(also known as “how much money can I spend?”) Planning 10 Learning Guide 15 Planning 10 Learning Guide 15 Money Management Budgets Click for next Watch this corner for prompts on when you are expected to click the mouse button.

Learning Guide Objectives Upon completion of this learning guide, it is expected that students will: Click for next Differentiate between needs and wants, setting priorities Understand the need for making provisions for saving Know when to convert weekly/monthly/annual expenses or income Identify fixed and variable expenses Understand the need to plan for unforeseen expenses Recognize that an appropriate budget includes 10% of the net income left each month, AND includes a regular long term savings contribution, also of 10% of the net income.) This is especially important! Recognize that an appropriate budget includes 10% of the net income left each month, AND includes a regular long term savings contribution, also of 10% of the net income.)

Why Budget? A budget helps you to keep track of your expenses, live within your income, and save for both planned and unplanned future expenditures. It also allows you to analyze your spending habits and efficiently trim un-necessary spending, without sacrificing your chosen lifestyle. Most importantly, a budget makes sure that you don’t have “too much month left at the end of money.” Click for next

Why Budget? People who don’t budget wisely or realistically will commonly spend more than they can afford, and end up borrowing to cover expenses. Of course, borrowing money costs you even more money, which gets you deeper into debt, which causes you to borrow more money and on and on and on and on ad nauseum. Click for next

How Much Debt Is Too Much? At one time, any debt at all was too much debt. However, that is not realistic in today’s society. Today’s young people face enormous unavoidable debt load potential in their immediate future: education. Learning how to manage your money now will help you to avoid as much debt as possible. But how do you know when you are carrying too much debt? Click for next

Any one of these symptoms may indicate too much debt load. Two or more and you’re headed for real trouble! You do not have any savings. Financial advisors recommend that you have the equivalent of three (3) months net income in your savings account at all times. You make minimum payments on credit cards and loans. You use credit where you used to use cash, e.g. groceries, fast food. You are carrying debt on more than two major credit cards. After you make a credit card payment, you increase the balance by at least that much again in the following month (so you never pay down the balance). You are at or near your credit limit on any ONE or more credit cards. Your credit card is declined when trying to make a purchase. Click for next Signs of Too Much Debt

You take cash advances on your credit card to pay other bills. You have been denied credit when applying for a loan or a credit card. You bounce cheques. You get calls from collectors. You lie to your family and friends about your spending habits. You hide your credit card statements. You constantly argue with family and friends about your finances. Early recognition of too much debt load is critical in finding a solution to the problem. Budgeting is the primary tool in avoiding and/or fixing debt load. Click for next

A Good Budget There are many ways to evaluate your budget, but three things are present in every realistic budget: 1.All day to day expenses are covered every month, without dipping into your 3 month savings “cushion”. 2.You are contributing to long-term savings every month. These are plans such as an RESP (Registered Education Savings Plan) or an RRSP (Registered Retirement Savings Plan). Your minimum monthly contribution should be at least 10% of your net income for the month. 3.After your budget planning is finished for a month, there is at least 10% of your net income for the month left over (this is your “slush fund” which helps keep your 3 month cushion replenished). Click for next

Budget Components Click for next There are three components to a budget: Setting it up, analyzing spending habits, and making adjustments. Household budgets are done on a month by month basis. This is because most services are billed monthly (water, electricity, phone, cable, rent, mortgage). It is important to remember to adjust everything to a monthly period. If we give a yearly income, and you put it into a monthly budget without adjusting it (dividing by 12), your budget will most definitely not work! One other thing: we work our budget in dollar amounts, partial dollar amounts are rounded up or down to the nearest dollar.

Processing A Budget Click for next We’re going to tell you all about Ray and his expenditures. By arranging his spending into a budget worksheet, analyzing his spending, and making adjustments, you’re going to see how you can do the same to avoid falling into a debt-trap. Ray’s gross pay is $39,000 per year. Ray pays the following yearly expenses: Car insurance, $1500. Health insurance, $250. License plates, $50. Heating costs, $600. Clothing, $1200. Medical $250. Dental $300. Car repairs, $400. Vacation, $1500. Ray pays $600 a month for rent, and has a monthly car payment of $200. Also, he pays $120 per month for his parking spot at work. Ray deposits $200 a month in his long term savings plan, spends $300 a month on food, $200 on gas and oil, $50 on telephone, $90 on cable and internet, and pays $200 child support. Let’s do the first component of a budget: Setting it up.

