Budget Unit

Dollars and Sense

BudgetA budget is a financial plan.•From bougette, an old French word for “purse”

BudgetGovernments, businesses, churches, schools and families all make budgets. A budget lists the money they expect to get, and how they expect to use it, for a given period of time (usually a month).

Budget

Why do we budget?◦Scarcity◦Choices and Priorities

Key TermsIncome-

◦Amount of money that an individual or business earns in a given period.

 Expense-◦Something spent or required to be spent.

Key Terms Savings-

◦Income not used; money set aside. Can accumulate when income is higher than expenses for an individual.

 Debt-◦Money that is owed. Can accumulate when expenses are higher than income for a business or individual.

Budget

So, a family budget predicts income and expenses for a typical month. If our expenses are less than our

income, we can save or invest. If our expenses are more than

our income, we go into debt.

Budget

Yesterday, everyone got a job and income assigned to them. You got a yearly figure, and a monthly figure (yearly divided by 12) for that job.

We will create a budget with the monthly income figure.

Budget

Next, we need to have a list of the expenses that we predict. Let’s brainstorm a list of the things that your family will need to include in your budget.

Budget

HousingUtilities (power, gas, and water)

Food/GroceryCarCar InsuranceEntertainmentIncome Tax

CharityCable/InternetPhoneClothingOtherSavings

Budget

Everyone who works pays taxes, which are payments to government. We have amounts deducted for federal income taxes, state income taxes, Social Security taxes, and Medicare taxes. We are going to use a simplified model for figuring taxes, for our project.

Taxes

If your monthly income is $4000 or less, multiply by 8% to calculate your taxes.Example:

$3246 x .08 = $259.68 per month

If your monthly income is between $4000 and $8000, multiply by 10%.

If your monthly income is more than $8,000, use 12%.

HousingNext, we need to budget for a place to live. There is a common guideline that we will use for our project. The MAXIMUM that we will spend on housing is 20-25% of our monthly income.

Example$2000 monthly income X 25% = $500 max for housing

Find your job on the next slide, to see your maximum monthly housing cost.

1. Anesthesiologist $5,873.75

2. Psychiatrist $4,354.25

3. Dentist $4,043.75

4. Lawyer $3,262.25

5. Pilot $2,951.75

6. Art Director $2,387.50

7. Physical Therapist $1,995.75

8. Registered Nurse $1,727.75

9. Writer/Author $1,701.50

10. Insurance Agent $1,574.25

11. Zoologist $1,547.00

12. PR Specialist $1,510.00

13. Social Worker $1,470.00

14. Court Reporter $1,448.75

15. Probation Officer $1,419.25

16. Teacher $1,197.50

17. Real Estate Agent $1,192.50

18. Event Planner $1,174.75

19. Graphic Designer $1,162.75

20. Firefighter $1,155.50

21. Chef $1,144.50

22. Ambulance Driver $936.50

23. Photographer $914.50

24. Travel Agent $893.50

25. Dental Assistant $868.50

26. Office Clerk $723.00

27. Security Guard $676.00

28. Hairdresser $661.50

29. Cook $623.25

30. Host $499.00

31. Dishwasher $469.75

HousingThe two main choices for housing are to rent a place (a house, apartment, or condo, usually), or to buy your own house. Renting is easy and gives you flexibility, but the expense of renting never goes away. Buying a home can be a complicated process, but eventually you can pay for it completely, and the monthly payments will stop.

HousingAlmost everyone who buys a house gets a mortgage. A mortgage is a loan, which you repay with monthly payments over a long period of time (usually 15 to 30 years).

The mortgage payments will include interest. Interest is the price of borrowing money. Getting the interest is the reason the lender wanted to give you the loan.

HousingMost people also pay their insurance and their property taxes with their mortgage payment every month.

Insurance pays if something like a fire or tornado damages your house.

Property taxes pay for schools, roads, police and fire protection, and other services that we need.

HousingLet’s find a place to live. Use the real estate books and other resources to pick out a place that fits your budget.

If you are renting, just use the monthly rent figures for your budget.

If you are buying, use the estimates provided on the next slide to help pick the house price you want and can afford.

Mortgage Estimates House price Monthly Cost (includes taxes and insurance) $50,000 $425 $75,000 $525 $100,000 $600 $150,000 $875 $200,000 $1150 $250,000 $1450 $300,000 $1700 $400,000 $2200 $500,000 $2725 $600,000 $3200 $700,000 $3700 $800,000 $4200 $900,000 $4750 $1,000,000 $5250

Budget

Next, we need to choose a car. Your car should cost less than your housing.

We are going to assume that you have borrowed money to buy a car, and have to make a monthly payment on that car loan.

Budget

Assume that you pay $24 per month, for every $1,000 that the car costs. The next slide gives car payment estimates.

Car payments

PricePayment$5000 $120$6000 $144$7000 $168$8000 $192$9000 $216$10000 $240$11000 $264$12000 $288

PricePayment$13000 $312$14000 $336$15000 $360$20000 $480$25000 $600$30000 $720$40000 $960$50000 $1200

Budget

Classwork/Homework:Complete the rest of the categories with the money that you have left in your monthly income. Try to get a parent or other adult to help estimate what the other amounts can be.