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Budgeting Techniques

Budgeting Techniques

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Budgeting Techniques

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  1. Budgeting Techniques Ch. 16 – 2 PoB 2011

  2. Budget Activities • Budget – allows you to meet your personal goals with a system of saving and wise spending • Having a plan for saving will help you do the following: • Live within your income • Make wise budget decisions • Plan for financial emergencies • Develop money management skills • Achieve your financial goals

  3. The Budget Process Set financial goals Plan budget categories Maintain financial records Evaluate your budget

  4. Set Financial Goals • Your financial goals should take a SMART approach – • Specific • Measurable • Action-Oriented • Realistic • Time-Based • Writing down short-term and long-term goals will help you decide how to spend and save your money

  5. SMART Approach

  6. Plan Budget Categories • First part of the budget: Savings • Then, consider two types of living expenses: • Fixed Expenses – costs that occur on a regular basis and are for the same amount of each time • Examples: rent, mortgage payments, and insurance payments • Variable Expenses – involves living costs that differ each time and may not be as easy to estimate • Examples: food, clothing, and utilities

  7. Plan Budget Categories • Allowance – is the amount of money you plan to use for a certain budget category • Eight Divisions • Savings • Food • Clothing • Household • Transportation • Health and Personal Care • Recreation and Education • Gifts and Contribution

  8. Family Budget for One Month

  9. Maintain Financial Records After planning, records income and expenses to find out if the plan is working Expenditures are recorded during the month If neccessary, balancing of checkbook

  10. Evaluate Your Budget • Actual spending is compared with the budgets amounts • Budget Variance – any difference between these amounts • Deficit – if actual spending is greater than planned spending • Surplus – when actual spending is less than the budgeted amount • Category-by-category comparison allows you to find areas where to changes in the budget may be appropriate

  11. Successful Budgeting Must be realistic Should be flexible Should be flexible Should be evaluated regularly Must be well planned and clearly communicated Should have a simple format

  12. Family Income and Expense Record

  13. Review What are the main purposes of a budget? What are eight commonly used budget categories? What are five characteristics of an effective budget?