First, we need a budget worksheet. The worksheet is divided into three main sections: 1.Income 2.Expenditures 3.Summary The Expenditures is further divided into two sections: 1. Regular Expenses (Needs) 2.Discretionary Expenses (Wants) Click for next Budget Worksheets

Let’s look at the first main section: Income We’ll insert the gross income, deductions, child support amounts, and finally, the net income. As this presentation fills out the worksheet, you should do the same with a pencil on the blank sheet provided with the learning guide, in Ray’s column. Later on, you will fill in “Annette’s” column yourself. Click for next Budget Worksheets ItemDescription+ or - Gross work income“Gross pay” is pay before deductions are made+$ Deductions Income tax: 30% of gross Employment insurance: 2% of gross Canada Pension Plan: 5% of gross -$ -$ -$ Child support received+$ Child support paid-$ Net monthly income=$

Let’s look at the first main section: Income Click for next Budget Worksheets ItemDescription+ or - Gross work income“Gross pay” is pay before deductions are made+$ Deductions Income tax: 30% of gross Employment insurance: 2% of gross Canada Pension Plan: 5% of gross -$ -$ -$ Child support received+$ Child support paid-$ Net monthly income=$ “Gross” pay is pay before any deductions (income tax, union dues etc) are made. If Ray works 80 hours at $10/hour, his gross pay is 80 x $10 = $800. His “net” pay will probably be around $500. The first line is where we will put Ray’s gross income (and you will write it on your worksheet).

Let’s look at the first main section: Income Click for next Budget Worksheets ItemDescription+ or - Gross work income“Gross pay” is pay before deductions are made+$ Deductions Income tax: 30% of gross Employment insurance: 2% of gross Canada Pension Plan: 5% of gross -$ -$ -$ Child support received+$ Child support paid-$ Net monthly income=$ Ray earns $39,000 per year. Notice that this pay is given PER YEAR, but the budget is done in montly periods. Therefore, we have to divide by 12. $39,000 / 12 = $ Be sure to continue to fill in your worksheet as we go along…

Let’s look at the first main section: Income Click for next Budget Worksheets ItemDescription+ or - Gross work income“Gross pay” is pay before deductions are made+$ Deductions Income tax: 30% of gross Employment insurance: 2% of gross Canada Pension Plan: 5% of gross -$ -$ -$ Child support received+$ Child support paid-$ Net monthly income=$ The next three lines are for pay cheque deductions. The figures are given, so it’s just arithmetic to figure out the amounts % of $3250 = $ % of $3250 = $ % of $3250 = $

Let’s look at the first main section: Income Click for next Budget Worksheets ItemDescription+ or - Gross work income“Gross pay” is pay before deductions are made+$ Deductions Income tax: 30% of gross Employment insurance: 2% of gross Canada Pension Plan: 5% of gross -$ -$ -$ Child support received+$ Child support paid-$ Net monthly income=$ From reading about Ray, we know that he does not receive any child support, but he does pay $200 per month to his ex-wife

Let’s look at the first main section: Income Click for next Budget Worksheets ItemDescription+ or - Gross work income“Gross pay” is pay before deductions are made+$ Deductions Income tax: 30% of gross Employment insurance: 2% of gross Canada Pension Plan: 5% of gross -$ -$ -$ Child support received+$ Child support paid-$ Net monthly income=$ We have everything we need to figure out Ray’s “net” pay, which is the amount of money he actually has to spend each month: $ $975 - $65 - $162 + $0 - $200 = $ So now Ray knows exactly how much he has to spend each month. Now, let’s look at all his expenses and “slot” them into categories so we know where his $1848 goes each month.

Let’s look at the second main section of our worksheet: Expenditures Click for next Notice the two sub-sections of the main “Expenditures” section: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants) The top section are expenses that Ray HAS to pay (needs). These are things like food, housing, transportation, loan payments, etc.

