Budgeting

1. Budgeting “Pay Yourself First”

2. Personal Budget • Working Tool • Take Control • Directs flow of cash received towards financial goals • Must be Flexible! • Takes discipline

3. Creating a Budget

4. ?

6. Reasons for a Spending Plan • …Helps you determine where you are spending your money currently. • …Helps you decide where to spend your money in the future. • …You have an organized way to save for things that cost more. • …Puts you in control of your financial future, beginning NOW.

7. People Without a Budget… • …Are less likely to know what they have. • …Have no plan, often coming up short before their next paycheck or allowance. • …Are almost certain to have no plan to save for more expensive spending goals.

8. PAY YOUR$ELF FIRST! S etting aside money for “big ticket items” A voids borrowing, which costs you a lot! It’s a V ery wise thing to do, because E very time you pay yourself first, you are developing asaving habitthat leaves you with more money to spend later on for things that are really important to you!

9. 2 Parts of Budgeting • 1. Income: Money Received from any source (limited source) • 2. Expenses: Money spent to satisfy needs/wants

10. GROSS VS NET • Gross pay is the total amount you earn before any deductions are subtracted. • $6.50 X40=$260.00 • Net pay is the amount you “take home” after deductions. • Overtime is time worked beyond the regular hours • A standard workday is 8 continuous hours with scheduled breaks plus an unpaid lunch period. • A standard work week is 40 hours in a 5 day period of time.

11. OVERTIME • Fair Labor Standards Act states that: • “employers must pay hourly workers for overtime at the rate of 1 1/2 times the regular rate of pay.” • So… if regular pay is $6.50, then overtime would be $9.75. • 40 hours X $6.50 = $260.00 • 5 hours X $9.75 = $48.75 • Gross pay = $308.75

12. Paycheck Stub • Salaried employees do not receive additional pay for overtime work. • Their gross pay is the same month after month. • The employer divides the salary into equal amounts for each pay period. • Under the “YTD” heading, your gross pay is added up throughout the year.

13. Income- Payroll Deductions • Money subtracted from Gross Income: • Union Dues • Health Insurance • Savings plans • Taxes Taxes are the largest deductions-required by law

14. 4 Payroll Taxes • 1. Federal Income Tax • 2. State Income Tax • 3. Social Security Tax (FICA) • May be able to collect at age 62, average payout $1,230 per month • 4. Medicare Tax (FICA) • Can collect at age 65 • FICA- Federal Insurance Contribution Act Employees match contributions of employers to SS

15. Progressive Income tax • Your tax bracket is the rate you pay on the taxable income that you earn • The U.S. uses a progressive tax rate. As a result, as the amount of money you earn increases so does the rate at which you are taxed. Tax Brackets • For example, if you earned $10,000 during the year,, then $8,700 would be taxed at 10% and the remaining $1,300 would be taxed at 15%. This works out to be a total of $1,065, which is less than it would be if the $10,000 was taxed at a flat rate of 15%, which would yield a total of $1,500 in income taxes. • http://www.forbes.com/sites/kellyphillipserb/2013/10/31/irs-announces-2014-tax-brackets-standard-deduction-amounts-and-more/

16. W-4 Form Withholding Allowance Certificate • Purpose: • So your employer can withhold the correct federal income tax from your pay

17. NET PAY • When all deductions are taken out of your gross pay, the amount left is your net pay. • Net pay is the amount of money you can actually spend. • Net pay is often called “take-home pay” because it is the amount you can actually use as you wish • Regular wages or salary + Overtime= Gross Pay • Gross Pay - Deductions = Net Pay

18. Example:

19. Federal W-2 Wage & Tax Statement • Employees receive at beginning of year (January-February) • Itemizes money earned & withheld by IRS • Based on previous year income • Employee can determine if paid too much/ too little to IRS • Tax refund- too much • Taxes owed- too little

20. IRS • Internal Revenue Service • Responsible for collecting taxes

21. When & how to file your tax return • Single tax payers who earn less than $8,500 do not have to file a tax return • Gather your W-2 and any other documents you need • Complete a 1040EZ if you are single or married with no dependents and have income less than $50,00 • Go to irs.gov for more info & forms • April 15 is the deadline to file!

22. 2nd part of Budgeting: Expenses! • Money spent to satisfy needs/wants • Working Budget: Expenses & income balance • Expenses should not exceed income • Limited resources- choices on how to spend money • Opportunity costs vs. delayed gratification

23. Expenses included in Budget FIXED EXPENSES VARIABLE EXPENSES Examples: Gas, Food, Entertainment costs, clothing Can change month to month • Savings- PYF (Leftover approach never works) • Example: Car payment • Insurance • Same amount of payment each time

24. How to Build a Budget • Decide on a time frame for tracking expenses (week, two weeks, month). • List all money you have coming in (income). • Make categories for all expenses. • Subtract total expenses from income. • Study your budget and your financial plan to make sure it fits with your plans and goals.