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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

Personal FinanceTheme 4

Creating a Personal Budget

what is a budget
What is a budget?
  • “A budget is a written record ofthe money that flows in and out of your household every month.”
why budget
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.
balancing income expenses
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.
balancing income expenses1
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.
how to start
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.
how to start1
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?

creating a personal budget
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!

creating a personal budget1
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.
expenses
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.
essential fixed expenses
Essential - Fixed - Expenses
  • Mortgage or rent
  • Insurance – auto, home, life
  • Car payments
  • School loan payments
essential variable expenses
Essential -Variable - Expenses
  • Car maintenance
  • Gas
  • Food – Groceries and Dining out
  • Utilities: Electricity, Heat, Water
  • Phone
non essential expenses
Non-Essential Expenses
  • Clothing
  • Books
  • Movies
  • Video games
  • Other items, you want, but don’t need
other possible expenses
Other Possible Expenses . . .

Internet Movie RentalsGas/Electricity

Water/Sewer

Garbage

Pet FoodHousing Phone

Loans Credit CardsEntertainmentToiletries Food Insurance

Medical Bills

Gym MembershipPrescriptions

when expenses income
When Expenses > Income
  • What can you cut out?1. Eating out too often.2. Buying things you don’t need.3. Unnecessary shopping.
why do budgets fail
Why do budgets fail?
  • Negative Attitude
  • Lack of motivation
  • Unrealistic expectations
setting financial goals
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
goals should be s m a r t
Goals should be S.M.A.R.T. :
  • Specific
  • Measurable
  • Attainable
  • Realistic
  • Time Bound