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Budget Basics

Budget Basics. What is a Budget? . A plan for spending and saving money “A budget takes the fun out of money” Mason Cooley. Budgeting: A Perspective.

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Budget Basics

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  1. Budget Basics

  2. What is a Budget? A plan for spending and saving money “A budget takes the fun out of money” Mason Cooley

  3. Budgeting: A Perspective “Budgeting has a bad rap. Too many people who give budget advice are detail people and/or control freaks. They make you think that if you don’t record every taco and pair of pantyhose, you’re on the road to financial ruin. You don’t have to track every penny to have an effective financial plan. The secret is setting priorities. Pay yourself first, then pay your bills, then you can blow what’s left with a clear conscience” Ann Coleman

  4. Why Do Budgets Get a Bad Rap? Does the mere mention of the word “budget” conjure up images of drudgery and deprivation? You’re not alone. Most people think budgets are • Rigid and inflexible • Painful – who wants to eat Top Ramen every night? • No fun!

  5. Why Budgets Really Do Make Sense A good budget should help you set priorities and achieve what’s important to you. Not what’s important to your banker, your best friend, or your relatives. A good budget should be • Flexible: It should change as your needs change. • Ongoing: It’s not a one-time event. A budget should be part of your everyday life. • Clear and easy to use: 12 page spreadsheets are out!

  6. Budgets: Where to Start • Be clear on what you make and how much you spend. • Anticipate all of your potential expenses.

  7. Income Gross Net Savings Emergencies Long-Term Retirement Short-Term Expenses Fixed Variable Discretionary Budget Categories

  8. Income: The Amount of Money Earned • Gross income: An individual’s income before taxes. • Net income: Income after taxes are paid. • Fasten your seat belts: Taxes can range from 15% to 31%. Yikes!

  9. The Amazing Disappearing Paycheck • Your first real job pays $30,000/year. You’re rolling in the bucks, right? Not necessarily. • Your salary is your gross income. Take off at least 25% for taxes and other deductions. That’s what’s left for you to spend. • Example: Gross salary = $30,000 Minus 25% taxes and deductions - 7,500 Net income $22,500 • Quite a hit, huh?

  10. Savings: Pay Yourself First • Savings is unspent income. • Types • Emergencies: Plan to set aside three months’ living expenses • Long-term: Large ticket items (house, car, college) • Retirement: It’s never to early to start • Short-term: Vacation, clothes, new skis

  11. The Power of Saving Early • Save early and regularly. Then watch your money grow! • If you start at age 21 with $1,000 and add $50/month until you’re 55, you’ll end up with $120,373! • You contributed only $21,400. The remaining $98,793 is interest. You didn’t have to lift a finger for it. Sweet deal! Imagine if you saved even more monthly!

  12. Expenses • Expense: A cost to meet a need or pay a debt • Types of expenses • Fixed • Variable • Discretionary

  13. Fixed Expenses A cost that occurs regularly and doesn’t vary in amount • Rent • Mortgage • Car payment • Insurance premium • School loans • Others?

  14. Variable Expenses A cost that occurs regularly but may vary in amount • Electricity • Water and Garbage • Telephone • Gasoline • Groceries • Others?

  15. Discretionary Expenses A cost determined by personal wants that may be controlled • Movies, videos, CDs • Sports • Eating out • Grooming and clothes • Concerts and plays • Vacations • Others?

  16. Safe Percentages The percentages shown below represent guidelines for safe amounts for major budget items. These are guidelines. You may choose to adjust these, but remember, if you spend 80% of your income on housing, you’ll be eating lots of Top Ramen during the month! 10% Saving 7% Credit Payments 8% Misc. 5% Health 28% Housing 20% Transportation 6% Clothing 16% Food

  17. Set your priorities. What do you want to accomplish with your money? Establish a budget with the following: Income Savings Expenses Fixed Variable Discretionary End up with a budget surplus and you’re a success! Budget Basics Summary

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