Budgets – Don’t Go Broke Spending Your Money

Earning Power Earning power is the ability to earn money in exchange for work. How much you earn depends on the value of your skills in the marketplace. The wage or salary received for a specific job – is related to the skill level and education of the worker, the demand for that work in society, and the availability of qualified workers.

Buying Power: How much your money buys is affected by:How much your money buys is affected by: –Economic Conditions Locally Regionally Nationally World –Location: Cost of Living New York Boston Knoxville Houston Los Angeles Salt Lake City

Economic Conditions Oil in Eastern Utah Micron in Utah county St. George flood Hurricane Katrina/gas prices Stock Market Interest Rates Iraqi war Tornado in Florida Hill Air Force Base shut down Inflated housing in Washington County

Cost of Living How much it costs to live in a specific location –Rent or home costs –Transportation Costs –Insurance, –Utilities: natural gas & electricity –Food ***Important consideration when picking a place to live

Budgeting

What is a Budget? A plan for spending and saving money Most people think budgets are: –Rigid and inflexible –Painful – who wants to eat Top Ramen every night! –No fun! A budget takes the fun out of money – Mason Cooley

Budgets according to Dave Ramsey Myth: I don't have time to work on a budget. Truth: You don't have time not to make a budget! Budgeting is nothing more than spending on paper before the cash leaves your hands. When you spend your money with intention, you have more for the things you really want.

Guidelines for a Budget Housing & Utilities30% Food & Household20% Clothing & Personal10% Transportation 10% Saving & Investing 10% Miscellaneous 20% 100%

Why Budgets Make Sense Budgets help you: –Set priorities –Achieve what’s important to you A good budget is: –Realistic –Ongoing –Clear and easy to use –Short term then readjusted for changing conditions

Budget Categories Income –Gross –Net Savings –Emergencies –Long-Term –Retirement –Short-Term Expenses –Fixed –Variable –Discretionary

Brainstorm Various sources of income. Birthday Cash Part Time Job Allowance Child Support Interest Gifts Sources of Income Wages/Salaries Self-employment Investments

Income: Money Earned Gross income: An individual’s income before taxes. Net income: Income after taxes are paid. Taxes can range from 15% to 31%.

Taxes and Deductions First job pays $30,000/year. Your salary is your gross income. Take off at least 25% for taxes and other deductions. That’s what’s left for you to spend. Example: Gross salary = $30,000 Minus 25% taxes and deductions - 7,500 Net income $22,500

Savings: Pay Yourself First (P.Y.F.) Savings: unspent income Types –Emergencies: Plan to set aside three months’ living expenses –Long-term: Large ticket items (house, car, college) –Retirement: It’s never to early to start –Short-term: Vacation, clothes, new skis, Christmas, car insurance (yearly expenses)

Personal Savings Rate Declining 1974 to 1984 –10% –Fell to 4.8% 2004 –1.8% 2005 –-0.5% 2006 –-0.7% Hasn’t been negative since the Great Depression

Start Saving Young! Save $2,000 per year from age 19 – 26 –$1,035,148 by age 65 Save $2,000 per year from age 27 – 65 –$805,185 by age 65 Time value of money –Invest fewer dollars at a younger age but have 25% more

Expenses Expense: A cost to meet a need or pay a debt Types of expenses –Fixed –Variable –Discretionary

Needs vs. Wants Needs are essentials –Food –Shelter –Clothing –Transportation Wants are extras –Eating out –Big, expensive house –Shop till you drop –Brand-new or expensive car

Fixed Expenses A cost that occurs regularly and doesn’t vary in amount –Rent –Mortgage –Car payment –Insurance premium –School loans –Others?

Variable Expenses A cost that occurs regularly but may vary in amount: –Electricity –Water and Garbage –Telephone –Gasoline –Groceries –Others?

Make Your Dollars Go Further Buy stuff on sale Buy online Use coupons Research before you buy Evaluate sales pitches and separate truth from fiction Check product/service evaluations like Consumer Reports Ask family and friends Buy used stuff.

Reduce Your Grocery Bill Make a shopping list Study grocery ads Buy store-brand products Avoid impulse purchases Learn the basic prices of your favorite foods.

Discretionary Expenses A cost determined by personal wants that may be controlled –Movies, videos, CDs –Sports –Eating out –Grooming and clothes –Concerts and plays –Vacations –Others?

The Costs Add UP Item Average Yearly Expense Daily latte at $2.50$ Easting lunch out 5 days/week at $5-$10 each time $13,000-$2,600 Daily can of soda or chips at $1.00 each$ Daily can of soda and chips at $2.00$ Daily candy bar at $1.00$ Daily can of chew or pack of cigarettes at $3.79 $1, Weekly attendance at sporting event with $3.50 admission and $5.00 for snacks $442.00

The Costs Add UP Item Average Yearly Expense Monthly haircut at $25.00 per month$ Monthly movie and popcorn for two at $20,00 $ Monthly cell phone plan at $35.00$ Monthly gym membership at $38.00$ Driving a car 20 miles at.34 cents/per mile to include gas, wear and tear, and maintenance (not including insurance or car payments) $2,482.00

Spending Control Systems Ways a person can keep accurate records of spending Realize potential problems early if spending too much in one area

Types of Control Systems Envelope System –Individuals place actual budgeted cash in a labeled envelope for a certain expense –Each time $ is taken out of an envelope, write down amount and place receipt inside –Move money around to meet expenses –Once cash is gone, its gone and there is no more money in that category

Types of Control Systems Spending Plan System –Trace expenses on a sheet by entering amount –Keep daily to know how much is being spent Mint.com K6WLHNYjwM K6WLHNYjwM Check Register System -Tracks all expenditures in a checkbook register -Divided into spending plan categories DaveRamsey.com get-forms/

Cash Management How you handle money coming in and going out Referred to as Cash flow

Evaluate Your Budget Continually compare estimated amounts to actual amounts Have your goals been met? –No: Then make necessary changes to budget –Yes: Set new goals and make necessary changes to budget

Budget Summary Establish a budget: –Income –Savings –Expenses Fixed Variable Discretionary positive cash flowEnd up with a positive cash flow and you’re a success!