Budget Basics Consumer Jungle What is a Budget

Budget Basics

Consumer Jungle What is a Budget? A plan for spending and saving money “A budget takes the fun out of money” Mason Cooley

Consumer Jungle Budgeting: A Perspective “Budgeting has a bad rap. Too many people who give budget advice are detail people and/or control freaks. They make you think that if you don’t record every taco and pair of pantyhose, you’re on the road to financial ruin. You don’t have to track every penny to have an effective financial plan. The secret is setting priorities. Pay yourself first, then pay your bills, then you can blow what’s left with a clear conscience” Ann Coleman

Consumer Jungle Why Do Budgets Get a Bad Rap? Does the mere mention of the word “budget” conjure up images of drudgery and deprivation? You’re not alone. Most people think budgets are þ Rigid and inflexible þ Painful – who wants to eat Top Ramen every night? þ No fun!

Consumer Jungle Why Budgets Really Do Make Sense A good budget should help you set priorities and achieve what’s important to you. Not what’s important to your banker, your best friend, or your relatives. A good budget should be þ Flexible: It should change as your needs change. þ Ongoing: It’s not a one-time event. A budget should be part of your everyday life. þ Clear and easy to use: 12 page spreadsheets are out!

Consumer Jungle Budgets: Where to Start § Be clear on what you make and how much you spend. § Anticipate all of your potential expenses.

Consumer Jungle Budget Categories § Income § Expenses þGross þFixed þNet þVariable § Savings þEmergencies þLong-Term þRetirement þShort-Term þDiscretionary

Consumer Jungle Income: The Amount of Money Earned § Gross income: An individual’s income before taxes. § Net income: Income after taxes are paid. § Fasten your seat belts: Taxes can range from 15% to 31%. Yikes!

Consumer Jungle The Amazing Disappearing Paycheck § Your first real job pays $30, 000/year. You’re rolling in the bucks, right? Not necessarily. § Your salary is your gross income. Take off at least 25% for taxes and other deductions. That’s what’s left for you to spend. § Example: Gross salary = $30, 000 Minus 25% taxes and deductions - Net income $22, 500 § Quite a hit, huh? 7, 500

Consumer Jungle Savings: Pay Yourself First § Savings is unspent income. § Types þEmergencies: Plan to set aside three months’ living expenses þLong-term: Large ticket items (house, car, college) þRetirement: It’s never to early to start þShort-term: Vacation, clothes, new skis

Consumer Jungle The Power of Saving Early § Save early and regularly. Then watch your money grow! § If you start at age 21 with $1, 000 and add $50/month until you’re 55, you’ll end up with $120, 373! § You contributed only $21, 400. The remaining $98, 793 is interest. You didn’t have to lift a finger for it. Sweet deal! Imagine if you saved even more monthly!

Consumer Jungle Expenses § Expense: A cost to meet a need or pay a debt § Types of expenses þFixed þVariable þDiscretionary

Consumer Jungle Fixed Expenses A cost that occurs regularly and doesn’t vary in amount þRent þMortgage þCar payment þInsurance premium þSchool loans þOthers?

Consumer Jungle Variable Expenses A cost that occurs regularly but may vary in amount þElectricity þWater and Garbage þTelephone þGasoline þGroceries þOthers?

Consumer Jungle Discretionary Expenses A cost determined by personal wants that may be controlled þ Movies, videos, CDs þ Sports þ Eating out þ Grooming and clothes þ Concerts and plays þ Vacations þ Others?

Consumer Jungle Safe Percentages The percentages shown below represent guidelines for safe amounts for major budget items. These are guidelines. You may choose to adjust these, but remember, if you spend 80% of your income on housing, you’ll be eating lots of Top Ramen during the month! 10% Saving 7% Credit Payments 8% Misc. 5% Health 28% Housing 20% Transportation 6% Clothing 16% Food

Consumer Jungle Budget Basics Summary § Set your priorities. § Establish a budget with the following: What do you want to accomplish with your money? þIncome þSavings þExpenses • Fixed • Variable • Discretionary § End up with a budget surplus and you’re a success!