Presentation on theme: "Budgeting Chapter 6. Budgeting Develop a clear understanding of goals –Short term (1 year) Usually smaller purchases, less expensive Minimal impact –Long."— Presentation transcript:
Budgeting Chapter 6
Budgeting Develop a clear understanding of goals –Short term (1 year) Usually smaller purchases, less expensive Minimal impact –Long term (over 2 years) Larger purchases, more expensive Impact life –Prioritize Your values, goals, hope, dreams Current family Future family
Factors going into a budget Income - $ coming in!! –Salary/Bonuses –Gifts –Dividends/Interest –Net income Expenses - $ going out!! –Fixed (little to no control, consistent) –Variable/Flexible (a lot to complete control, inconsistent)
Budget tips Dont spend every penny you receive Keep excellent records –Track income and expenses –Develop filing system Review your budget regularly –Revise and update as needed –Track over/under and adjust Personalize your budget Evaluate trade-offs
Budget Tips Keep it simple and flexible Dont follow someone elses budget Dont put unnecessary items in the budget Make sure to have an emergency fund included (2-3 months salary) Keep it realistic!
Budget Pitfalls Budgets that are too specific Predicting the wrong amounts Lumping too much under Miscellaneous Overlooking a budget (failing to take the time)
Sample Budget CategoryBudgetedActualOver/Under Income SALARY1,5001,498-2 Fixed expenses RENT8007955 Flexible expenses UTILITIES300320-20 Savings SAVINGS100 0 Income Less Expenses and savings 300283-17
Individual transportation –Bicycles –In-line skates –Motorcycles Public transportation Carpooling
How to Choose a Car General rule – 20% of take home pay Can you afford it? New or used? –Reliability –Cost –Mileage (odometer) Class, make, model Do your homework (Blue Book, Edmonds)
Choosing a car Features Options Dealer add-ons Extended warranty Safety features Used cars checklist
To Buy or Lease? Purchase –Investigate options (credit unions, banks, special offersdo the math!) Leasing –Renting a vehicle
Lease Terms Gross capitalized cost – your cost (negotiate!) Capitalized cost reduction – cash down payment Acquisition fee – Setting up lease (including a security deposit) Residual value – predicted lease-end value (purchase price at end of lease) Money factor - interest rate you pay for financing lease
Lease Terms Monthly payment Mileage allowance Excess wear fee – inquire about this before you sign! Disposition fee – fee paid when car is returned at end of lease (cost of getting car ready to sell to someone else)
Steps to Leasing Negotiate the price of the car (gross capitalized cost) Know the residual value (if 60%, you should expect to pay 40% over the term of lease) Down payment and security deposit Financing Return car (have mechanic look over first!)
You should consider a lease if you… Cant pay cash for the new car you want Dont drive a lot of miles Dont keep your car for many years Keep your cars in excellent condition
The F&I Office (Financing and Insurance) Financing (F&I manager usually adds 1-2% on interest rate as commission for arranging loan) Insurance –Accidental Death and Dismemberment (pays off the balance of lease or loan if accidentally die or are dismembered) –Gap protection (pays the difference between what you owe and what your car is worth if it is totaled) –Extended warranty (extends manufacturers warranty on certain parts or services)
Purchasing the car Invoice price – the amount the dealer paid from the manufacturer Do your homework! Sticker price – the MSRP (Manufacturer Suggested Retail Price 9-11% above invoice usually) Fair profit – 3% above invoice Take invoice, subtract rebates, add 3% Trade in –Sell yourself for more $$ –Do your homework first, if you decide to trade it in
Shopping for new cars Get referrals No-haggle dealers (Saturn) Shop on the Internet Time to shop –End of month –Cold months –September –Slow months, August/December Test drive
Negotiating Dont be pressured Dont tell them what you can afford Negotiate the price of the car first, (dont bring up the trade-in just yet!) Explore other financing first Doc fee, prep feelook at all the charges and QUESTION! Do your homework!
Fees to expect to pay Sales tax Destination charge (shipping) License and registration Documentation fee ($50-$100 MAX!) Any add-ons you agree to!!! READ EVERYTHING!