Click for next Notice the two sub-sections of the main “Expenditures” section: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants) The bottom section are expenses that Ray CHOOSES to pay (wants). These are things like vacations, hobbies, pets, entertainment, etc. Let’s look at the second main section of our worksheet: Expenditures

Expenditures Click for next From reading about Ray, we know his expenditures each month. He pays $1500 per year for car insurance. That’s PER YEAR, we have to divide by 12. $1500 / 12 = $125 PER MONTH. We put $125 with a (+) after it, in case we need to add more in the “Insurance(s)” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants) 125+

Expenditures Click for next Ray pays $250 per year for health insurance. That’s PER YEAR, we have to divide by 12. $250 / 12 = $20.83 PER MONTH, but we use the nearest dollar, remember? We put $21 with a (+) after it, in case we need to add more in the “Insurance(s)” category (we’ve got two things there now): ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray pays $50 per year for license plates. We’ll file that under “Transportation”. That’s PER YEAR, we have to divide by 12. $50 / 12 = $4 PER MONTH, (we use the nearest dollar, remember?). We put $4 with a (+) after it, in case we need to add more in the “Transportation” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants) Now, you’re going to ask “Who cares about $4 ? It’s peanuts!” However, financial advisors caution you to watch out for the “cappuccino factor”. Here’s how it works: you buy a cappuccino each day you work. That’s 20 days a month, that’s 20 cappuccinos. At about $4 each, that’s $80 per month, which is enough to blow your budget out of the water…especially since if you ignore that “insignificant” amount, you’re probably ignoring other “insignificant” amounts as well…all of which add up REAL fast! Put EVERYTHING in your budget! Click for next

Expenditures Click for next Ray pays $600 per year for heating costs. We’ll file that under “Shelter”. That’s PER YEAR, we have to divide by 12. $600 / 12 = $50 PER MONTH. We put $50 with a (+) after it, in case we need to add more in the “Shelter” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray pays $1200 per year for clothing. We’ll file that under “Clothing” (duh). That’s PER YEAR, we have to divide by 12. $1200 / 12 = $100 PER MONTH. We put $100 with a (+) after it, in case we need to add more in the “Clothing” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray pays $250 per year for medical expenses. We’ll file that under “Medical and Dental”. That’s PER YEAR, we have to divide by 12. $250 / 12 = $21 PER MONTH. We put $21 with a (+) after it, in case we need to add more in the “Medical and Dental” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray pays $300 per year for dental expenses. We’ll file that under “Medical and Dental”. That’s PER YEAR, we have to divide by 12. $300 / 12 = $25 PER MONTH. We put $25 with a (+) after it, in case we need to add more in the “Medical and Dental” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray pays $400 per year for car repairs. We’ll file that under “Transportation”. That’s PER YEAR, we have to divide by 12. $400 / 12 = $33 PER MONTH. We put $33 with a (+) after it, in case we need to add more in the “Transportation” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray pays $1500 per year for vacation. We’ll file that under “Recreation”. That’s PER YEAR, we have to divide by 12. $1500 / 12 = $125 PER MONTH. We put $125 with a (+) after it, in case we need to add more in the “Recreation” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray pays $600 per month for rent. We’ll file that under “Shelter”. That’s PER MONTH, we don’t have to divide by 12. We put $600 with a (+) after it, in case we need to add more in the “Shelter” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray has a car payment of $200 / month. We’ll file that under “Transportation”. We put $200 with a (+) after it, in case we need to add more in the “Transportation” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray works right downtown Victoria, and pays $120 per month for his private parking spot, just a half block from his office. We’ll file that under “Transportation”. We put $120 with a (+) after it, in case we need to add more in the “Transportation” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray did a learning guide in his high school planning class, and understands the importance of long term saving. He deposits $200 per month into his RRSP (Registered Retirement Savings Plan). We’ll file that under “Savings”. We put $200 with a (+) after it, in case we need to add more in the “Savings” category: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray spends $300 per month on food and other grocery related items (toiletries, cleaning supplies, etc). We’ll file that under “Food”. We put $300 with the ever present (+) after it: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray spends $200 per month on gas and oil, which goes under “Transportation”. ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Expenditures Click for next Ray spends $50 per month on telephone, which goes under “Shelter”. (Telephone is classed as a utility, as is natural gas, electricity, garbage pickup, recycling fees, water and things like that. Ray does not have any of those separate expenses because he pays rent, and those things are usually included in rent). ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants) If Ray had a cell phone, we would class the cell as “Miscellaneous” (which is a WANT) because he already has a “landline”. However, if his cell phone was his only phone, we would class the cell phone as a utility (which is a NEED). In other words, one phone is a NEED, all phones after that are WANTS.

