Unit 2 - Budgeting: Making the Most of Your Money

Objective - Demonstrate the ability to allocate financial resources to meet family needs and goals Unit 2 - Budgeting: Making the Most of Your Money

Financial literacy is the ability to make informed decisions regarding finances. Effective use of resources (time, money, etc) improves success toward a goal. Family members share certain resources in order to meet collective needs. Did You Know?

NEFE High School Financial Planning Program ? Unit Two – Budgeting: Making the Most of Your Money For an interactive version of this slide, open the Excel File for this unit and go to Excel Worksheet 2-A-1 2-A-1

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money For an interactive version of this slide, open the Excel File for this unit and go to Excel Worksheet 2-A-2 2-A-2

…Helps you determine where you are spending your money currently. …Helps you decide where to spend your money in the future. …You have an organized way to save for things that cost more. …Puts you in control of your financial future, beginning NOW. Reasons for a Spending Plan 2-B-1 1 2 3

…Are less likely to know what they have. …Have no plan, often coming up short before their next paycheck or allowance. …Are almost certain to have no plan to save for more expensive spending goals. People Without a Budget… 2-B-2 1 2 3

Decide on a time frame for tracking expenses (week, two weeks, month). List all money you have coming in (income). Make categories for all expenses. Subtract total expenses from income. Study your budget and your financial plan to make sure it fits with your plans and goals. How to Build a Budget 2-F 1 2 3 4 5

The Costs Add Up $912.50 $1,300.00-$2,600.00 $365.00 $365.00 $1,383.35 $442.00 $300.00 $240.00 $456.00 Do not let money fly away! By creating a spending plan, a person can realize everyday expenses, reduce these expenses, and increase current income. Beginning at age 15, if a person saved $547.50 per year by not having a can of soda everyday, they would have $105,504 extra to retire on at age 50 with a 8.5% interest rate compounded yearly.

Spending Plans have two main components Income Money Earned Expense Money Spent Fixed Expenses Flexible Expenses Income & Expense

Income is money earned from: Tips Wages or salaries Withdrawal of money from savings Interest from savings accounts, or investments Monetary gifts Scholarships Income

Money Spent Fixed Expenses Same amount paid each time, usually has a specific due date Rent/Mortgage Difficult to change in short amount of time Flexible Expenses Different amount paid each time, usually no specific due date Clothing Easier to change in short amount of time Expense

Decide if each item is income, a fixed expense, or a flexible expense Indicate a response by holding up the corresponding game card Spending Plan Activity

Rent Fixed Expense Wages Income Spending Plan Activity

Groceries Flexible Expense Internet Bill Fixed Expense Spending Plan Activity

Tips Income Utilities Fixed Expense Spending Plan Activity

Gift from Family Income Savings Fixed Expense Spending Plan Activity

Automobile Registration Fixed Expense Eating Out/Snacks Flexible Expense Spending Plan Activity

Scholarships Income Hobbies Flexible expense Spending Plan Activity

When finished with the spending plan two outcomes are possible: Net Loss More expenses than income An individual needs to increase income or decrease spending Net Gain More income than expenses Ideal situation Extra money can go into savings, be invested, or spent Net Loss & Gain

Select categories for the spending plan Select a time period Usually when paychecks are received Weekly Bi-weekly Monthly Keep records of spending and earnings! Organize

Control systems are ways that a person can keep accurate records of spending Realize potential problems early if spending too much in one area Control systems occur simultaneously with implementation A person should keep a credit spreadsheet which logs all credit transactions (charges and payments for each creditor) Step 5:Control

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 Track expenses on a sheet by entering amount Keep daily to know how much is being spent Check Register System Tracks all expenditures in a checkbook register Divided into spending plan categories Types of Control Systems

Determine the appropriate way of record keeping Spreadsheet Envelopes Software like Money Select categories for the spending plan Select a time period Usually when paychecks are received Weekly Bi-weekly Monthly Keep records of spending and earnings! Organize

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Personal Plan for One Week For an interactive version of this slide, open the Excel file for this unit and go the Excel worksheet #2-E 2-E

Does it makes sense to create and live within a budget when you don’t have a lot of money? What if you find that you are consistently spending more in one area than you had planned to? What if you find that you can’t live within your budget? Questions 2-B-3 1 2 3

“Excessive debt eats at the heart of family life. Without savings, families can’t cope with the emergencies and unexpected expenses that inevitably occur. More than 50% of marriages in the U.S. end in divorce, and the #1 reason for divorces is $ problems.” What is so bad about Debt?

“A family that constantly worries about money is a family that has less time to enjoy life and each other. Declaring bankruptcy is emotionally painful and throws a family into turmoil and pain.” What is so bad about Debt?

Examine Your Debts The goal is to pay them off without having to go into debt even more. Pay the most on the balances that are charging the most What Do We Do About It?

35% for Housing ( mortgage house payment or rent, taxes on the property, home repairs, insurance and utilities (gas for the home, electric, water bill, etc) 20% for transportation (car payment, gas for car, car repairs, auto insurance, etc) Targets - Suggested Spending Ratios

15% MAX for other Debt (credit cards and loans) This money would be more valuable used in another way!! 20% for other expenses such as Food, Clothes, Life and Health Insurances 10% Savings Suggested Spending Ratios (cont)

S PAY YOUR$ELF FIRST! etting aside money for “big ticket items” A voids borrowing, which costs you a lot! It’s a V ery wise thing to do, because E very time you pay yourself first, you are developing asaving habitthat leaves you with more money to spend later on for things that are really important to you! 2-D-1.(2-D-2 and 2-D-3 on Excel file Unit 2 Visuals.xls)

Less Stress More Fun in your life Able to have anything you want – in time Waste less money Cash In on the Benefits of Financial Management:

Unit 2 - Budgeting: Making the Most of Your Money