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- BUDGETING - “Most people don’t plan to fail. They simply fail to plan.” After your test correction do “Test your $$ sense”

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Presentation on theme: "- BUDGETING - “Most people don’t plan to fail. They simply fail to plan.” After your test correction do “Test your $$ sense”"— Presentation transcript:

1 - BUDGETING - “Most people don’t plan to fail. They simply fail to plan.” After your test correction do “Test your $$ sense”

2 “Some Money Facts” The average person spends money three times a day.  A movie with popcorn and a soft drink can easily cost $20  Just one soft drink a day for.99c adds up to $361.35 in a year  The biggest expense item for teenagers is FOOD!  Teens spend collectively $172 billion annually - $104 per week  Using a credit or debit card causes a person to spend 34% more –There are about 502 million credit cards in use today with $406 billion balance  Banks and credit companies make 51% profit from fees and penalties  UTAH, New York, and California buy the most “name brands”  Utah is #1 in Bankruptcy, Foreclosures, and Default on Mortgages  2001 in Utah –Nearly 94,000 people under 25 yo filed for bankruptcy –Average in the US is 1 in 69 file for bankruptcy and in Utah is 1 in 34 filed –Rise in 18-25 year olds moving back in with parents

3 BE PREPARED How do you build a house? How would you go on a trip?  Map it out  Gather resources  Consider options  Take action  Floor plan  Gather resources  Consider options  Take action When you operate without a personal budget, you are spending your money without a guideline or plan.

4 BUDGET A plan for managing your income and expenses “A Rich man knows exactly how much $ he makes and where it is going. A poor man has no idea!”

5 Budget Buster (off to side)  Give yourself five points if you have a budget.  2. Give yourself five points if you have a checkbook.  3. Deduct a point if you have ever bounced a check.  4. Deduct a point if you bought something this week without comparison shopping.  5. Give yourself a point if you bought a store brand, rather than a name brand item this week.  6. Give yourself five points if you have a savings account.  7. Give yourself five points if you added any money to your savings account this week.  8. Give yourself five points if you pay your own car insurance (or part of it).  9. Deduct five points if you routinely carry more than $10.00 in your purse or wallet.  10. Give yourself five points if you have a method of recording what you spend. –Total your points. The winner is the person with the most points.

6 Gross Income  The total amount of income earned before deductions are made. You must earn $15.00 to buy a $10.00 item. Letter and Cookie Monster

7 = = = "Understanding Your Paycheck" = = =  Gross pay: $1,222.02 Deductions: ----------- Income Tax: 244.40 Outgo Tax: 45.21 State Tax: 61.10 Interstate Tax: 5.89 County Tax: 6.11 City Tax: 12.22 Rural Tax: 4.44 Back Tax: 1.11 Front Tax: 1.16 Side Tax: 1.61 Up Tax: 2.22 Down Tax: 1.11 Tic-Tacs: 1.98 Thumbtacks: 3.93 Carpet Tacks: 0.98 Stadium Tax: 0.69 Flat Tax: 8.32 Surtax: 3.46 Ma'am Tax: 2.60 Parking Fee: 5.00 No Parking Fee: 10.00 F.I.C.A.: 81.88 T.G.I.F.: 9.95 Life Insurance: 5.85 Health Insurance: 16.23 Disability: 2.50 Ability:.25 Liability Insurance: 3.41 Dental Insurance: 4.50 Mental Insurance: 4.33 Reassurance: 0.11 Coffee: 6.85 Coffee Cups: 66.51 Calendar: 3.06 Floor Rental: 16.85 Chair Rental: 4.32 Desk Rental: 4.43 Union Dues: 5.85 Union Dont's: 3.77 Cash Advances: 0.69 Cash Retreats: 121.35 Overtime: 1.26 Undertime: 54.83 Eastern Time: 9.00 Central Time: 8.00 Mountain Time: 7.00 Pacific Time: 6.00 Grenwich Mean Time: 24.00 Bathroom Time: 6.05 Time Out: 12.21 Oxygen: 10.02 Water: 16.54 Electricity: 38.23 Heat: 51.42 Misc.: 144.38 Air Conditioning: 46.83 --------- Total, all Deductions $1,222.00 Take Home Pay: $0,000.02

8 Net Income  The amount of income left after deductions are taken out.  Now you get to spend! –How do your values influence your spending habits?