Expenditures Click for next Ray spends $90 per month on cable, which is bundled with his internet. That goes under “Entertainment”. ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Click for next Okay, that completes Ray’s expenditures. Your worksheet should match the one below. Now it’s time to summarize our figures and see if Ray’s budget works or not… ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants)

Click for next Add up all of Ray’s Regular (Needs) Expenditures: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants) = $1849

Click for next Add up all of Ray’s Discretionary (Wants) Expenditures: ItemDescription ShelterRent or mortgage, utilities, maintenance$ FoodGroceries, eating out, and non-food items purchased with groceries$ ClothingAll family clothes, purchases, repairs, cleaning$ TransportationPayments, gas and oil, repairs, tune-ups, parking, public transportation$ Day CareDaycare and babysitting expenses$ Insurance(s)Medical, dental, car, house, renters, etc$ Medical and DentalExpenses only, not insurance costs. EG: not reimbursed prescriptions$ Loan paymentsStudent loans, consumer loans, car loans etc$ Personal spendingCosmetics, haircuts, etc$ SavingsSavings bonds, RRSPs, Pensions, Bank Account$ EducationTuition fees, books, etc$ EntertainmentCable, magazines, novels, movies$ RecreationPets, sports, hobbies, vacations$ MiscellaneousLong distance telephone, coffee break snacks etc$ Regular(Needs) Discretionary (Wants) = $325

Click for next We’ve now completed the first two main sections of our Budget Worksheet, which were the income and the expenditures. The Summary We’re ready to proceed with the third main section of the worksheet: The Summary Net Monthly Income + $ Regular Monthly Expenses - $ Discretionary Monthly Expenses - $ Monthly Balance = $ If you look at your worksheet, you see that Ray’s Net Monthly Income was $1848. Enter that amount in the summary in the appropriate spot: 1848

Click for next We’ve now completed the first two main sections of our Budget Worksheet, which were the income and the expenditures. The Summary We’re ready to proceed with the third main section of the worksheet: The Summary Net Monthly Income + $ Regular Monthly Expenses - $ Discretionary Monthly Expenses - $ Monthly Balance = $ Again, from your worksheet, you see that Ray’s Regular Monthly Expenses are $1849. Enter that amount in the summary in the appropriate spot:

Click for next We’ve now completed the first two main sections of our Budget Worksheet, which were the income and the expenditures. The Summary We’re ready to proceed with the third main section of the worksheet: The Summary Net Monthly Income + $ Regular Monthly Expenses - $ Discretionary Monthly Expenses - $ Monthly Balance = $ Lastly, his Descretionary Monthly Expenses are $325. Enter that amount in the summary in the appropriate spot:

Click for next We’ve now completed the Summary section. Let’s do the math: Net Monthly Income + $ Regular Monthly Expenses - $ Discretionary Monthly Expenses - $ Monthly Balance = $ – 1849 – 325 = $-326 Oh oh! Good thing Ray worked out a budget. He can see right away that he will have to borrow $326 every month just to break even…or will he? Will that be enough? Should he borrow more? Let’s review what makes a good budget…

A Good Budget There are many ways to evaluate your budget, but three things are present in every realistic budget: 1.All day to day expenses are covered every month. 2.You are contributing to long-term savings every month. These are plans such as an RESP (Registered Education Savings Plan) or an RRSP (Registered Retirement Savings Plan). Your minimum monthly contribution should be at least 10% of your net income for the month. 3.After your budget planning is finished for a month, there is at least 10% of your net income for the month left over (this is your “slush fund”). Click for next There are many ways to evaluate your budget, but three things are present in every realistic budget: 1.All day to day expenses are covered every month. 2.You are contributing to long-term savings every month. These are plans such as an RESP (Registered Education Savings Plan) or an RRSP (Registered Retirement Savings Plan). Your minimum monthly contribution should be at least 10% of your net income for the month. 3.After your budget planning is finished for a month, there is at least 10% of your net income for the month left over (this is your “slush fund”). Okay, Ray seems to do this He does this, too… Way to go, Ray! There are many ways to evaluate your budget, but three things are present in every realistic budget: 1.All day to day expenses are covered every month. 2.You are contributing to long-term savings every month. These are plans such as an RESP (Registered Education Savings Plan) or an RRSP (Registered Retirement Savings Plan). Your minimum monthly contribution should be at least 10% of your net income for the month. 3.After your budget planning is finished for a month, there is at least 10% of your net income for the month left over (this is your “slush fund”). There are many ways to evaluate your budget, but three things are present in every realistic budget: 1.All day to day expenses are covered every month. 2.You are contributing to long-term savings every month. These are plans such as an RESP (Registered Education Savings Plan) or an RRSP (Registered Retirement Savings Plan). Your minimum monthly contribution should be at least 10% of your net income for the month. 3.After your budget planning is finished for a month, there is at least 10% of your net income for the month left over (this is your “slush fund”). Oh, oh…here we go…Ray has NO money left over (in fact, he’s $326 in the hole…but he needs to have 10% of his net income ($1848) left over…that’s another $185 he has to come up with…so he’s REALLY $326 + $185 = $511 short every month!

