Credit Advisors Foundation Copyright 2007
Budgeting Workshop
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About Budgeting
Objectives for…
After completing this lesson you should be able to:• Prepare a thoughtful budget• Understand the components and percentages necessary to create a reasonable budget• Recognize the importance of budgeting
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Let’s Get to Work
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Income
Income can come from a variety of sources. PaychecksRental incomeInvestment dividendsChild support or alimony
For an accurate budget include all of your household income sources.
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Income
Add all sources of income
Total them all for a one year period
Since most expenses are billed monthly:
Divide your overall total by 12
This is a monthly average income to use in your budget calculations.
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Income Gross Net Monthly
Salary/Wages $ 45,000.00 $ 29,250.00
Partner Salary/Wages $ 60,000.00 $ 39,000.00
Child Support/Alimony $ -
Investment Income $ 120.00 $ 120.00
Other Income $ -
Total Household Income $ 105,120.00 $ 68,370.00 $ 5,697.50
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Understanding expenses
Fixed expenses remain the same from month to month such as rent or mortgage, car or truck payment, or possibly level-pay utilities
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Fixed Expenses Budget Actual Difference
Savings $ 50.00
Mortgage or Rent $ 1,300.00
Car Payment $ 450.00
Car Payment $ 500.00
Other Loan $ 200.00
Pledged Contributions $ 50.00
Life Insurance $ 20.00
Other:
Total Fixed Expenses $ 2,570.00
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Understanding expenses
Variable expenses are not as predictable as fixed expenses. Examples: your electric bill in the summer, gasoline costs, or entertainment.
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Variable Expenses Budget Actual Difference
Utilities $ 300.00
Home Maintenance $ 200.00
Food $ 500.00
Fuel $ 280.00
Clothing & Upkeep $ 100.00
Health Care $ 40.00
Recreation/Entertainment $ 72.00
Other
Goals $ 300.00
Total Variable Expenses $ 1,792.00
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Understanding expenses
Periodic expenses are those expenses that are not monthly. They may be quarterly, semi-annual or even annual. Examples include some insurance, real estate taxes, car licensing, etc.
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Periodic Expenses Budget Actual Difference
Home Insurance $ 75.00
Real Estate Taxes $ 210.00
Car Insurance $ 160.00
Car Licensing $ 900.00
Other $ 75.00
Total Periodic Expenses $ 1,420.00
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Expenses
The first time it is always tough to remember everything
Budgeting is an art.
Let the calculations begin!
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Why do we separate our expenses?
• Fixed expenses give us the least amount of flexibility.
• We can control variable expenses but only to a point.
• We have the most flexibility with periodic expenses but they often have the worst bite!
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Determine your total monthly income & subtract your total
monthly expenses. Are there funds left over? Or are you in the red?
Total Monthly Income
- Total Monthly Expenses
Disposable Income
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Total Variable Expenses $ 2,570.00
Total Fixed Expenses $ 1,792.00
Total Periodic Expenses $ 1,420.00
Total Expenses for Month $ 5,782.00
Summary
Total Income $ 5,697.50
Total Expenses $ 5,782.00
Remainder $ (94.50)
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What’s going on ?
Many people find their budget in the black but their lives in the red!
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Black or Red…all budgets can use adjustments and
analysis
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Budget Adjustments
During budget development certain areas will become obvious focus points where adjustments can & should be made.
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Budget Adjustments
Take a moment & review your list of expenses.
Don’t forget to look at income. Are there options for over-time, week-end work, etc.
Identify categories where adjustments could be made.
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An important part of developing a budget is recognizing the difference between
Wants
big screen TV
vacation
jewelry
Needs
food
shelter
clothing
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Understand how you spend money so you will be aware of influences to your budget by
Become aware of your common spending habits.
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Monitor your spending habits to find black holes in your budget where money disappears
Keep a log for 30 days of everything you spend
Divide by type - food, clothing, & entertainment
Find patterns in your spending where wants are being lived as needs.
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Analyze Black Hole Expenses
• When added to your budget, are you going over in particular categories?
• Were you aware of how much you were spending?
• Determine the time value of your purchases.
Total price/net hourly wage = time value
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Take it to the Next Level• Experts say….
Suggested Expense Percentages
Housing 27%
Mortgage/Rent
Insurance
Taxes
Utilities
Food 16%
Transportation 12%
Car Loan
Gas
Tokens
Maintenance
Insurance
Licensing
Clothing 7%
Medical 6%
Recreation 5%
Other 17%
Savings 10%
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Are you in the Black?Even Just a Little?
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Reality
Budgeting is not fun.
It is about denying yourself and limiting yourself
UNLESS…..
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Goals
You realize that budgeting is the process to help you achieve your biggest goals!
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By making plans to achieve your dreams you
learn how to form your budget around…
Successful financial management builds on a foundation of goals.
Setting the goal to have a lump sum of money by a specific time allows you to plan beyond
everyday expenses with your budget.
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How to set Goals:
Specific The more specific you are the more likely your success. Using SMART as a guideline will create a specific goal design
Measurable Your goal must be tangible. Determine the end result.
Achievable Begin with small or moderate goals to establish a pattern of success. Believe you can!
Realistic Review your target, timeframe, income & expenses. There’s nothing wrong with a challenge but stay honest about your level of dedication and determination.
Timely A goal needs a deadline for you to work towards.
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Short term goals
Whether a goal is short or long term is not determined by it’s
importance or value…
but by the time it will take to reach the desired target.
A short term goal involves a timeframe of about one year or
less.
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Examples of short term goals include:
$900 over the next 8 months for a summer vacation
$500 over 5 months for holiday gift-giving
$350 in the next 4 months for a new 27’ TV
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Long term goals
A long term goal would require more time for it to be successfully achieved.
You may choose to budget the same amount as a short term goal but allow for a longer length of time to reach the targeted total.
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Examples of long term goals include:
$2,000 over the next two years as a down payment for a new car
$10,000 over five years for a down payment on a home
$18,000 over the next 15 years for your child’s college tuition
This is where budgeting becomes FUN!!
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Goals: The Gift that Keeps on Giving.
• Many goods actually become cheaper over time.
• PIF – The real cost of goods.
• Goals change!
• Success feeds on itself. If I can do this…
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Additional Tips
• Involve every member of your household!
• Do not pre-maturely quit!
• Keep your eye on the ball – it’s not the budget but the goal!
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Monitoring
A big part of maintaining your budget in the future involves continually monitoring your income and expenses in relation to your short and long term goals.
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Remember…
Some people go over their budgets very carefully each month.
Others just go over them.
Which will you be?
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Thanks for Coming!