budgeting ii. what is a budget? a plan for spending and saving money most people think budgets are:...
TRANSCRIPT
What is a Budget?
• A plan for spending and saving money
• Most people think
budgets are:– Rigid and inflexible
– Painful – who wants to
eat Top Ramen every
night!
– No fun!
A budget takes the fun out of money – Mason Cooley
Why Budgets Make Sense
• Budgets help you:– Set priorities
– Achieve what’s
important to you
• A good budget is:– Realistic– Ongoing– Clear and easy to
use – NOT 12 pages!– Flexible – changes
as needs change
Budget Categories
• Income– Gross– Net
• Savings– Emergencies– Long-Term– Retirement– Short-Term
• Expenses– Fixed– Variable– Discretionary
Income: Money Earned
• Gross income: An individual’s income before taxes.
• Net income: Income after taxes are paid.
• Taxes can range from 15% to 31%.
Taxes and Deductions
• First job pays $30,000/year. • 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 = $30,000Minus 25% taxes and deductions - 7,500Net income $22,500
Why You Should Save
The best reason to save some of your income as you earn it is to provide for future needs, both expected and unexpected.
Can improve your standard of living
No matter how old you are, you will have financial goals
Why You Should Save
What works at 20 won’t necessarily work at 40
20’s – paying off student loans; trying to buy first house
70’s – goal may be trying to make sure your retirement funds last your lifetime
Expenses
• Expense: A cost to meet a need or pay a debt
• Types of expenses– Fixed– Variable– Discretionary
Fixed Expenses
A cost that occurs regularly and doesn’t vary in amount
– Rent
– Mortgage
– Car payment
– Insurance premium
– School loans
– Others?
Variable Expenses
A cost that occurs regularly but may vary in amount:
– Electricity
– Water and Garbage
– Telephone
– Gasoline
– Groceries
– Others?
Ways to Reduce your Grocery Bill•Make a shopping list
•Study grocery ads
•Use coupons
Buy store-brand products
Avoid impulse purchases
Learn the basic prices of your favorite foods.
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?
Budget Summary
• Establish a budget:
– Income
– Savings
– Expenses
• Fixed
• Variable
• Discretionary
• End up with a budget
surplus and you’re a
success!
Financial Security
Amount of money you save will vary
according to several factors:
1. Discretionary Income – what you have left over after you have paid your bills
2. Importance you attach to savings
3. Anticipated needs and wants
4. Will power to restrict present spending
Balance Your Budget
3 R’s reality / responsibility / restraint
1) Determine surplus/deficit
2) Evaluate Budget – ways to reduce budget (increase income, coupons, luxuries) – spend less
3) Understand advertising influence – evaluate information