Budgeting: Making the Most of Your Money Unit 2

Objectives for Unit 2 Budgeting : Making the Most of the Money Examine your spending habits. Know the benefits of having a spending plan, or budget. Identify various source of income. Indentify types of expenses Knowing the importance of saving (paying yourself first) Be able to construct a budget. Examine forms of recording involved with budgeting and cash management. Consider how a budget will change throughout your life. NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Where should all my money go? Money mangers should know what to count on as income. From that spend on the money on bills, and day-to-day purchases. Money is set aside for big expenditures for operations of the company. This unit is to learn to be smart with your money. Where it goes and decide when bills get paid and deal with large expenditures. NEFE High School Fiancial Planning Program Mr. Dave Schmidt Page 15 Did you know? Almost 60% of millionaires use a budget to manage their money. -Millionaire Next Door. Surprising Secrets of America's Wealthy

How Does Your Spending Measure Up? Review your Spending log from Unit 1 What did you learn from your spending habits? Where there any expenditures you regretted? Budget is a plan for managing your money during a period a time. Its not to deprive yourself, but to be able to reach your financial “SMART” goals. Every business have budgets for everything, payroll, expenditures, capital improvements, inventory, and supplies. “Every dollar saved is a dollar to the net profit.” NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Smart Spending In your spending log you have a habit to buy a soft drink on the way home at the convenient store for $1.69. At the end of the month you spent $33.80 or $304.20 for the entire school year (180 days). Could you be smarter with your money? Avoid spending on things you really don’t need. This way you have the money for the things you really want. If you received a prize of $50, how will you spend it? Due to values of each person each person will have different ideas to spend it. NEFE High School Fiancial Planning Program Mr. Dave Schmidt Page 16

Assignment 2-1 How am I Doing? Compare your spending log from Unit 1 with your financial plan. How well your current spending habits represents your financial goals? If not what type of budget (spending plan) are we going to have to reach your financial goals? What do you think the benefits you will have in having a personal budget? NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Assignment 2-1 Expenses Matches Goals (Yes or No) Adjustments Needed NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Part 1 of the Equation: Income Cash flow: The money coming in as it relates to going out. Income: Money you received for a period of time. Your job, gifts, personal things that you sell. Taxes: payroll deductions to pay for government programs. Local, state, and federal level. Social Security Tax (FICA) Medicare Taxes NEFE High School Fiancial Planning Program Mr. Dave Schmidt

What’s a W-4 For? There is a saying that goes “The really certainly in life is death and taxes.” The government uses the W-4 form to figure out you financial tax obligations. The following factors deal with the amount of tax you pay: Income Marital Status Dependence (children, or other people you financially support) Any other deductions you want to add. NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Part 2 of the Equation: Expenses Expenses are what you spend money on your needs and wants. Fixed expenses: The same cost each period of time, such as rent, car payments, etc. Variable expenses: fluctuates in amount of usage. These expenses are easier to control, such as utilities, telephone, food, etc. Periodic or occasional expenses: These expenses are not paid every month such as car insurance is paid every 6 months, water and sewage every 3 months, etc. NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Exercise 2C: What type of Expense Is It? Description Fixed? Variable? Periodic? Groceries Piano lesson fee Cable TV bill Magazine subscription renewal Car loan payment NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Assignment 2-2 My Fixed and Variable Expenses Fixed Expenses Variable Expenses Periodic/Occassional Expenses NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Did You Know? The average person spends money three times a day. Putting aside every coin you touch results in saving about $50 a month A $5 sandwich usually have less than $1 worth of ingredients. If you purchase a soda a day at the store, you can easily spend over $400 a year. NEFE High School Fiancial Planning Program Mr. Dave Schmidt

The Most Important Expense Your financial goal should be the highest of any expense that you have. You are earning the money, you should earn the right to achieve your goals. “Pay Yourself first” (PYF): Money you put aside for your financial goals (retirement, trips, new car) something that is important to you. Use of Roth IRAs, and other investments that employer can put directly money each paycheck into it. If you don’t see it you don’t miss it. Set up an emergency fund, to take care of unexpected expenses, such as car repairs, tires, unexpected unemployment. This should be about 6 months of salary. NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Exercise 2D: Saving to Meet Goals NEFE High School Fiancial Planning Program The Simpson family wants to buy a new refrigerator for the kitchen. Mr. Simpson has visited several stores and estimates that it will cost $700 to buy and install the type of refrigerator the family wants. The goal is to buy the refrigerator in 6 months. How much do the Simpsons need to save each month? The Mencias want to buy their oldest daughter a computer to take to college next year. They’ve shopped around and think they can get a good desktop computer, software, and a printer for about $1,100. With 15 months to save how much money they need to set aside each month? Mr. Dave Schmidt

Exercise 2D: Saving to Meet Goals- Answer $700 ÷ 6 = $1,100 ÷ 15 = $116.67 NEFE High School Fiancial Planning Program $73.33 Mr. Dave Schmidt

Assignment 2-3: Saving My Goals Smart Goals Total Amount Needed Amount to Save Each Month or Week NEFE High School Fiancial Planning Program Mr. Dave Schmidt

The 411 on Creating a Budget The five steps of Financial Planning. Get SMART Goals Analyze Information Create a Plan Implement the Plan Monitor and Modify the Plan Creating a spending plan or budget works the same way. Your financial goals is instilled in your budget. If you follow your budget you will reach your goal NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Building a Budget Decide a time frame List the money received each time period. Total Income Categorize your expenses. Total Expenses Budget Overruns/Shortages. NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Assignment 2-4: Build a Budget Please read the information about Jessica. Use data provided to outline a personal budget for Jessica. Make sure that Jessica’s total expenses don’t exceed her total income. NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Assessment 2-1 My Personal Budget Go to page 23 of the workbook and complete your personal budget, using Microsoft Excel and use the format as shown before. NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Keeping Track Check bank account statements Saving and Investment statements Paystubs Tax Deductions Insurance Statements Loan and Credit Card Statements Credit Card Fraud Receipts and warranties for big ticket items. NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Staying on Track The Envelope System The Tally System Track with checking account register, Budget Spreadsheet Personal Finance Software: QuickBooks Peachtree NEFE High School Fiancial Planning Program Mr. Dave Schmidt

The Living Budget Budget are not written in stone. Adjustments are made when income increases or decreases. Increases and decreases in your Expenses. Changes in saving goals will be necessary to change your budget. NEFE High School Fiancial Planning Program Mr. Dave Schmidt

Exercise 2E: Jessica’s Budget Needs Adjusting NEFE High School Fiancial Planning Program Page 25 Take Jessica’s budget and make the adjustments with the new information provided. Mr. Dave Schmidt

Adding it Up A financial plan makes you personal life easier, because you have a plan on the what you make and you have a plan to spend the money to meet your requirements and goals. It takes the stress out of your life of financial worries. You learned about Paying Yourself First. Make sure that the money you earned reaches to your financial goal. NEFE High School Fiancial Planning Program Mr. Dave Schmidt For more tips , tools, and articles about budgets, visit hafpp.nefe.org

Unit Assessment 2-1 My Personal Budget On page 26 Using Microsoft Excel prepare your personal budget. Include the following information in your budget: NEFE High School Fiancial Planning Program Anticipated income, savings, and expenses for a month based on your current situation. An explanation of how the budget supports each of your personal goals. Mr. Dave Schmidt