Money Management

Money Management 28.2

Objectives • Discuss the importance of budgeting. • List the steps for preparing a budget.

The Main Idea • Meeting your financial goals requires you to know your income and expenses. A budget can enable you to track your spending and make choices about your money.

The importance of budgeting • Money management is necessary for consumers, businesses, and governments. • A budget helps people set financial priorities. • A budget is a recording of • Your expected income • Your expected expenses • Your planned savings

The Importance of Budgeting • Consumers, businesses, and governments must figure out how to utilize their income. • Most people want more goods and service than they can afford • Budgeting helps you set priorities

Average Household Expenses If a family earns $3,000 a month, how much money would they likely spend on housing?

Preparing a Budget • There are 7 steps in preparing a budget • Set Your Financial Goals • Estimate Your Income • Budget for Unexpected Expenses and Savings • Budget for Fixed Expenses • Budget for Variable Expenses • Record What You Spend • Review Spending and Saving Patterns

Step 1: Set Your Financial Goals • As you prepare to set your financial goals, you should consider several questions. • What do I want to accomplish in the next month, year, five years? • What is important to me? • Are my goals practical? • You might find it helpful to separate your goals into short-term, intermediate, and long-term goals.

Step 2: Estimate Your Income • Start your budget by recording your estimated income for the next month. • Include all sources of income that you know you will receive • Your gross pay is reduced by various deductions. • Deductions include: • Taxes • Insurance • Retirement contributions • Your take-home pay (after deductions) is called your net pay

Step 3: Budget for Unexpected expenses and savings • You have to plan for expenses such as food, rent, and clothing to satisfy your basic needs • Unexpected expenses include medical visits or accidents • Savings make it possible for you to meet future wants and needs

Step 3: Budget for Unexpected expenses and savings I WISH!!! • In your budget, make sure that the total income figure is the same as the total for planned expenses and savings. • If your planned expenses and savings are more than your income, you will have to cut expenses or find additional income

Step 4: Budget for Fixed Expenses • Expenses that occur regularly • Fixed Expenses include: • Rent • Insurance • Car loan

Step 5: Budget for Variable Expenses • Expenses that change and can be controlled more easily that fixed expenses • Variable expenses include: • Food • Phone charges • Entertainment • Gifts

Step 6: Record what you spend • Keeping track of your expenses will help you revise your budget if necessary. • The budget variance is the difference between your budgeted amount and the actual amount you spend • It can be a surplus (extra money) or a deficit (not enough money)

Step 7: Review Spending and Saving Patterns • You need to review your budget each month and consider making changes.

Assignment Think about what your financial goals are. Do you want to go to college, buy a car or go on a school trip? Write a 300 word essay that explains how making a budget can help you reach you goals. How do you plan to save up enough money to reach your goals?

Assignment • Complete Worksheet Packet for 28.2 • Complete questions 2-14 on page 508/509

Money Management