BudgetingChapter 7, page93

What is a budget?

• A Spending and Savings plan based on −Estimation of expenses & income−Recording of expenses & income

• Tool to reach goals

What are some of your financial goals?

• Buy a car

• Go to college

• Get an apartment

• Retire at some point

• Vacation

Page 95• Money is active

• You must do a written cash flow plan every month – known as a budget

• Keep your checkbook balanced

• Overdrafts area sign of crisis living, and sloppy, lazy money habits

• Use duplicate checks if necessary

• The ATM card & Debit card are budget busters

Page 95 Continued• Hate ‘budget’ for 4 reasons

1. It has a straight jacket connotation

2. It has been used to abuse them3. They’ve never had a budget that

worked4. Paralysis from fear of what they w

ill find

Page 96• Cash flow plans do not work when you:

1. Leave things out2. Overcomplicate your plan3. Don’t actually do it4. Don’t actually live on it

• “Management by crisis”

• Managed money goes farther

• Written plan will remove many of the money fights.

Page 96 contined • Cash flow plans do not work when you:

1. Leave things out2. Overcomplicate your plan3. Don’t actually do it4. Don’t actually live on it

• “Management by crisis”

• Managed money goes farther

• Budget will remove many of the money fights from your marriage

Page 96 Continued• Budgets will remove much of the guilt,

shame and fear.

• Budgets will remove many of the overdrafts from your life, consequently removing a lot of stress

• Budget will show if you are overspending

• Easiest and most powerful plan is a zero-based plan, using the envelope system

Steps to Budget #1

• Estimate Income−Gross Income: Earn before taxes−Net Income: Take home pay

• How to look at a paycheck?

PaycheckHourly RateOther PayHoursGROSS PAY

DEDUCTIONSFederal Income Social SecurityMedicareState Income (4.35%)City IncomeOTHERSNET PAY

Steps to a Budget #2

• Estimate Expenses−Fixed: Due certain dates and fixed

amounts−Flexible / Variable: Different amounts

and / or you control when you pay•Have to pay utilities on a due date = fixed but can somewhat control cost = flexible

•Which is it?

Steps to Budget #3 & #43. Planning for savings / goals

−Saving is an expense, must do−Easiest to save with payroll

deductions−Goals are either short or long term

4. Develop a trial budget – Every $−Look at values and how you spend−Estimate how much is spent per

month, spread cost of big items over the year•Vacation does not all get paid in

July – budget $50 a month• Look at what experts say should be

spent

Steps to Budget #5

• Adjust your budget−Over month keep record of

actual spending−Alter budget to be realistic

Common Mistakes

• NOT planning for occasional expenses

• NOT being realistic in estimating expenses−Do NOT set unrealistic goals

• NOT being specific enough in setting up budget categories

People Can Help

• Accountant

• Stockbrokers

• Lawyers

• Bankers

• Consumer Education / Educators

Try it together

• Julie works 15 hours a week making $8 an hour

• Julie has: −Cell phone bill of $20−Car insurance payment of $60− Lunch of 2.75 a day at school− Likes to go out−Wants to visit grandma at the end of

summer, will cost $200 for the trip

Try It

• When done, complete Personal Budget

−Look at what you spent the past two weeks & extrapolate for the year

−Create a monthly budget you could follow•Page 115