9 You just got a surprise gift $100! What will you do with it? (off to side) 1. Spend it right away for something I want—“A shirt in that new shade of blue will look great on me!” 2. Spend it right away for something I need— “My running shoes are falling apart. Now I can get a new pair to break in before track season starts!” 3. Use it to get more money out of Mom or Dad—“That MP3 player I’ve been wanting is $200. I wonder if Mom or Dad will give me the extra $100?” 4. Spend some/save some—“College is in my future, so I want to be sure to have some money to get me started. But it also is important to have a little fun, like taking in a movie and having dinner with my friend.” 5. Help someone out— “Our rent went up $50 a month. Mom doesn’t know how she’s going to pay for it. This money could help her out for a couple of months.” 6. Save it all— “A penny saved is a penny earned. If I put this into my bank account it will earn interest and I’ll have money when I really need it. My car insurance is due in a few weeks.”

10 What do you value? 1. Spend it right away for something I want –(you want a lot of stuff and you want it now) 2. Spend it right away for something I need - (money is unimportant, but it helps you get the things you want and need) 3. Use it to get more money out of Mom or Dad - (you use money to make you feel important) 4. Spend some/save some - (you value money for the security it gives you) 5. Help someone out - (you are not concerned with money, no reason to worry about it) 6. Save it all - (you value money for the security it gives you)

11 Identify your Needs vs wants  NEEDS –Essentials…the basics of life –Food –Clothing –Shelter

12 For the rest of your life you cannot spend money on…. (sit down if they cannot go with out spending money)  Opening day for movies  Manicure/pedicure  Athletics/gym memberships  Hairstyles that have expensive treatments (color, perms, etc.)  Cell phones  Going out to dinner 3x a week  Vacations in high seasons  Name brand clothes

13 Identify your Needs vs wants  WANTS –Simply increases the quality of living

14 POSSIBLE BUDGET ITEMS *auto—fuel and maintenance or transportation cable TV car payment clothing clubs or organization fees cosmetics credit card or loan payments Donations eating out *electricity entertainment *food Hair cuts hobbies Holidays/birthdays/gifts home interior/exterior (yard) *house payment or rent household supplies (cleaners, paper products) insurance *medical bills *medication natural gas pet care phone savings schooling vacation

15 Expenses Fixed  Expenses which usually do not vary in amount and must be paid on a regular basis (mortgage, car payment, insurance…) Variable  Expenses which vary from week to week or month to month (clothing, food, entertainment…) Video

16 Make A Budget  1. Track your spending to find out where your money is going  2. Add up your monthly income ($750.00)  3. List all of your monthly expenses ($612.00)  4. Balance your monthly expenses to match your monthly income. Rework the expense amounts until these 2 areas balance. This is your budget. ($138.00 left)  5. Track the money that you spend throughout the month both variable and fixed. Update your budget as expenses change.  6. Monthly review your budget to see where changes need to be made. Evaluate how well you are meeting your financial goals. BUDGET JAR

17 Budgeting % allowance for each month Housing 20-35%Savings 5-10% Food 15-35%Insurance 2-8% Personal care/clothing 2-4%Recreation/entertainment 2-6% Transportation 5-10%Charity Misc./unexpected 3-10%Utilities/phone 4-7% Study Guide Figures

18 Vanessa’s Budget  Vanessa's monthly student worker paycheck earnings after taxes is $412. She also has a part-time waitress job on the weekends and earns $168 per month after taxes. Her parents supplement her earnings with $200 a month. She adds that to her monthly paycheck earnings to get a total monthly income of $780.  Next, Vanessa adds up her fixed expenses: rent (she shares an apartment with two others and pays 1/3 of the rent) $200, and she is responsible for her car insurance which is $128 per month. She has a car that her parents have given her, so she does not have a car loan. She is very lucky that her parents pay her tuition and fees for school each semester. She is also on her parent’s health insurance and that takes care of any doctor visits when she gets sick as well as visits to the dentist.

