1. Personal Finance Chapter 6
Budgeting:
How Will You Use Your Money?

2. Section 6.1 Choose Financial Goals
Budget – A plan for dividing up your income among spending and saving.
Based on short-term goals and long- term goals
First Step: Choose your financial goals!

3. Section 6.1 Choose Financial Goals
Short-term Goals – things you hope to achieve within the next year or two.
Do not have much overall impact on your life
Usually limited planning
Don’t involve a large amount of money

4. Section 6.1 Choose Financial Goals
Long-term Goals – Things you hope to achieve in more than a year or two.
Most have a major impact on your life.
Requires managing your money NOW to achieve future goal
Examples: College, Buy a Home, Start a Business, Secure Your Retirement

5. Section 6.1 Choose Financial Goals
 Short-term Goals = Long-term Success!
When you consider satisfying your short-term goal, think about how your choice may affect your future
Prioritize your goals to focus on those most important to you

6. Section 6.1 Choose Financial Goals
Your Goals Affect Others
Your Current Family – borrowing / using money from parents
Your Future Family – loans / borrowing, you give up future spending for current spending
Your Community – Some of your long-terms goals (ie: career goals) will help others along the way

7. Section 6.2 Track Income and Expenses
Track Your Income – Keep track of your income
Paycheck stub is the most accurate record of income.
Keep your own written record of income that does not have documentation.

8. Section 6.2 Track Income and Expenses
Track Your Spending – Keep track of your spending
Sales receipts
Credit card statements
Checkbook register
Keep a written record of spending that does not have documentation.

9. Section 6.2 Track Income and Expenses
Filing System – establish a filing system to keep records straight
Make files for EXPENSES and INCOME
As you receive income or buy something, file your receipts, paycheck stubs or notes about the transaction in the appropriate folders
Make record keeping a life-long habit to take control of your financial life!

10. Section 6.2 Track Income and Expenses
Purpose for Keeping Records
Help you plan
Learn your spending habits
Keep track of your progress towards your goals
Can control your spending

11. Section 6.2 Track Income and Expenses
Fixed Expenses – amounts you have already committed to spend
Usually give you the exact amount
You know when they are due
You can plan for these expenses
Examples: House Payment/ Rent Expense, Property Taxes, Car insurance

12. Section 6.2 Track Income and Expenses
Flexible Expenses – amounts that you can choose to spend or not to spend
Most things you want are flexible expenses!
Luxury goods­ – goods that have special qualities that make them more expensive than alternative goods
Example: Sports car is more expensive than a compact car

13. Section 6.3 Your Budget Worksheet
Budget Worksheet – A planning document to record your expected and actual income and spending over a short time
Usually made for one month at a time
A way to compare how you think you spend your income with how you actually spend it.

14. Section 6.3 Your Budget Worksheet
Steps to Preparing the Budget Worksheet 
Create a Worksheet
4 columns should include:
Categories of income and spending
Expected amounts you receive, spend, or save
Actual amounts you receive, spend or save
Difference between expected and actual

15. Section 6.3 Your Budget Worksheet
2) Estimate your Income
Only amounts you can be sure of
Don’t write money that isn’t sure income
UNDER-estimate income!
3) Estimate your Expenses and Savings
Include fixed and flexible expenses
PLAN for savings!
OVER-estimate expenses!

16. Section 6.3 Your Budget Worksheet
4) Record Your Actual Income and Expenses
Keep all of your receipts
At the end of the month record them on the worksheet
5) Calculate the Differences
Compare your actual amounts with your estimated amounts
Analyze your spending for the month

17. Section 6.3 Your Budget Worksheet
Budget Pitfalls 
Some people get too specific
Keep categories and estimates simple 
Keep good records to help predict spending
Don’t lump too many expenses under miscellaneous
Try to categorize frequent expenses
People give up on budgets because they take up too much time. Should only take an hour a week. It will help you achieve your long-term goals.

18. Section 6.4 Create Your Budget for the Year
Purpose of a Budget Worksheet –
to divide your income between the spending and savings options that will help you meet your goals.

19. Section 6.4 Create Your Budget for the Year
A Balanced Budget
Total Income = Expenses + Savings 
Ways to Balance Your Budget
1) Borrow money (loans)
2) Reduce Expenses - when you reduce spending, you must cut back only on flexible expenses
3) Reduce Savings

20. Section 6.4 Create Your Budget for the Year
Changing Your Budget
1) When your goals change
2) When your income changes
3) When your expenses change
Family Budget
- Plan together as a family
- Everyone has different needs and wants
- If everyone understands the family budget, everyone can have realistic goals