Records  The purpose of keeping financial records is to use them to help you plan  With good financial records, you can compare what you want to do with your income and what you actually spend  You can control your spending to reach your goals

19. Budget Categories  Income  Gross  Net  Savings  Emergencies  Long-Term  Retirement  Short-Term  Expenses  Fixed  Variable  Discretionary

20. Income: The Amount of Money Earned  Gross income: An individual’s income before taxes.  Net income: Income after taxes are paid.  Fasten your seat belts: Taxes can range from 15% to 31%. Yikes!

21. The Amazing Disappearing Paycheck  Your first real job pays $30,000/year. You’re rolling in the bucks, right? Not necessarily.  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 = $30,000 Minus 25% taxes and deductions- 7,500 Net income $22,500

22. Savings: Pay Yourself First  Savings is unspent income.  Types  Emergencies: Plan to set aside 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 skis

23. The Power of Saving Early  Save early and regularly. Then watch your money grow!  If you start at age 21 with $1,000 and add $50/month until you’re 55, you’ll end up with $120,373!  You contributed only $21,400. The remaining $98,793 is interest. You didn’t have to lift a finger for it. Sweet deal! Imagine if you saved even more monthly!

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

25. Fixed Expenses A cost that occurs regularly and doesn’t vary in amount  Rent  Mortgage  Car payment  Insurance premium  School loans  Others?

26. Variable Expenses A cost that occurs regularly but may vary in amount  Electricity  Water and Garbage  Telephone  Gasoline  Groceries  Others?

27. Luxury Items  In a small group, list luxury products in each of the following categories:  Jeans  Athletic shoes  Watches  Stereos  Computers  Jackets

28. The Budget Process Create Your Budget for the Year Choose Financial Goals Track Income and Expenses Prepare Budget Worksheets Review and Adjust Your Budget Worksheet THE BUDGET PROCESS

29. Steps in Preparing Your Budget Worksheet  To get the information you need to plan your future spending and saving, you need to investigate your current spending habits  To do this, you can build a budget worksheet  A planning document on which you record your expected and actual income and spending over a short time, usually a month

30. Step 1: Create a Worksheet  Spreadsheet with 4 columns  First column- listing your sources of income and categories of spending and saving  Second column- recording the amounts you expect to receive, spend, or save during the month  Third column- recording the actual amounts you spend, receive, or save  Fourth column- recording the difference

31. Creating a Worksheet IncomeExpectedAmount Actual Amount Over (+) or Under (-)

32. Step 2: Estimate your Income  Estimate Uneven Income  Your income may not be the same every month  Prepare for smaller income months  Be Sure the Income is Real  Include only income that you think you will receive  Prepare for uneven income flows

33. Step 3: Estimate Your Expenses & Saving  To estimate your expenses, look in your records for your fixed and flexible expenses  Plan for Unexpected Expenses  Expenses can occur unevenly through the year too. Ex. Car insurance  Plan your Saving  Needs to be planned as an expense

34. Step 4: Record Your Actual Income and Expenses  As you receive income or make purchases during the month, file your records in you filing system

35. Step 5: Calculate the Differences  Compare your expected amounts with your actual amounts

36. Budget Pitfalls  Some people get too specific. Keep your budget simple  Some people don’t predict the correct amount of their flexible expenses  Some people lump too many expenses under miscellaneous  Some people give up on budgets b/c they think it takes too much time and effort to create and maintain them

37.  Complete worksheet “Math of Money”

38. The Budget Process Create Your Budget for the Year Choose Financial Goals Track Income and Expenses Prepare Budget Worksheets Review and Adjust Your Budget Worksheet THE BUDGET PROCESS

39. Evaluate Your Budget Worksheet  Evaluate what your budget sheet tells you  The purpose of a budget worksheet is to help you divide your income among the spending and saving options that will help you meet your goals  It is a plan, not just information

40. Evaluating Your Budget  Adjust Your Spending  Remember, you can only cut back on flexible spending, not fixed  Make Several Plans  There is no right way to use your income  the best way for you depends on your goals and those of your family

41. Budgeting for the Year  You can use budget worksheets to plan how to use your income over a short time  Budgeting for a year can help you plan steps toward major goals that may take many years to achieve  A yearly budget is like a summary of all your budget worksheets for each month of the year

42. Review & Adjust Your Budget  Relate your goals to your budget  Adjust to changing goals

43. Decision Making Project  “All in the Family”