Unit 2 - Budgeting: Making the Most of Your Money

1. Unit 2 - Budgeting: Making the Most of Your Money

2. What is a budget or spending plan? • A budget /spending plan is a plan for managing your money during a given period of time. • A budget/spending plan allows you to prioritize your spending and saving, and make the most of your money.

3. Reasons for a Spending Plan • …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. 2-B-1 1 2 3

4. When will your budget change? • Your budget will change as your income grows and your priorities change.

5. Smart Spending • A spending Plan (budget) allows you to prioritize your spending and saving, and make the most of your money.

6. Consequences of not having a spending plan • Being in the dark when making financial decisions • Spending your money haphazardly on items you don’t really need. • Run out of money and have no money left for items that are important to you. • Overspend and end up in debt.

7. What will your values affect/influence when creating a spending plan • By knowing your values (beliefs that are important to you), you can design a personal spending plan that will fit your values and your financial goals. • Therefore, it effects: • Needs and goals • How money is spent.

8. EXAMPLE: • Example: If you believe it is important to donate 10% of your monthly income to your church/temple, then in your budget you will set aside 10% of your income each month to donate your church/temple/or other religious organization.

9. Cash Flow & Income • Cash flow—the money coming in and the money going out • Income—The amount of money you receive • Money you earn from a job • Your allowance • Birthday & holiday checks or cash • Money you receive for selling your possessions • Interest you earn on a bank account

10. Part II of the Cash Flow Equation Expenses— The amount of money spent on needs and wants

11. NEFE High School Financial Planning Program ? Unit Two – Budgeting: Making the Most of Your Money 2-A-1

12. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 2-A-2

13. 3 Types of Expenses • Fixed Expenses Expenses that cost the same amount every time they are paid • Home mortgage, car loan , P.Y.F

14. 3 Types of Expenses..Continued 2. Periodic or Occasional Expenses Expenses that are not paid every month and can either be fixed or variable • Car Insurance

15. 3 Types of Expenses..Continued 3. Variable Expenses Expenses that fluctuate in amount so that you will have more control over how much they will be. • Entertainment, Clothing, Gas

16. For an interactive version of this slide, open the Excel File for this unit and go to the Excel Worksheet with this same number 2-C

17. Payroll Deductions • Payroll deductions—money for items your employer subtracts from your pay before computing your take-home pay • Taxes—the biggest deductions that are required by law (at the local, state, and federal levels) to be applied to income, property, or goods.

18. Most Common Payroll Deductions • Federal Income Tax—Afee collected by the federal government to support its programs; withheld by employers and sent to the Internal Revenue Service (IRS). • State Income Tax—A fee that pays for state services; withheld by employers and sent to the state revenue department. Continued on next slide

19. FICA Tax (Federal Insurance Contributions Act) is composed of: • Social Security Tax —provides a small income and other services to the elderly, disabled Americans and their children, and orphans. • By dollars, Social Security is the largest government program in the world and the single greatest expenditure in the federal budget.

20. Social Security - Eligibility Requirements: (Must meet one of the following) • Age 62 or older • Widow/widower age 60 or older • Widow/widower with dependent children under age 18 • Permanently disabled • A dependent child age 18 or younger of a permanently disabled or deceased adult

21. FICA Also Composed of… • Medicare Tax —provides medical insurance to the elderly and disabled Americans. (Health insurance program administered by the U.S. Government. • Eligibility Requirements: (Must meet one of the following) • Age 65 or older • Permanently disabled • Congenital disability (a medical condition existing since birth • Social Security & Medicare taxes are withheld from each employee’s paycheck, and the employer used to match but currently pays more, and must send this money to the IRS (employee’s deductions & employer’s taxes for each employee)

22. Direct Deposit??? • Is when an Employer deposits your paycheck directly into your bank account. • What are the advantages?

23. Gross Income vs. Net Income • Gross Income —The total amount of income from your wages before payroll deductions total hours worked * hourly rate = gross income • Net Income or called take-home pay Gross income – payroll deductions = net income

24. What determines how much money is deducted from your paycheck for federal income taxes? • The number of allowances that you claim on your W-4 Form, a form completed when you begin working for an employer, determines how much tax will be withheld each pay period. • You can change your allowances on your W-4 any time you wish

25. What factors determine the number of allowances claimed on the W-4 Form • Marital status • How many dependent children you have • How many jobs you currently have • Unless you have dependents, a single person normally claims 0 or 1 allowances • The higher the number of allowances claimed on the W-4 Form, the less money for federal taxes are taken out each pay period • The lower the number of allowances claimed on the W-4 Form, the more/higher amount of money for federal taxes are taken out each pay period

26. More…..Taxes • The more federal taxes taken out of your paychecks each year, the less chance of you owing money to the federal government at the end of the year when filing a tax return. • A tax return payment occurs when the tax obligation exceeds the tax withholdings you paid (that were deducted from your paychecks throughout the year) • A tax refund occurs when the tax withholdings you paid exceed the tax obligation you owed to the government

27. People Without a Budget… • …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. 2-B-2 1 2 3

28. Questions • 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? 2-B-3 1 2 3

29. The Most Important Expense? • Savings is your most important expense • Each pay period you must pay yourself first (PYF) • Place a certain amount of money in savings to help meet your various goals: Short-term, Intermediate or Long term goals • 10 % is a logical percentage to save each pay period

30. PAY YOUR$ELF FIRST! etting aside money for “big ticket items” S 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)

31. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Personal Plan for One Week 2-E

32. How to Build a Budget • 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. 2-F 1 2 3 4 5

33. Build a Budget Answer Key 2-G