1. Budgeting II

2. 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 takes the fun out of money – Mason Cooley

3. 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 – NOT 12 pages! –Flexible – changes as needs change

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

5. 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%.

6. 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 = $30,000 Minus 25% taxes and deductions- 7,500 Net income $22,500

7. Why You Should Save The best reason to save some of your income as you earn it is to provide for future needs, both expected and unexpected.  Can improve your standard of living  No matter how old you are, you will have financial goals

8. Why You Should Save  What works at 20 won’t necessarily work at 40  20’s – paying off student loans; trying to buy first house  70’s – goal may be trying to make sure your retirement funds last your lifetime

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

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

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

12. Ways to Reduce your Grocery Bill Make a shopping list Study grocery ads Use coupons Buy store-brand products Avoid impulse purchases Learn the basic prices of your favorite foods.

13. Discretionary Expenses A cost determined by personal wants that may be controlled –Movies, videos, CDs –Sports –Eating out –Grooming and clothes –Concerts and plays –Vacations –Others?

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

15. Financial Security Amount of money you save will vary according to several factors: 1.Discretionary Income – what you have left over after you have paid your bills 2.Importance you attach to savings 3.Anticipated needs and wants 4.Will power to restrict present spending

16. Balance Your Budget 3 R’s  reality / responsibility / restraint 1)Determine surplus/deficit 2)Evaluate Budget – ways to reduce budget (increase income, coupons, luxuries) – spend less 3)Understand advertising influence – evaluate information