1. Budgeting Control Your Cash Flow With a Spending Plan
Adapted from National Endowment for Financial Education

2. Preview Today we will answer these questions:
What is a spending plan (budget)?
How can a spending plan help me better manage my spending habits?
How can I create a spending plan to manage my income and expenses?
Jump$tart Coalition Standard:
Spending and Saving Competency: Apply strategies to monitor income and expenses, plan for spending, and save for future goals.
Standard 1. Develop a plan for spending and saving.

3. Resist Consumer Culture
Marketing and advertising are highly calculated efforts based on research and expertise. Think about this:
The layout of a grocery store is designed to maximize your purchases, buy on impulse
Millions are spent on tv, social media,and radio advertisements to build brand awareness and generate a call to action. Buy our product! “You deserve this” or “you’ll be cooler” or “there’s no downside to this purchase”
Sales people use psychological tactics to get you to “act now”
It’s your money, take control of it!

4. Needs/Wants and Opportunity Cost
Knowing the difference between a need and a want is important.
Needs: things essential to your health and security
Wants: make life more interesting and fun
Are your priorities straight? Do you rationalize decisions you make? You need discipline.
Opportunity cost: what we give up when we make decisions
Ex: Coffee 3 times a week vs. sports cable channels
Ex: Buying a nice car now vs. saving for retirement
Ex: Buying new outfits vs. paying rent on time

5. Emergency! Speeding ticket Laptop dies Lost textbook Flat tire
Be ready for emergencies! They happen.
Can you set $500 aside now just for emergencies? 3-6 months of living expenses as adult.
What does the repair or replacement cost?
Speeding ticket
Laptop dies
Lost textbook
Flat tire
Emergency room trip
Lost or broken cell phone

6. Your budget is your road map
Budgets help to:
Save to achieve goals – use delayed gratification.
Avoid buyer’s remorse – 10 second rule
Deal with unexpected or costly events (ex: new tires, prom)
Meet all of your financial responsibilities
Increase net worth

7. Steps in Preparing a Budget
Before budgeting, know your goals and how long you intend to use the budget.
Estimate your total expected monthly net income. Include all sources (allowance, work, etc.)
What are your anticipated expenses?
Decide how much of your income you want to save.
Balance the budget.
Income = expenses + savings
Income
-Expenses
-Savings

8. Step 1: Estimate Your Income
Tips to Predict:
Use what is known:
Average pay
Regular allowance
Average interest earned
Be conservative:
When estimating, aim lower rather than higher
Don’t count on windfalls
Types of Income:
Pay
Tips
Allowance
Interest
Gift money

9. Step 2: Estimate Your Expenses
Classify Expenses:
Fixed: Known, regular payments (Internet bill)
Variable: Known but irregular payments (groceries)
Periodic /Annual: Known but occasional payments (school fees, insurance)
Tips to Estimate:
Use averages for variable expenses
Split periodic expenses into chunks
Example: Plan to set aside $100 a month to pay the annual $1,200 car insurance premium.

10. Step 3: Determine What You’ll Save For and How Much
Do you have a cash surplus?
Income – Expenses = Surplus or Defecit
With your cash surplus, determine what you’ll save for and how much you’ll save for each goal.
Pay Yourself First! Remember to save at least 10% of what you make.
Save for:
Big ticket items (computer, car, appliances, home improvement, college)
Emergencies
Retirement
Any other goals

11. Step 4: Does it Balance? Make Adjustments
Ideal Situation: Spend at or below your means
Income > or = Expenses
If Expenses > Income
 variable expenses
 fixed expenses
 income
unnecessary expenses
If Income > Expenses
 Emergency fund
 PYF savings funds
 any loan obligations

12. Example
Income: Part-time job $320 Allowance $50 Total Income $370 Expenses and Savings: Fixed Expenses Car Insurance $100 Phone $50 Variable Expenses Food $50 Gas $75 Entertainment $50 Saving New Computer $45 Total Expenses and Saving $370

13. Without a Spending Plan
May come up short on money before the next paycheck or allowance payment
More likely to not reach long-term spending goals
Added stress if struggling to keep up with payments
May need to give up something you planned if money needs to be used for unexpected emergencies (bye vacation money!)
Give up independence if you need to rely on others for financial help

14. Review Can you answer these questions? What is a spending plan?
How can a spending plan help me better manage my spending habits?
How can I create a spending plan to manage my income and expenses?

15. Maya’s Budget
Scenario
Maya is a senior in high school who works part time. She is expected to pay her car loan and a few other bills. Help her set up a spending plan to cover her expenses and also allow room to save money for a trip and college tuition.
Answer the following as a guide to complete your task:
What are Maya’s goals?
How much is her income?
What are her fixed expenses?
How should her variable expenses be adjusted?