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“Some Money Facts” • $ The average person spends money three times a day. • $ A movie with popcorn and a soft drink can easily cost $20 • $ Just one soft drink a day for .99c adds up to $361.35 in a year • Coffee at $3 a day adds up to $1,095 a year!
Money Matters: . • Money brings happiness – Money problems bring unhappiness • Money problems stay with you for the rest of your life. • $ What’s the biggest expense item for teenagers? FOOD!
Some RecentFacts about Money! • Average in the US is 1 in 69 file for bankruptcy • Rise in 18-25 year olds moving back in with parents • College students have $3,000 in credit card debt 10% owe $10,000 or more in credit card debt • Teens Today – Spend and Influence $172 billion annually ($105 of own money, $48 of family money) • Without a monthly check most families would last only 1 to 2 mos.
Developing A Budget • A budget is a spending and savings plan based on an estimate of income and expenses • Main purpose of a budget is to help you live within your means, however there are many other benefits • Save towards important goals • Evaluate your spending patterns/change them • Helps in keeping stable records for taxes, investment and other purposes
Consider Financial Goals • Long-term goals • Going to college • Buying a house/car • Building retirement income • Short-term goals • Buying a sound system • Saving for vacation • Purchasing clothes
Make a time period for your budget Write down how much money you have to spend Include any estimate of unpredictable money received Gifts Tips Bonuses Net Income = your take home pay (after taxes) If earnings are irregular, you should base your calculations on the least amount of money you expect to receive Estimate Income
Income • Gross Income - income before taxes are removed • Net Income • Take home pay; money after taxes are removed EX: Gross Wages $985.00 Federal Tax $135.00 State Tax $ 23.00 Net Wages $827.00
Now that you figured out how much you have, figure out how much you’ll need to spend You may be able to estimate accurately, if not your three options are: Use your records to reconstruct your spending patterns Keep a record of all your expenditures for one month Use average annual expenditures, which are yearly averages of how consumers spend their money Estimate Expenses
Types of Expenses • Fixed Expenses • Those that you have already promised to pay on certain dates and in certain amounts • Rent or car payments • Flexible Expenses • Those that vary in amount and usually in frequency • Clothing purchases or medical expenses
Plan for Savings • The most important item in the personal or family budget = SAVINGS • 1. Short term savings – Emergency Fund • Short term goals ie: Prom, new CD player • Money put aside for unexpected needs • 2. Long Term Savings • Savings with interest rates • IRA • Savings Accounts • Bonds
Record Keeping Systems • Use a simple system • Drawer • Filing Cabinet • Special Box • Envelopes • Computer programs
Revising A Budget At the end of a budgeting period, you should check to see if expenses and income balance If there is money left over… What are you going to do with it? If the money didn’t stretch far enough… What expenses can you reduce?
Increasing Income Find additional part-time work Ask for a raise with your current employer Find a new job with a higher wage Reduce Expenditures Review your goals Make sure you your spending fits priorities Look at both fixed and flexible expenses and see where cuts can be made Immediate Adjustments – if income and expenditures aren’t balanced
Adjustments through Life • Just as income changes during life, so do financial plans. Many things can put a burden on your pocketbook. • Having children • Saving for a house/home maintenance • Will savings be enough to retire? • Care for aging parents • Life experiences, such as, divorce, death of a spouse, or disability
Use a calculator to eliminate tedious hand computations Round off figures to nearest dollar Use a PC with easy-to-use software Keep your budgeting materials handy Choose a particular day of the month to do your budgeting Reward yourself…always end by reviewing your progress Budgeting Problems
Common Budgeting Mistakes • Not planning for predictable expenses • Not being realistic in your estimates • Not being specific enough in setting up budget categories
Taking an Annual Inventory • Analyze your total financial situation • Use a Balance Sheet • Statement of assets, liabilities, and resulting net worth • Assets = Items of value that you own. • Liabilities = Debts…money that you owe • Net Worth = The difference between assets and liabilities. (This can be negative). • SEE FIGURE 6-5