CHAPTER 6

1. CHAPTER 6 BUDGET – SAVING MONEY

2. BUDGETING • A BUDGET is a plan for dividing income among spending and saving options. • Most budgets are based on SHORT TERM and LONG TERM financial goals. • Do you have any short term or long term goals? Write a couple on the note lines next to the slide in your notes.

3. Short term VS LONG TERM GOALS • short term goals are things you hope to achieve within a year, such as spending $200 to visit a friend who moved away. • Long term financial goals are always important parts of life-span plans. • Life span plans require more money than people can set aside from current income. • To pay for goals such as college, a home, and retirement you need savings.

4. Tracking income and expenses • You should always have a way of tracking your income and tracking your spending. • Track income: • keep paychecks (usually your employer will keep an electronic record now) • Keep track of money received from Birthdays, Christmas • Keep track of your bank account – money in and money out • Track Spending: • keep sales receipts • Track credit card statements • Track checking statement (either online banking or check register) • Establish a filing system – keep important purchase receipts and written records of other purchases

5. Fixed and flexible expenses • Fixed Expenses: amounts of money you are committed to spend. You have no choice. You must pay these expenses when they are due • Rent, phone bill, student loans, utility bill • Do YOU have any fixed expenses right now as a teenager? Write down 3 or 4 on the lines next to this slide. • Flexible expenses: amounts of money that you can choose to spend or not to spend. These are Wants, not Needs. • Designer clothes, going out to eat, newest electronic device • Do YOU have any flexible expenses right now as a teenager? Write down 3 or 4 on the lines next to this slide. • Luxury goods – goods that have special qualities that make them more expensive than the alternative • Sports car, fur coat, Rolex watch

6. Budget worksheet • 5 steps in creating a Budget Worksheet • Create a worksheet • Take a sheet of paper, and divide it into 4 columns. • 1st column – list your sources of income and categories of spending and saving • 2nd column – record the amounts you expect to receive, spend or save during the month • 3rd column – record the amount you actually receive, spend or save • 4th column – record the difference • I WILL NOW GO IN DEPTH WHAT YOU ARE TO PUT IN EACH COLUMN… • LOOK AT PAGE 202 IN YOUR BOOK FOR AN EXAMPLE

7. BUDGET WORKSHEET 2. Estimate your Income – column 1: • estimate uneven income – your income will not be the same every month • Be sure the income is real – try to think of every income, including uneven income flows 3. Estimate your Expenses and savings – column 2: • Plan for uneven expenses • Like care insurance may be due in May and Nov. • Charitable Giving • Predict the amount (if any) you donate to charity • Plan your saving – your saving account should have money that you planned on putting in, not just the amount left over after spending everything

8. BUDGET WORKSHEET 4. Record your Actual Income – column 4 • Here is where you are recording your actual income, expenses, and savings. • You should have most of your receipts or a written log of what you spend your money on during the month 5. Calculate the difference – column 5 • Now this is where you subtract the differences between your estimated expenses and your actual expenses • TAKE TIME TO COMPLETE YOUR BUDGET WORKSHEET RIGHT NOW IN PAIRS, THEN TURN IT IN. • USE THE EXAMPLE ON PAGE 202 AS A REFERENCE

9. Budget pitfalls Here are some reasons some people fail when making a budget: • Some people get too specific, too much detail makes it too hard to follow – keep it simple • Some people don’t predict the correct amount of their flexible expenses • Some people lump to many expenses under miscellaneous • Some people give up on budgets because they think it takes too much time and effort to maintain them.