BudgetBudget

How to budget your money?How to budget your money?

““Some Money Facts”Some Money Facts”

►$ The average person spends money $ The average person spends money three times a day.three times a day.

►$ A movie with popcorn and a soft $ A movie with popcorn and a soft drink can easily cost $20drink can easily cost $20

►$ Just one soft drink a day for .99c $ Just one soft drink a day for .99c adds up to $361.35 in a yearadds up to $361.35 in a year

►$ What’s the biggest expense item $ What’s the biggest expense item for teenagers? FOOD!for teenagers? FOOD!

Money Matters:Money Matters:

►How many times a day do you spend How many times a day do you spend money?money?

► The average person spends money 6 times The average person spends money 6 times a day.a day.

►Money brings happiness – Money problems Money brings happiness – Money problems bring unhappinessbring unhappiness

►Money problems stay with you for the rest of Money problems stay with you for the rest of your life.your life.

► Top reason for divorce is financial. Finances Top reason for divorce is financial. Finances affects everything else in your life.affects everything else in your life.

Ways to improve your financesWays to improve your finances

►Make more moneyMake more money► Cut your expensesCut your expenses► ““Wait and win the Wait and win the

lottery” systemlottery” system►Have a budgetHave a budget

What is a budget?What is a budget?

►A tool to manage your moneyA tool to manage your money►For a specific period of time – For a specific period of time –

usually monthlyusually monthly►Budget due to our limited Budget due to our limited

resourcesresources►Helps us meet our responsibilities Helps us meet our responsibilities

and our financial goalsand our financial goals

Reasons for a BudgetReasons for a Budget Track spending Track spending

Money toward expenses/billsMoney toward expenses/bills

Avoid careless spendingAvoid careless spending

Eliminates stressEliminates stress

Live within your means/incomeLive within your means/income

Meet financial goalsMeet financial goals SaveSave

InvestInvest

……Puts you in control of your financial future, Puts you in control of your financial future, beginning NOW.beginning NOW.

Without a Budget…Without a Budget…

Have no planHave no planPaycheck-to-paycheckPaycheck-to-paycheckCome up shortCome up shortPlan for emergenciesPlan for emergenciesNo savings/investing plansNo savings/investing plans

Less likely to know what $ you haveLess likely to know what $ you have

How to Build a BudgetHow to Build a Budget

1.1. Decide on a time frame for tracking Decide on a time frame for tracking expenses (monthly)expenses (monthly)

2.2. List all money you have coming in (income)List all money you have coming in (income)

A.A. Disposable incomeDisposable income

B.B. Discretionary incomeDiscretionary income

3.3. PYF (Pay yourself first) = SavingsPYF (Pay yourself first) = Savings

4.4. Make categories for all expensesMake categories for all expenses

5.5. Subtract total expenses from incomeSubtract total expenses from income

6.6. Study budget and make changesStudy budget and make changes

PAY YOUR$ELF FIRST!PAY YOUR$ELF FIRST!

Every time you PYF, you are developing Every time you PYF, you are developing a a saving habitsaving habit that leaves you with that leaves you with more money to spend later on for more money to spend later on for things that are really important to you!things that are really important to you!

Save 10% of your disposable income Save 10% of your disposable income each time you get paideach time you get paid

Budgeting TermsBudgeting Terms

►Budget – tool for Budget – tool for money money management management

►Disposable income Disposable income – after taxes – after taxes

►Discretionary income Discretionary income – after all expenses – after all expenses paidpaid

►Expenses:Expenses: Fixed expenses – Fixed expenses –

monthly monthly contractual contractual

Variable expenses Variable expenses – not contractual, – not contractual, vary each month vary each month

Periodic fixed Periodic fixed expenses expenses

Spending plan activitySpending plan activity► Decide if each item is income, a Decide if each item is income, a

fixed expense, variable expense or fixed expense, variable expense or periodic expenseperiodic expense

