How to budget? Or more importantly - how to control our spending?
The biggest problem • Most people earn the same amount each week. • They don’t have the opportunity to earn more. • So what money that is coming in is not going to get bigger.
But usually we spend a lot more that we earn and we start spending our savings.
We have to control our spending • So that our earnings are bigger than our spending. • So that our savings grow.
Adults who have big debts now… • …had problems paying their mobile phone and credit card bills when they first started working.
Mobile phones are expensive • These things cost more • Ring tones • Video downloads • SMSs • Calling a landline number • Long conversations • Sending pictures or videos • Voicemail
So… • Keep mobile phone conversations short or use the landline where possible. • V shrt txts. • Show the photo or video clip to your friends next time you see them rather that send it to them. • Use your phone during off-peak or cheap times. • Look for special offers from you service provider.
Credit cards are expensive • Credit cards charge high interest rates for • Late payments • Paying the minimum amount • Taking cash out • Buying lots of small items e.g. for $10.00 or less
So… • Use cash where ever possible… • …and if you don’t have enough cash, ask “Do I really need it?” and if the answer “No!” don’t buy it. • Use your credit card for large amount – taking out one large amount for spending is much cheaper than charging up a lot of small items • Buy something you need at Safeways and ask for cash out at the same time. • Leave your credit card at home.
Not having a plan is expensive • Because you are not aware of how much you are spending and • you don’t have a goal for the future.
Try this! • For one week, write down every dollar / cent you spend. • It may surprise you how much money you waste on things that you didn’t really want.
Do you think you are spending too much… • at recess and lunch? • on clothes? • on books or magazines? • sport? • when you go out with your friends socializing or shopping? • on the internet?
Let’s assume you are in business • and you have decided to save up for something. You have set a goal amount. • How do you go about preparing a budget?
In business, we start with last month’s Statement of Receipts & Payments • It shows a starting point - how much money we have in the bank at the end of month. • How much we received as Receipts. • How much we paid as Payments.
Statement of Receipts and Payments For last month Bank at beginning 100 Add Receipts Fees 2260 GST Collected 2262486 2586 Less Payments Rent 500 Stock 500 Electricity 400 Petrol 50 Drawing 500 GST Paid 1452095 Bank at end 491
Filling in the blanks • Bank at end of last month $491 goes in as Bank at beginning of the month to come. Remember this because a lot of student forget and use the Bank at beginning instead of the Bank at end of the previous month.
Budgeted Statement of Receipts and Payments For this coming month Bank at beginning 491
Then we make estimates: • How much money do we think will come in from the customers? • How much do we think will have to be paid to suppliers and employees?
Estimated Receipts • We think that • Fees $2260 will increase by 15% • $2260 x 15% = $339 • $2260 + $339 = $2599
Estimated Receipts • We think that • Fees will increase by 15% up to $2599 • GST will be 10% of Fees • $2599 x 10% = $260 (rounded up)
Budgeted Statement of Receipts and Payments For this month Bank at beginning 491 Add Estimated Receipts Fees 2599 GST Collected 2602859 3350 Bank at beginning plus total estimated receipts
Estimated Payments • We think that • Rent will stay the same $500 • Stock will increase by $100 = $600 • Electricity $400 will increase by 10% up to $440 • $400 x 10% = $40, $400 + $40 = $440 • Petrol will double > $50 x 2 = $100 • Drawings will increase by $200 = $700 • GST will be $164
Budgeted Statement of Receipts and Payments For this month Bank at beginning 491 Add Estimated Receipts Fees 2599 GST Collected 2602859 3350 Less Estimated Payments Rent 500 Stock 600 Electricity 440 Petrol 100 Drawing 700 GST Paid 1642504 Estimated Bank at end 846sub total 3350 less estimated payments 2504
Go to the wikiand get both the Word & Excel files “2.1 Budgeting Ex No. 1”