Making the Most of Your Money Unit 3: Budgeting Making the Most of Your Money

Where should all my money go? Smart Money Managers Know: Money coming in Money needed to spend on bills Money needed for day to day purchases How much to set aside to SAVE for bigger purchases

How Does Your Spending Measure Up? How much money do you get on AVERAGE a week? Where do you get it? Where do you spend it? Do you spend all of it? Do you save any? What do you have in the bank? Complete the chart

Spending plans Budgets – a plan for managing your money during a given period time Also known as a spending plan Plan will change over time High School Student College Student First Job Promotions Evolves to help you meet your responsibilities and achieve goals

Budgets – What happens when you don’t have one Spending money haphazardly Buying things you don’t really need Run out of money Overspend End up in debt

What if? Who buys a drink everyday? $1 .50 X 5 days = $7.50 $7.50 X 4 weeks = $30 What else could you spend $30 on?

What if? What if you stopped buying a drink a day for 3 months? How much would you save? $30 X 3 Months = $90 What could you spend $90 on?

Part 1 of the equation Income

Income Cash Flow = the money you have coming in and out Income = money you receive Job Allowance Check for birthday Selling your stuff Interest on a savings account

NO! Income – Gross v Net Pay for doing work Gross Income v Net Income Gross Income = total amount of income from your wages Total number of hours you work times your hourly rate Is your gross income what you bring home? NO!

Income Gross v Net Net Income – income received after payroll deductions are taken out of your pay Also known as “Take Home Pay” Starting point for creating a spending plan Payroll Deductions – money subtracted from your employer for taxes and other work related items

Common Payroll Deductions Taxes Health Insurance Retirement Plans Day Care Pension Union Fees Charities

Taxes Largest Deduction Fees that support government programs and required by law to be applied to income, property or goods Programs run at local, state or federal levels Taxes pay for things such as road maintenance, public schools, armed services, and retirements income

4 common tax deductions Federal Income Tax – fee collected by federal government to support its federal programs EMPLOYERS withhold this tax from employees and send it to the IRS (Internal Revenue Service) State Income Tax – fee collected by the state to help pay for state services EMPLOYERS collect this from all employees and send it to the state revenue department

4 common tax deductions Social Security Tax – provides small income and services to the elderly, disabled Americans and orphaned minors EMPLOYERS withhold this tax from employees Medicare Tax – provides medical insurance to the elderly, and some disabled Americans Both taxes are deducted from the employees pay and EMPLOYERS send them to the Social Security Administration Federal Insurance Contributions Act (FICA) is part of the tax code that applies these two taxes

What’s a W4? W-4 form is a form you fill out at time of hire Tells your employer how much money to take out of our pay for taxes Based on a series of factors Martial status Whether you have more than one job How many children you have The lower number of “allowances” the higher amount is taken out of your pay for taxes Most High School and College students stay within the 0-1 range

review pay stub

Part 2 of the Equation Expenses

Expenses Expenses - things you spend your money on Can be needs or wants Three Types of Expenses Fixed – cost the same each time Car loan, student loan, mortgage payment, rent Variable – fluctuate in amount Groceries, gas, you can control expense Periodic (or occasional) – don’t pay every month Magazine renewal, auto repair, roof repair

The Most Important Expense Pay Yourself First (PYF) – whenever you receive money, put a certain amount into an account that you will set aside to meet a long term goal. Good way to start an emergency fund Direct Deposit allows you to split the deposit of your paycheck Banks can do automatic transfers– they will transfer a set amount into your savings account from your checking

Building a Budget Decide the time frame for tracking your income and expenses List all the money you have coming in. Break income into categories such as work, allowance or other Total ALL INCOME Categorize your expenses Don’t forget PYF Total ALL EXPENSES Subtract your total expenses from your total income Monitor budget – do you need to make any changes

1. 2. 3. 4.

Keeping on track Get organized Use file folders Break documents into categories Checking Account Statements Balance Checking Account each month Catch up on fees Keep for 1 Year Shred after 1 Year

Keeping on track Savings and Investment Statements Pay stubs Check statements Keep 1 Year** Shred after 1 year** Pay stubs Check you pay stubs for errors Save until you file taxes Check last paycheck against W2 form for taxes Shred after taxes are files

Keeping on track Tax Documents Insurance Elements Collect W2, checking and savings tax documents, and investment statements to file taxes Keep tax info collected until after taxes are files Keep Filed Taxes Report for 7 Year Insurance Elements Keep copy of “declaration” insurance pages – information on coverage and deductable amount Keep premium notices for 1 Year

Keeping on track Loan and Credit Card Statements Check for errors Loans – keep signed agreement and statements for length of the loan Credit – keep monthly statements for 1 year, signed agreements for as long as account is open Receipts and Warranties for Big Ticket Items Keep all BIG TICKET receipts All other receipts, keep for a year

Tips on staying on track The Envelope System – label envelops with your expenses, distribute money into each envelope The Tally System – at end of week enter the amounts on the receipts below the amount budgeted for each category Track with Your Checking Register – as you spend, make a note of what you spend in the payment/debit column so you track every dollar The Budget Spreadsheet – enter each time you spend money into an Excel spreadsheet Personal Finance Software - Quickbooks, accounting programs