What is a Budget? Economics

“A Dream stays a Dream until you create a plan to make it come true; then and only then does it become reachable goal”

Budget A budget is a financial document used to project future income and expenses. The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses.

A Budget is a tool to help you understand where your money goes. A Budget allows you to decided how much and when you spend your income. A Budget allows you to make and reach your financial goals

A Budget is the cornerstone of a solid financial future.

“Budgets are very empowering” “Budgeting doesn’t lead you away from something it Leads you towards a financial goal” “A good Budget can help keep your spending on Track and even uncover some hidden cash flow Problems that might free up even more money to Put toward your other financial goals” “Budgets can help eliminate many money Surprises because your have planned Ahead and know what to expect” “Budgets create financial security” “Budgets are all about Financial freedom. Without a Plan for saving and spending, You will never make the most of your income-no matter how much Money you make”

What do I need to prepare for a Budget? Income details List of expenses including debt payments What are the types of Expenses?

Fixed Expenses: Remain the same each month –Housing/rent –Car loan –Retirement plan Periodic Expenses Occur only once or twice a year –Car insurance –Real estate taxes Variable Expenses: Vary from month to month –Utilities –Donations

Creating a Budget Identify your monthly income –Wages –Allowance from inheritance, lottery, etc Identify your monthly expenses –Rent/housing payment –Student loan –Credit card

Rule of Thumb If your monthly income is greater than your monthly expenses then you are able to save money $$$$$$$ MI > ME = Savings If your monthly expenses are greater than your monthly income then you are going into debt. ME > MI = Debt

Setting Financial Goals Think First Budget each pay packet What needs to paid first? Remember When it is gone; it is gone Rethink Is this expense absolutely necessary? Is it a “need” or a “want?”

“Goal Setting is a Terrific Motivator!” Short Term Goals: 12 months or less Mid Term Goals: Within 1-3 years Long Term Goals: Within 3-5 years Examples Build on “Emergency Fund” Get your debt under control Save for a deposit on a home or car Save more for retirement Save for a dream vacation

“SMART” S = SPECIFIC = what is it you want to achieve and why M = MEASURABLE = amount to be saved each month/interval A = ATTAINABLE = when is the due date for the goal R = REALISITC = have you given enough time to save T = TRACKABLE = specific time frame

‘Rule 72’ Is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. Formula: How many years to double is: 72/”Fixed annual rate of interest’=‘Years to double your money’ It works like this: 4pa 72/4(%) = 18 (years to double your money) 10pa 72/10(%) = 7.2 (years to double your money)

A Saving Plan SAVE, SAVE, SAVE Start now! No matter how small your savings! Pay yourself first, use automatic deductions Put your savings into a separate account that does not have ATM access. Put any pay raises, bonuses or tax refunds into savings

SAVE, SAVE, SAVE Budget each pay packet Determine which categories you will pay in cash Pay with cash and keep receipts Don’t be tempted by debit cards Don’t pay the minimums on credit cards Don’t live without emergency savings (6 months) Don’t spend more than you earn Set financial goals Live off one income (married)

Reaching a Million Dollars If you are 25 years old, can earn 15% on your investment, have saved $1000 and can save $50 a month, at age 65, you will have $1,495,435.

Growth Age 25$ 1,000 + $50 per month 30 8, , , , , , , ,495,435

Simple Interest “Interest Rate” the stated rate of interest paid each year ___________________________________ Principal amount to be saved; $1,000 Interest 6% per annum/year: 6% of $1,000 i.e. 6/100 (.06) x 1000 = $60 per annum/year Value after 2 years: $120 interest + principal ($1000) = $1120 Value after 5 years: $300 interest + principal ($1000) = $1300 Value after 10 years: $600 interest + principal ($1000) = $1600 Value after 12 years: $720 interest + principal ($1000) = $1720 Bank fees are not taken in consideration in above calculations

Compound Interest Compound interest is paid on the original principal and on the accumulated past interest __________________________________ Formula to find interest for fixed term deposit: A = P(1+r)t A = is the amount of money accumulated after t years, including interest P = is the principal (the initial amount you borrower or deposit) r = is the annual rate of interest (percentage) t = is the number of years the amount is deposited

You have $1000 at a rate of 5%pa for one year A= $1000(1+5%)1 A= $1000 x (1+0.05)1 A= $1050 You have $1000 at a rate of 5%pa for 3 years A= $1000(1+5%)3 A= $1000 x (1+0.05)3 A= $

The Difference between failure and success is doing a thing nearly right and doing it exactly right. Edward C. Simons