Maintaining a car Owners manual Maintenance schedule Tires –Inflated properly –Check tread Check your oil & have regular oil changes Check all fluids Get tune-ups regularly
Maintaining a car Brakes (good for about 40,000 miles) Routine checks –Belts –Windshield wipers –Check for leaks Exterior maintenance –Wash –Wax yearly
Maintaining a car Save your receipts –Repairs –Use dealership for warranty work –Dealerships rather expensive vs. repair shops –Get estimates before agreeing to work –Ask about guarantees Lemon Laws –Defect cannot be fixed after 3-4 attempts –Car in shop for 30 days or more during warranty period –Numerous major problems
How to Buy a Home? Video
Housing Options Parents Home Dorms –Apartments –Efficiency apartment/loft Duplex –Condominiums/Townhouses –Association fees Mobile home
Sharing Housing Costs Roommates should discuss and agree upon: –Neatness –House guests –Quite time –Personal space –TV and stereo use –Phone use –Pets
Sharing Housing Costs –Divide responsibilities –Cooking –Dishwashing –Cleaning –Grocery shopping –Expenses (rent, utilities, phone, groceries) Furnishings and decorations Make a written agreement
Renting an Apartment Rent should be no more than 1/3 net pay (amount remaining after deductions) Consider: –Convenience –Neighborhood –Environment –Size and condition –Facilities –Pets
Renting an Apartment Lease terms – length, rent, due date, security deposit, utilities covered, facilities, restrictions, pets, rules, repairs, visitation, notice Make a list of existing damage before you move in, in the presence of landlord Packing, reserve truck early Change-of-address cards Set up utilities
Buying a Home 2.5 times your gross income –Mortgage (property serves as collateral for loan) –Principal (amount you borrow) –Down payment (% of the purchase price up front….usually around 20%, but may vary) –Example: interest=9% on $100,000 loan for 30 yrs. total interest of $151,732 –Points (service fees by lender, each point = 1%..additional int.) Closing costs (collection of fees to cover tasks of lender) Homeowners Insurance –Property taxes Mortgage insurance (if govt insured loan, mortgage may also include mortgage insurance. In exchange, you get a loan with a smaller down payment)
Types of Mortgages Fixed (interest rate remains the same, usually last from 15 – 30 years) Adjustable-rate (ARM) –Interest rate goes up or down based on economy rising or falling FHA (Insured by Federal Housing Administration to reduce the down payment 3 – 10%, protects the lender not you) VA (Military veterans @ favorable rates, insured by the Veterans Administration) Graduated-payment (small payments now and go up on a regular schedule over time)
Benefits of Home Ownership Appreciation Interest and taxes deductible Equity (difference between what a home is worth and what the buyer still owes on the mortgage)
Shopping for a Home Consider your needs and wants Real estate agents (MLS..Mulitple Listing Sites) Be thorough in investigating houses Have a house inspection done professionally –Process –Offer –Counter offer –Acceptance
Buying a House Find mortgage Set closing date Request an attorney
Furnishing your Home Make a plan on what to buy –Quality vs. price –Hardwood (maple/oak) vs. softwood (cedar/pine) Look for bargains Check energy labels/long term expenses
Elements of Budgeting Food, Clothes & Fun
What are your favorite foods? Pizza Asian food Soul Food Pasta/Italian Watermelon/Fruit Cake/Pie/Desserts
A Balanced Diet Your body needs nutrients to stay healthy There are six major nutrients that help your body run. –Carbohydrates –Protein –Fats –Vitamins –Minerals –Water
The Food Guide Pyramid The healthy way of life is to eat a balanced diet. The food pyramid is based on scientific research on foods and nutritional needs. –Divides food into groups –Is divided into servings –Is changing
Tips for Making Good Food Choices Eat a variety of foods each day Choose foods that are low in fat and cholesterol Eat plenty of fruits, vegetables, and whole-grain products Limit your consumption of sugar and salt.
Avoid Dietary Problems Fast Food Dieting Eating Disorders –Anorexia nervosa –Bulimia –Obesity * The only healthy way to lose weight, keep it off, and remain healthy is to eat a balanced diet and exercise regularly*
Shop for a Healthful Diet Determine budget Make a list Look for coupons/specials Dont shop when hungry Take advantage of sales Resist impulse purchases
Understanding the Language Fresh: product must not have been pre- cooked, altered, or frozen Low fat: 3 grams of fat or less per serving Sugar free: less than.5 grams of sugar per serving Reduced calories or LIGHT: no more than ¾ of the calories of the product to which it is compared
Understand the Language MORE of an ingredient: at least 10% must have been added High fiber: 5 grams or more of fiber per serving Cholesterol free: less than 2 milligrams of cholesterol and 2 grams or less of saturated fat per serving Low sodium: less than 5 milligrams of sodium per serving
Understand the Language Fortified: vitamins and minerals have been added Enriched: vitamin B complex and iron have been added
Nutrition Labels –Fair Packaging and Labeling Act requires certain info to appear on every food package and standardized –Serving size –Daily values –Ingredients
Other Shopping Info Freshness date – expiration date 060905 Unit Pricing –By law grocery stores must state –Allows you to truly compare Be cognizant of store psychology!
Choosing A Professional Wardrobe Lettermans Top Ten
Im Searching For Someone Who….
How much do you spend on clothing a year? Americans spend more than $400 billion each year to buy clothes There are three benefits of clothes –Utility: usefulness –Style: characteristics of clothing, differentiate –Value: the most you can get for price.
Shopping for clothes Know what you want Know how much you can spend Know where to shop
Natural Fibers Come from plants or animals Cotton – boll of cotton plant, shrinks, wrinkles, but durable and comfortable Linen – fibers from flax plant – lightweight, cool, wrinkles easily Wool – fleece of animals – warm, absorbs, resilient, soft but may be scratchy Silk – secretion from silkworm that it uses to build its cocoon, luxurious, unique luster – cool in summer, warm in winter, durable, but expensive and require dry cleaning or hand washing
Manufactured Fibers Rayon – one of most versatile, soft, lustrous, and blends well Acetate – becoming popular, less expensive alternative to rayon, not as strong as rayon, soft lustrous, easy-care Nylon – strongest most durable synthetics, feels soft and silky, washable, seldom requires ironing Polyester – most widely used manufactured fiber, wrinkle-resistant, easy-car, permanent press
Recreation and Travel Budget Set your priorities –Equipment (golf, hockey) –Facilities (tennis courts) –Save for what you want Start small (try before you buy) Evaluate alternatives
Airfare tips Advance purchase Saturday night stay Be flexible (time, day) Off-peak No changes! Get seat assignments early Sign up for frequent flyer miles Check in early Make sure you have all necessary documents