Budgeting Aim How do you create a budget

$Budgeting$ Aim: How do you create a budget? Do Now: Handout “If you fail to plan, you plan to fail” What does this quote mean? What types of activities require planning?

“If you fail to plan, you plan to fail”

Are all Budgets the same? $ $ No!!! You need to develop a plan for using your money to best meets your needs. – Helps you live within your income – Helps you decide how to spend your money wisely

Steps to Budgeting: 1. Set Financial Goals: What would you like to accomplish with this money? – Make financial goals specific! • Short term: Takes 1 year or less to achieve – Ex: saving for a trip • Long term: Takes more than one year to achieve – Ex: saving for a house 2. Estimate Your Income : What money will be coming in? – Ex: Paycheck • Gross Income – Money before taxes and other deductions • Net Income – Money after taxes and other deductions – Don’t include money that you cannot depend on (Gifts/Bonuses)

Steps to Budgeting: 3. Budget for Unexpected Expenses and Savings: What if I need money for an emergency? – Allocate a designated amount to be put into savings – Having an “emergency” 3 -6 months worth of living expenses in case someone loses a job, medical expenses or other emergency situation. – Always consider savings as an expense 10% of income minimum 4. Budgeting for fixed expenses: How much do I know I have to pay each month? – Monthly expenses that remain the same from month to month • Ex: Car payment- Will always be $250 per month • Ex: Mortgage- Will always be $3000 per month

Steps to Budgeting: 5. Budgeting for Variable Expenses: How much should I estimate to pay each month? – These expenses change from month to month depending on needs, wants and Usage (ex: electric bill) – Not as easy to budget for, when in doubt estimate higher 6. Record what you spend: What am I spending my money on? – Keep track of expenses and revise budget when necessary – You may need to ADJUST (reduce/eliminate) spending to achieve your goals. Examples: • “Brown Bagging” Lunch • Generic Vs. Name Brand Habit 1 cup of coffee every day 1 pack of cigarettes every day Going out for lunch every day 3 Chocolate bars a week Price $2 $8 $5 -$10 $3 Monthly Cost $60 $240 $150 -$300 $36 Yearly Cost $720 $2910 $1800 -$3600 $432