1. BUDGETING
2010

2. Budgeting
Budget
A plan for wise spending and saving of money based on your disposable income and costs of living (expenses).
Purpose
A budget allows you to:
organize and control your
financial resources;
set and achieve goals;
make your money work for you.

3. Organize and Control Your Financial Resources
1. Allows you to know what income you have and how much you need for necessity/living expenses and have left over for discretionary shopping.
2. Prevents over spending and going into debt, hurting your credit rating, and worst case scenario, bankruptcy.
3. Encourages wise shopping and smart purchases
4. Allows you to be and feel in control of your life and ready to plan for future dreams and goals.

4. Set and Achieve Your Goals
Short Term Goals
Planning:
To buy an ipod
To buy a phone
To purchase a gift
To purchase a new fancy outfit
To go on a holiday
Long-Term Goals
Planning:
1. to attend College or University
2. to own your dream car
3. for a down payment on your first home
4. for a family
5. for a dream vacation
6. for annual holidays
7. for your children’s future education
8. for a comfortable retirement to be able to do things you would like.
9. for emergencies

5. Make Your Money Work For You

6. Types of Budgets A budget can be:
as simple or as complicated as you want;
daily, weekly, monthly, annually
A budget takes into consideration:
all income you receive (wages, salaries, an allowance, etc)
your living expenses, financial goals, savings, and discretionary desires.
allocating all your income and not having any leftover.
Note: Wise financial planning will include allocating/placing 10% of your income into savings.

7. Preparing Your Personal Monthly Budget
Step 1
Calculate your monthly disposable income
(take-home pay) + any other regular income your receive.
Step 2
Calculate your expected living expenses, goals, and discretionary item amounts.
Fixed expenses occur regularly and cannot be adjusted. (i.e. mortgage payments, phone bills, car payments, insurance payments)
Variable expenses differ from one month to another. (i.e. clothing, food, personal care, entertainment, savings)

8. Your Personal Monthly Budget
Step 3
Review your budget
Compare your budget with your actual spending habits using bills, receipts etc.
Determine if you are overspending  Your total expenses exceed your income.
What adjustments can you make in your budget and how might you alter your spending habits to follow your budget?

9. Your Personal Monthly Budget
Step 4
Record and review your spending for several months to determine your spending habits.
Are you able to increase your savings, cut back in certain areas to follow your budget?
If your income increases, how might this change your budget?

10. Monthly Budget Example
Income
Gross Income $ 6 542
Income Tax, CPP, EI (2 583)
Disposable Income $ 3 959
Less 10% Savings
Net Disposable Income $3 309
Expenses
Mortgage
Car Payment
Car Insurance
House Expenses (Heat, Hydro, Phone, Ins.)
Groceries/Personal Items
Clothing
Total Necessities $ 3 120
Discretionary Income (Net Disposable – Necessities)
Entertainment and Gif
Additional Clothing
Leftover Income $ 0

11. Business Money Management

12. How business budgeting differs from personal budgeting
Business’ want as much money left over as possible which is called a net profit or net income.
2. Business’ spend money to make money
(launching a new product, advertising, etc)

13. Types of Business Income
1. Revenue
The amount of money collected for the goods and services provided to customers.
May include investment income if company has some of its money tied up in investments

14. Types of Business Income
2. Gross Income/Gross Profit
Total amount of money the business receives minus the cost of the goods the business sold.
Calculated for a merchandising business
Example:
Loblaws sold 1 bag of milk at $5.00
Less: Cost to Loblaws for milk
Gross Income/Gross Profit $3.00

15. Type of Business Income
3. Net Income/Net Profit
Gross income/profit minus the expenses needed to operate the business. (i.e. heat, insurance, advertising, wages, etc)
Example:
Loblaws sold 1 bag of milk at $5.00 … Revenue
Less:Cost to Loblaws for milk … Cost of Good Sold
Gross Profit/Income $3.00 … Gross Profit
Less: Operating Expenses Operating Expenses
Net Income/Profit … Net Income/Net Profit

16. Budgeting for a Business
1. Start-Up Budget
Outlines the money needed to start and open a business. (i.e. money for a building, furniture, equipment, computers, inventory, etc)
Start up money (capital) is necessary to cover more than a year until revenue is generated.
Start-up expenses must be estimated carefully in order to acquire enough start-up capital to carry the business until it starts to generate enough of its own revenue through sales.

17. Budgeting For A Business
2. Operating Budget
Outlines the revenues and expenses of a company on a monthly, yearly, or project basis.
Examples of Business Revenue
Sales (merchandise)
Membership fees (Costco or Golf Club)
Fees earned (lawyers, dentists)
Examples of Operating Expenses
Rent
Insurance
Wages and salaries
Advertising
Hydro

18. Setting Business Goals
Examples of company goals made by management
Launch a new product
Expand internationally
Increase research and development
Close down a division
Cut expenses by a certain amount
Increase sales by a certain amount
Note: Goals must be measurable in order to budget accordingly. For example, expenses must be cut by 30%. If total expenses were $ How much needs to be cut?
$30,000 = (100,000 * .30)

19. Preparing a Business Budget
Step 1
Calculate the amount of expected income.
This estimate may be based on:
a. previous years revenues
b. market research results
c. state of the industry or trends
d. state of the economy
e. a combination of all of the above.
In a business budget, projected income is called revenue.

20. Preparing a Business Budget
Step 2
Calculate expected expenses.
This estimate is based on known fixed expenses such as rent, insurance, salaries, etc.
Variable expenses such as utilities, advertising, bank charges, cost of goods sold may be calculated based on previous years amounts, company financial and business goals, state of the economy, industry, etc.

21. Preparing a Business Budget
Step 3
Calculating the amount left
Revenues
- Cost of Goods Sold
= Gross Profit
- Operating Expenses
= Net Income/(Loss)
Note:
The goal of the business budget is to have the highest possible net income.

22. Preparing a Business Budget
Step 4
Review your budget
Compare your budget with actual revenues and actual expenses
If business is spending more than it is earning what might it do to adjust the budget?
cut back on expenses, raise or lower prices to increase sales, spend more in advertising, lay off employees.

23. Example of a Monthly Business Budget
Revenue $25 000
Cost of Goods Sold
Gross Profit $
Operating Expenses
Salaries
Wages
Rent
Telephone
Utilities
Insurance
Delivery Truck Maintenance
Advertising
Interest and Bank Charges
Supplies
Total Operating Expenses
Net Income $

24. Source
Wilson, Jack et al. The World of Business, 5th Ed., Nelson Education Ltd., Canada, 2007