Unit Two

1. Unit Two Budget: Don’t Go Broke!

2. 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

3. 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.

4. 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.

5. 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.

6. 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%)

7. 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

8. W-2 Form • W-2: earnings summary from every employer you worked for during the previous year. • Needed to file taxes by April 15th

9. 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

10. 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

11. 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.

12. 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

13. Bank Fees • Shop around when opening a checking account • Minimum balances • Annual or monthly fees • Overdraft protection • Insufficient funds charge • ATM fees

14. Record Keeping • Checking account statements • Savings and investments • Insurance declarations page • Tax documents • Pay stubs • Loan papers • Big-ticket item receipts and warranties