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Unit 6.3 Part 1 Budgeting

Unit 6.3 Part 1 Budgeting. Purpose. Learn how to manage money by preparing a personal spending plan Identify ways to decrease spending and increase income. Objectives. By the end of this course, you will be able to:. Track daily spending habits

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Unit 6.3 Part 1 Budgeting

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  1. Unit 6.3 Part 1 Budgeting

  2. Purpose • Learn how to manage money by preparing a personal spending plan • Identify ways to decrease spending and increase income

  3. Objectives By the end of this course, you will be able to: • Track daily spending habits • Prepare a personal spending plan or budget to estimate monthly income and expenses • Identify ways to decrease spending and increase income • Identify budgeting tools that will help you manage your money

  4. What is a Budget? • A plan for spending and saving money • Most people think budgets are: • Rigid and inflexible • Painful – who wants to eat Top Ramen every night! • No fun! A budget takes the fun out of money – Mason Cooley

  5. Why Budgets Make Sense • Budgets help you: • Set priorities • Achieve what’s important to you • A good budget is: • Realistic • Ongoing • Clear and easy to use

  6. Income Gross Net Savings Emergencies Long-Term Retirement Short-Term Expenses Fixed Variable Discretionary Budget Categories

  7. Income: Money Earned • Gross income: An individual’s income before taxes. • Net income: Income after taxes are paid. • Taxes can range from 15% to 31%. It is important that you use your NET INCOME when creating your budget!

  8. Taxes and Deductions • First job pays $30,000/year. • Your salary is your gross income. Take off at least 25% for taxes and other deductions. That’s what’s left for you to spend. • Example: Gross salary = $30,000 Minus 25% taxes and deductions - 7,500 Net income $22,500

  9. Total Your Monthly Earnings List your salary or self-employment wages as well as any other income you receive, such as: • Bonus pay • Dividends and interest • Commissions • Alimony and/or child support • Public assistance • Pension or retirement income

  10. Expenses • Expense: A cost to meet a need or pay a debt • Types of expenses • Fixed • Variable • Discretionary

  11. Savings: Pay Yourself First • Savings: unspent income • Types • Emergencies: Plan to set aside Three – Six months’ living expenses • Long-term: Large ticket items (house, car, college) • Retirement: It’s never to early to start • Short-term: Vacation, clothes, new skis • This amount should show up under expenses (either Fixed or Variable)

  12. Needs vs. Wants • Needs are essentials • Food • Shelter • Clothing • Transportation • Wants are extras • Eating out • Big, expensive house • Shop till you drop • Brand-new or expensive car

  13. Fixed Expenses A cost that occurs regularly and doesn’t vary in amount • Rent • Mortgage • Car payment • Insurance premium • School loans • Others?

  14. Variable Expenses A cost that occurs regularly but may vary in amount: • Electricity • Water and Garbage • Telephone • Gasoline • Groceries • Others?

  15. Discretionary Expenses A cost determined by personal wants that may be controlled • Movies, videos, CDs • Sports • Eating out • Grooming and clothes • Concerts and plays • Vacations • Others?

  16. Budget Summary • Establish a budget: • Income • Savings • Expenses • Fixed • Variable • Discretionary • End up with a budget surplus and you’re a success!

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