19  Now Vanessa adds up her variable expenses. Her share of utilities is usually $100 per month and that includes cable. She spends about $40 per month on her cell phone calls. Groceries average around $80 per month, Gasoline is another $40 per month. And she figures she’ll be able to spend $40 per month on clothing, movies and going out with her friends. She adds all these up and sees that her variable expenses total $300 per month.  Vanessa subtracts her total expenses of $628 from her income of $780 to get $152. Vanessa knows that she will need probably about $20 per week for snacks, incidental school supplies, etc. That leaves $72. Since Vanessa will have some money left over after taking care of her expenses, she decides to put at least $60 per month into savings for unexpected expenses, e.g., repairs to car, additional materials required for class, etc.

20 Is Vanessa’s spending within the budget guidelines? rch/programs/cse/finance/budget /

21 THE BEAN GAME Living on a “20 Bean Salary”  Purpose Managing money means making choices. There is never enough money available for all of the things we’d like to have or do. This game will help you decide what is most important to you.  How to Play Each individual receives 20 beans and a spending category sheets. The individual must decide how to spend their “income” based on life circumstances, values and goals. Each item has a set number of squares which indicates how many beans are needed to “pay” for that item.

22 How does the typical family spend their pay check? Remember living expenses vary depending on where you live, age, and personal goals. $2500 pay check $600 (30%) Housing $440 (22%) Food $200 (10%) Clothing $40 (2%) Personal $180 ( 9%) Other $140 (7%) Recreation $160 (8%) Insurance $280 (14%) Transportation $280 (14%) Utilities, home repairs

23 Budgeting Tips 1. Create and Update your budget Create a plan on how you will spend and save money. Update it regularly and evaluate your goals. Think about your financial situation, where you need to be, and determine how you're going to get there. 2. Rule of Percentages — A good rule of thumb for budgeting your salary is: 70% pay current bills, 20% save for future purchases, 10% invest for long term. 3. Plan ahead - Write down your goals and objectives. It's important to be realistic. Right now when you are in school, will you more likely be able to afford a $10,000 car or one that costs $30,000? Review your goals and objectives regularly to see if you are on track.

24 4. Pay Yourself First — After budgeting for necessities and before spending anything for wants, always tuck away some money from each paycheck for emergencies into a rainy day savings account or investments -- Rule of 72 (to double your money) — If you know the interest rate you can get, divide 72 by the known interest rate and it will give you how many years it will take to double your money. If you know how many years you have, divide 72 by the number of years and it will tell you what interest rate you must have to double your money. Examples: If interest rate is 6%. 72 ÷ 6 = 12 years. If time is 10 years. 72 ÷ 10 = 7.2% interest rate needed.

25 5. Fixed, Variable, or Needs, Wants, and Luxury? – Categorize and prioritize the expenses in your budget. Is it fixed, such as rent or a car payment? Is it variable such as groceries, gas or long distance use? Or is it luxury, such as entertainment or going out to eat? 6. Stay insured Purchase health insurance to avoid being hard hit by a financial loss due to accident or illness. It is an important part of your financial plan. Depending on your circumstances, look into renter’s insurance, car insurance, home owner’s insurance, or flood insurance. 7. Before Charging — Ask yourself: 1) Do I really need it? And 2) Will I still have this 5 years from now? If the answers are No, then wait until you can pay cash.

