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Unit Two. Budget: Don’t Go Broke!. What is a Budget?. Budget – a plan for managing money during a given period of time. A roadmap to reaching your goals. Also called – Spending/Savings Plan Must be flexible – can be adjusted Requires self-discipline – spending must not exceed income.

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unit two
Unit Two

Budget:

Don’t Go Broke!

what is a budget
What is a Budget?

Budget – a plan for managing money during a given period of time.

  • A roadmap to reaching your goals.
  • Also called – Spending/Savings Plan
  • Must be flexible – can be adjusted
  • Requires self-discipline – spending must not exceed income
budget
Budget

Two parts:

1. Income 2. Expenses

Income – any money coming in

Examples: job, allowance, interest, gifts

Expenses– money you spend on your needs and wants, money going out

Examples: car payment, rent, school fees, etc.

reading your pay stub
Reading Your Pay Stub
  • Gross income – the total amount of income from your wages or salary before payroll deductions.
  • Payroll deductions – the amounts subtracted from gross income, which results in your net income.
    • Taxes, retirement savings, health insurance, etc.
    • Four common payroll deductions:
      • Federal Income Tax
      • State Income Tax
      • Social Security Tax (FICA)
      • Medicare Tax
  • Net Income – Take-home pay – the amount you receive when you cash your check or deposit it.
taxes
Taxes
  • Fees placed on income, property, or goods to support governmental programs.
    • Federal Income Tax – fee for the support of federal government programs collected by the employer and paid to the IRS
    • State Income Tax – fee collected by employer and paid to the state revenue department to support state programs.
taxes1
Taxes
  • Federal Insurance Contribution Act (FICA) Social Security Tax – collected by employers to fund federal programs which provides old-age, survivors and disability insurance.
  • Medicare Taxes – collected by most employees to fund hospital insurance provided under this system.

Employers match contributions:

SS 6.2% (12.4%) Medicare 1.45% (2.9%)

w 4 form
W-4 Form
  • W-4 – Employee’s Withholding Allowance Certificate – form that tells your employer how much to withhold from your paycheck for taxes.
    • Claim 0: more taxes withheld – greater refund
    • Claim 1: less taxes withheld – smaller refund
w 2 form
W-2 Form
  • W-2: earnings summary from every employer you worked for during the previous year.
    • Needed to file taxes by April 15th
spending
Spending

Expenses:

  • Fixed – expenses that are the exact same amount every time.

-- Examples: rent, car payment, car insurance, cable, etc.

  • Flexible or Adjustable – expenses that are not fixed and you can control how much you spend.
  • -- examples: food, gas, utilities, etc.
  • Variable – expenses that are not paid every month
    • -- Can be either flexible or fixed
    • -- Examples: car insurance, magazine subscription, garbage service
cash management
Cash Management
  • How you handle money coming in and money going out.
    • Referred to as “cash flow”
    • Best way to manage your cash: BUDGET

Trick is to balance Income with Expenses

Sample budget – page 22

PYF – pay yourself first

Don’t give yourself a choice

A bill you owe yourself

cost benefit analysis
Cost/Benefit Analysis

Another simple tool you can use to choose between alternatives

Weigh the cost of a product or service against the benefit it will provide.

easy to use money tools
Easy-to-Use Money Tools
  • Transactions Services
    • Checking account
    • ATM card
    • Debit card
  • The Envelope System
    • Label an envelope for each spending category of your budget.
    • Record the planned amount on the appropriate envelope
    • Place the planned amount in each envelope
    • When you spend money, take out of appropriate envelope
      • Track money by writing down the date and amount of each expenditure
    • When envelope is empty, you are done spending for that category
bank fees
Bank Fees
  • Shop around when opening a checking account
    • Minimum balances
    • Annual or monthly fees
    • Overdraft protection
    • Insufficient funds charge
    • ATM fees
record keeping
Record Keeping
  • Checking account statements
  • Savings and investments
  • Insurance declarations page
  • Tax documents
  • Pay stubs
  • Loan papers
  • Big-ticket item receipts and warranties
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