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Personal Finance Theme 4

Personal Finance Theme 4. Creating a Personal Budget. What is a budget?. “A budget is a written record of the money that flows in and out of your household every month.”. Why budget?. Budgeting is the first step on the road to financial success.

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Personal Finance Theme 4

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  1. Personal FinanceTheme 4 Creating a Personal Budget

  2. What is a budget? • “A budget is a written record ofthe money that flows in and out of your household every month.”

  3. Why budget? • Budgeting is the firststep on the road to financial success. • Controlling your day to day finances allows you to do the things you want to do.

  4. Balancing Income & Expenses • Start budgeting now – don’t wait until you’re financially “on your feet”, to begin to budget. • A budget is nothing more than the activity of balancing income vs. expenses.

  5. Balancing Income & Expenses • Income is measured in two ways: • Gross Pay – Monies earned prior to any deductions being made. • Net Pay – The remaining monies after deductions from the total salary.

  6. How to start? • To start a basic budget: • For the next month, write downEVERYTHING you spend money on. • Also write down anytime you receive money.

  7. How to start? • Track your expenses; • Figure out the amount of moneyyou’re spending, then ask; • What do you have to spend?• What spending is not necessary?

  8. Creating a Personal Budget • At the end of the month, breakeverything down into categories. • Is your income greater than your expenses? If: YES! – Great, then you can save.NO! – There’s a problem!

  9. Creating a Personal Budget • A budget will allow you to get a good view of your overall wealth or Net Worth – the value of your assets after your liabilities have been paid.

  10. Setting Up and Maintaining a Budget

  11. Expenses • Expenses fall into two categories: • Essential expenses – HAVE to have in order to live. • Non-essential expenses –DON’T HAVE to have in order to live.

  12. Essential - Fixed - Expenses • Mortgage or rent • Insurance – auto, home, life • Car payments • School loan payments

  13. Essential -Variable - Expenses • Car maintenance • Gas • Food – Groceries and Dining out • Utilities: Electricity, Heat, Water • Phone

  14. Non-Essential Expenses • Clothing • Books • Movies • Video games • Other items, you want, but don’t need

  15. Other Possible Expenses . . . Internet Movie RentalsGas/Electricity Water/Sewer Garbage Pet FoodHousing Phone Loans Credit CardsEntertainmentToiletries Food Insurance Medical Bills Gym MembershipPrescriptions

  16. When Expenses > Income • What can you cut out?1. Eating out too often.2. Buying things you don’t need.3. Unnecessary shopping.

  17. Why do budgets fail? • Negative Attitude • Lack of motivation • Unrealistic expectations

  18. Setting financial goals • In order for a budget to be effective you need a set of goals: • Short term – less than 1 year • Mid term – 1 to 3 years • Long term – 3 years or more

  19. Goals should be S.M.A.R.T. : • Specific • Measurable • Attainable • Realistic • Time Bound

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