26 8. Stay focused You'll need patience and discipline to start your financial plan and to follow it through. Don't be tempted to overspend or to spend without thinking about it first.. 9. Money Tracking — We often spend money without thinking about it. Keep track of all your expenditures (cash, checks, debit cards, ATM withdrawals and credit cards, transactions - even the smallest ones). Record them every time in a notebook or register. Review them regularly to make yourself aware of where your money goes. Keep a file box /notebook to put all of your records in.

27 10. Educate yourself - No one can protect you from your own bad judgment. Get the information you need to avoid financial trouble and make thoughtful decisions that can improve your financial security. 11. Take money time - Set aside time each month to work on your money management. Monthly reconcile your bank statement. You will find that it's time well spent.

28 12. Set Financial Goals  Goal setting is an important part of success, whether you are aspiring to reach objectives in school, career, or your personal life. Aim too high and you may get frustrated and give up; aim too low and you might not push yourself to reach your full potential.  Think about your financial goals and how you plan to reach them. – What do you want your financial picture to look like in one year? Five years? Ten years? – Do you want to buy a car, buy a house, start a family, or pay off student loans? – What do you need to change to reach your goals? – Think about your financial goals and how you plan to reach them.

29 Handling a Budget Pro’s and Con’s  Joint Bank Accounts –Money is available to either the husband or the wife. Both are free to make deposits and withdrawals at will.  Separate Accounts –The two may each have their own account. In this method, the couple divides the expenses up between the two.  One Spouse Manages –One spouse gives the other money, as it is needed.  Envelope Method –In this method several envelopes represents the budget categories. Each pay period money is placed in the assigned envelope until it is time for it to be spent/paid.

30 It is said that money brings happiness, BUT (behold the ultimate truth) Money problems bring unhappiness that can stay with you for the rest of your life and affect your relationships. Finances affects everything! We are in a Anti Dowry period – you take debt into a marriage instead of a dowry. Grandma's Advice  Fix it up  Wear it out  Make it due or  Due without. Dave Ramsey Says:  “Live like no other today so that one day you will live like no other.”

31 MONEY, MONEY, MONEY  Continue keeping track of your spending and income for 5 days  Complete the 5 questions.  Record your budget spending  Create a new budget  Write an analysis for this

32 STATE #7 GROUPS Smith Family Budget  Barbara Smith was tired. She had no idea that merging wants, needs and desires in marriage would be such a challenge. She and her husband had overcome many challenges, but their greatest ongoing problems surrounded money. Her spouse was a spender, she was a saver; she liked to balance the checkbook to the last penny, her husband hadn’t entered anything in the register in years. The result was numerous volatile eruptions and conflict that both she and her spouse wanted to avoid. It shouldn’t have been a surprise.  Experts agree that finances can be the number one cause of marital strain. It’s understandable that financial struggles can cause strain because how people spend money is never


34 Financial Planning Process thinking process that help achieve goals.

35 STEP 1 Set Goals

36 Specific Measurable Attainable Realistic Time-bound

37 SMART Goals Timelines  Short Term –Up to three months  Intermediate Term –Three months to one year  Long Term –Longer than one year DELAYED GRATIFICATION

38 Assignment 1.3 My SMART Goals Page 7 Save $25 so I can take my friend out for pizza. 1 st of next month Short term$25.00$7.50 $25.00$7.50

39 Step 2 Analyze Information

40 Cash Flow  A measure of the money you receive and the money you spend.

41 Assignment 1.4 Personal Spending Record Page 8

42 Step 3 Create A Plan

43 Decision Making  The process of considering and analyzing information in order to make a decision.

44 Opportunity Cost  Choosing one option may mean giving up altogether another goal.  It’s a tradeoff!

45 Assignment 1.5 My Decision ProsCons

46 Step 4 Implement the Plan

47 Three Rs of Money  Reality  Responsibility  Restraint

48 Step 5 Monitor and Modify the Plan

49 Monitor and Modify  Are your existing goals still worth doing?  Is there a new goal to add to your list?  Is there an existing goal you want to drop or change?

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