1. Lesson 4-2 Basics of Budgeting LEARNING GOALS: -IDENTIFY THE PURPOSE OF A PERSONAL BUDGET -PREPARE A PERSONAL BUDGET -DESCRIBE RECORDKEEPING METHODS USED IN THE BUDGETING PROCESS

2. A Budget A budget is a spending and saving plan based on expected income and expenses. It is an estimate. A budget is a spending and saving plan based on expected income and expenses. It is an estimate. The purpose of a budget is to plan how you will spend and save money. The purpose of a budget is to plan how you will spend and save money. It includes a listing of income from all sources, planned savings, and all expenses. It includes a listing of income from all sources, planned savings, and all expenses. Spreadsheet software, such as Excel ®, allows you to adjust numbers in a budget, use formulas to perform all calculations. Spreadsheet software, such as Excel ®, allows you to adjust numbers in a budget, use formulas to perform all calculations.

3. Steps to preparing a Budget Step 1 Estimate Income Step 2 Plan Savings Step 3 Estimate Expenses Step 4 Balance the Budget

4. STEP 1 ESTIMATE INCOME Include all sources of income, whether the money is earned or unearned. STEP 2 PLAN SAVINGS Pay yourself first – put money into savings before you consider other expenses. Preparing a Budget

5. STEP 3 ESTIMATE EXPENSES Variable expenses – costs that can go up and down each month. Ex.- Utilities, gas, clothes, food. Fixed expenses – costs that do not change each month. Ex. – rent, insurance, car payments. Charitable giving – the act of donating money or time to a cause in which you believe. STEP 4 BALANCE THE BUDGET Find the total of savings and expenses. This amount should be the same as the total income amount. A balanced budget shows that you have enough income to pay your expenses. If it does not balance you can find ways to increase income and/or decrease savings and expenses. Preparing a Budget

6. Budget Analysis A budget is a plan for saving and spending. A budget is a plan for saving and spending. You should not expect income, savings, and expenses to be exactly as you planned in a budget. You should not expect income, savings, and expenses to be exactly as you planned in a budget. The difference between planned amounts and actual amounts are called variances. The difference between planned amounts and actual amounts are called variances. Favorable variance – you earn or save more than you estimated or your expenses are less than estimated. Favorable variance – you earn or save more than you estimated or your expenses are less than estimated. Unfavorable variance – you earn or save less than you estimated or your expenses are more than estimated. Unfavorable variance – you earn or save less than you estimated or your expenses are more than estimated.

7. Recordkeeping Methods Keeping good records will help you prepare a better budget and analyze your earning, spending, and saving. Keeping good records will help you prepare a better budget and analyze your earning, spending, and saving. Manual records consist of information recorded using pen and paper. Keeping logs or journals on paper that list types and amounts of income, savings, and expenses. To keep safe, store in a locked drawer, strongbox, or safe. Manual records consist of information recorded using pen and paper. Keeping logs or journals on paper that list types and amounts of income, savings, and expenses. To keep safe, store in a locked drawer, strongbox, or safe. Electronic records consists of a soft-copy format of your financial information stored on your computer. Protect from unauthorized users by using passwords and encryption – a process of converting data to a coded form. Electronic records consists of a soft-copy format of your financial information stored on your computer. Protect from unauthorized users by using passwords and encryption – a process of converting data to a coded form.

8. Assignment Page 132 – Answer questions 1-16, 18-20 Page 132 – Answer questions 1-16, 18-20