Spending plan activitySpending plan activityRent Rent

Fixed expense Fixed expense

Wages Wages

IncomeIncome

Spending plan activitySpending plan activity

Groceries Groceries

Variable expenseVariable expense

Internet bill Internet bill

Fixed expense Fixed expense

Spending plan activitySpending plan activity

Tips Tips

Income Income

UtilitiesUtilities

Variable expenseVariable expense

Spending plan activitySpending plan activity

Gift from family Gift from family

Income Income

Savings Savings

Fixed expense - PYFFixed expense - PYF

Spending plan activitySpending plan activity

Automobile registrationAutomobile registration

Fixed expense Fixed expense

Eating out/SnacksEating out/Snacks

Variable expenseVariable expense

What is included in a budget for What is included in a budget for a family in a given month? a family in a given month?

The typical family spends their money The typical family spends their money on:on:►Housing - 30%Housing - 30%►Transportation - 20%Transportation - 20%►Food -15%Food -15%►Utilities, Home Improvements - 14% Utilities, Home Improvements - 14% ►Saving - 10%Saving - 10%►Insurance - 7%Insurance - 7%►Other - 4%Other - 4%

What does it look like?What does it look like?Budget TemplateBudget Template

IncomeIncome Amount Amount

WagesWages $$

Total Income Total Income $$

ExpensesExpenses Amount Amount

Fixed ExpensesFixed Expenses

PYF (10%)PYF (10%) $$

Variable ExpensesVariable Expenses $$

Periodic Expenses Periodic Expenses $$

Total ExpensesTotal Expenses $$

Net Gain or Net LossNet Gain or Net Loss $$

Allocate money to each Allocate money to each categorycategory

► Net gainNet gain - $ remaining to either save, spend or - $ remaining to either save, spend or invest invest

► Net lossNet loss - spending more money than earning and - spending more money than earning and has to use credit (borrowed money) to meet their has to use credit (borrowed money) to meet their financial obligationsfinancial obligations► A spending plan should have income and A spending plan should have income and expense matching one another (reach zero)expense matching one another (reach zero)

Implement and ControlImplement and Control► There is not one correct control system. There is not one correct control system.

Depends upon the individual/familyDepends upon the individual/family Envelope systemsEnvelope systems – individuals place the actual – individuals place the actual

budget amount of cash from a paycheck into a budget amount of cash from a paycheck into a specific envelope system for the expense specific envelope system for the expense

Check register systemCheck register system – helps consumers to – helps consumers to track all expenditures in a checkbook register track all expenditures in a checkbook register which has been divided into spending plan which has been divided into spending plan categories categories

Electronic spending plan systemsElectronic spending plan systems – multiple – multiple types of software are available for consumers to types of software are available for consumers to use to help keep track of their financial records use to help keep track of their financial records like like www.mint.com

Net worth statement Net worth statement

► A A net worth statementnet worth statement describes an individual describes an individual or family’s overall financial condition on a specified or family’s overall financial condition on a specified datedate

► The components include: The components include: AssetsAssets – Everything a person owns with monetary value – Everything a person owns with monetary value LiabilitiesLiabilities – Debts or what is owed to others – Debts or what is owed to others Net worthNet worth - The amount of money left when liabilities - The amount of money left when liabilities

are subtracted from assets (indicates wealth)are subtracted from assets (indicates wealth)

Who is Wealthier?Who is Wealthier?

Assets

Home $60,000

Retirement $24,000

Automobile $8,000

Total Assets $92,000

Liabilities

College loan $6,000

Mortgage $35,000

Total Liabilities

$41,000

Net Worth $51,000

John – earns John – earns $35,000 per year$35,000 per year

Alex – earns $100,000 Alex – earns $100,000 per yearper year

Assets

Home $75,000

Retirement $35,000

Automobile $8,000

Total Assets $118,000

Liabilities

College loan $10,000

Automobile loan $4,000

Credit card debt $20,000

Mortgage $65,000

Total Liabilities $99,000

Net Worth $19,000

ANY QUESTIONS?ANY QUESTIONS?