1. 16-2

2.  A budget allows you to meet your personal goals with a system of saving and wise spending.  The main purposes of a budget are:  Live within your income  Achieve your financial goals  Buy wisely  Avoid credit problems  Plan for financial emergences  Develop good money management

3.  Having a budget is key to money management  Should be written down  May be simple  May be elaborate  Should include  How much you make  Where every dollar you have is going

4.  Set Financial Goals  Plan Budget Categories  Maintain Financial Records  Evaluate Your Budget

5.  Setting goals are critical  First step of any financial action  Where would you like to be financially?  Write down both short term and long term goals to determine how much to spend or save.  Things such as going to college will have an affect on your goals. i.e. you will need to save more when working in the summer.

6.  The first part of a budget is to plan for savings  If not other expenses may use all available income  After savings 2 types of living expenses  Fixed- same amount every month i.e. Rent  Variable expenses- different amounts each month. i.e. food, utilities.  Allowance is the amount of money you plan to use for a certain budget category.

7.  Savings, 5-10%  Savings accounts, govt. bonds, stocks, investments  Food, 5-15%  Food eaten at home and away from home  Clothing, 2-7%  Clothes, shoes, dry cleaning, and repairs  Household, 25-35%  Rent, mortgage, property taxes, insurance, utilities, furnishings, household supplies, painting, and repairs

8.  Transportation, 10-15%  Auto payments, insurance, operating costs, maintenance, repairs, and public transportation  Health and personal care, 10-20%  Medical and dental expenses, medications, eyeglasses, health insurance, and personal care costs.  Recreation and education, 5-10%  Books and other reading materials, theater tickets, concerts, vacations, school expenses, hobbies, and club dues.  Gifts and contributions, 10-15%  Charitable contributions and personal gifts.

9.  Next ask yourself “how much should I set aside for each category?”  This will depend on family size, age, cost of living in your area, and work expenses.  You can look at your cash flow statement to see which categories your money was being spent in the previous month.

10. Jones Household Monthly budgets Aug, 2010 Estimated incomeEstimated expenses Manuel's net income$4,225Savings$2,225 Lydia’s net income$4,350Food$1,100 Clothing$475 Household$1,875 Transportation$1,275 Health & personal care$450 Recreation & education$800 Gifts & Contributions$425 Total Net income$8,575Total expenses$8,575

11.  After planning and budgeting record your income and expenses  See figure 16-4 on page 407

12.  At the end of the month your income and expense record is totaled  Compare these amounts to your budget  When spending is more than budgeted it is a Deficit  When spending is less it is a surplus  This is a good time to make changes if necessary.

13.  Must be realistic  It should reflect current income and planned spending  Should be flexible  When unexpected expenses arise, your spending plan should be able to adapt for these living costs.  Should be evaluated regularly  Every few months, evaluate the budget to determine whether it is still appropriate

14.  Must be well planned and clearly communicated  All family members should discuss financial goals, wants, and needs, and plans for spending.  Should have a simple format  If it is too detailed and difficult to understand, family members may not be willing to use the spending plan.

15.  Put expenses that you can pay in cash in an envelope.

16.  Budgeting software programs allow you to develop a budget, keep track of your accounts and pay bills.  Hand written and computerized (excel) budgets are most common.  Some people try to keep budgets in their heads