Needs vs Wants Click for next When “push comes to shove”, you may need to make some (seemingly) drastic choices to save and make ends meet. For example, believe it or not, a cell phone is NOT a necessity (although just try telling that to a teenager). A sub-woofer in your car is NOT a necessity, the car is for transportation, not entertainment. Going to that concert is NOT a necessity, paying the rent is. Eating out is NOT a necessity, paying the electricity bill is. Cablevision is NOT a necessity, TV is not even a necessity. Lots of things are nice to have, but when you’re really short of money, hard decisions have to be made…and once you live without some of those things, you’ll find you don’t miss them that much, anyway!

Click for next So, let’s look over Ray’s budget and see where we can save him $511 each every month. Take a look at your worksheet and see where you think Ray could cut back some. There’s no right or wrong, here. The idea is to save Ray $511 per month, hopefully without causing him too much hardship! After all, if it’s too hard, he likely won’t make any changes. Click your mouse button when you’ve made a few notes, and see if we come up with the same things.

Click for next I like to make up a little worksheet to help visualize exactly exactly how we’re going to help Ray: ItemOld $$New $$Saved $$ Easy things first: He only has to put 10% of his net into his RRSP, so that’s $185. He’s putting in $200, let’s save him $15…not much, but it’s a start… ItemOld $$New $$Saved $$RRSP We’ll update this total each time…we’re trying to get it up to $511…(or more…)

Click for next ItemOld $$New $$Saved $$ Ray’s driving a pretty nice car with a $200 per month payment. Sure it’s nice to have a fancy car, with nice wheels, low profile tires, a ground effects kit, a stereo that shakes the rearview mirrors with it’s subwoofer…BUT IT’S NOT A NEED. Ray’s going to get a car that’s reliable, but maybe a few years older and a LOT less money! ItemOld $$New $$Saved $$RRSP ItemOld $$New $$Saved $$RRSP Car

Click for next While we’re on the subject of cars…let’s get rid of that parking spot. On second thought, let’s save Ray a TON of money… Quit driving to work altogether. Get a monthly bus pass for $60 or so, save half a months gas and oil ($200/2=$100 saving), no parking spot ($120 saving), but cost $60…that’s a net saving of $160. ItemOld $$New $$Saved $$ RRSP Car ItemOld $$New $$Saved $$RRSP Car Transportation

Click for next Going good…we’ve saved Ray $375 a month, and so far the only sacrifice is that he’s not driving to work! Let’s cut his clothing budget of $100 a month down to $75…net saving: $25 ItemOld $$New $$Saved $$ RRSP Car ItemOld $$New $$Saved $$RRSP Car Transportation ItemOld $$New $$Saved $$RRSP Car Transportation Clothing Remember how we’re doing this… you have to do one for Annette in our next example

Click for next OK, we’re going to have Ray spend a bit more time shopping for bargains, buy caselot quantities, clip some coupons, and cut down on the fast food and ready made meals…savings on food: $100 month. ItemOld $$New $$Saved $$ RRSP Car Transportation Clothing ItemOld $$New $$Saved $$RRSP Car Transportation Clothing Food And if we cut just $25 a month from his vacation savings, we’re reached our goal of saving $511 a month!

Whew…seems like a lot of work, but we basically did just three things: Categorized each of Ray’s expenses Summarized his spending Adjusted his spending to make his budget work Click for next

Your turn: Set up Annette’s budget…A warning right now…her budget does NOT work. Here’s a hint on how to save her some money: She has a mortgage, which means she owns her own home. Most houses have three or more bedrooms: how many does she need for her and her one child? Hand in your completed worksheet for Ray, a completed budget worksheet for Annette, and your chart showing how you adjusted Annette’s budget so it works (similar to the one we did for Ray showing the item, how much was budgeted and how much was saved…). Click to end