Budgeting Creating a Personal Budget What is a
Budgeting Creating a Personal Budget
What is a budget? “A budget is a written record of the money that flows in and out of your household* every month. ” * or pocket!
Why budget? Budgeting is the first step on the road to financial success. Controlling your day to day finances allows you to do the things you want to do.
Balancing income & expenses • Start budgeting now – don’t wait until you’re financially “on your feet” to begin to budget. • A budget is nothing more than the activity of balancing income vs. expenses.
Creating a personal budget • Track your expenses • Figure out the amount of money you’re spending • How much money do you have to spend? • What are you spending that is not a necessity?
There are two types of expenses • Essential expenses – HAVE to have in order to live • Example: housing or food • Non-essential expenses – DON’T HAVE to have in order to live • Example: Cable TV or Entertainment
Essential – Fixed Expenses A Fixed Expense is an expense that stays the same from month to month. • Mortgage or rent • Insurance – auto & home • Car payments • School loans
Essential – Variable Expenses A Variable Expense is an expense that changes or does not stay the same from month to month. • Car maintenance • Gas • Food • Electricity, heat • Phone
Non-Essential Expenses • • • Clothing* Movies Video games Going out to eat Other items, you want, but don’t need
Related Expenses A Related Expense is an expense that is tied to a previous purchase. Examples: • If you purchase a car, your related expenses will be…insurance, gas, repair, maintenance, etc. • If you purchase a pet, your related expenses will be…pet food, vet bills, flea medicine, etc.
Some possible expenses. . . Housin g Phon e Gas/Electricit y Insuranc e Foo d Entertainme nt Water/Sewe r Prescription s Insuranc e Toiletrie s Loan s Magazine subscription s Garbage Interne t Medical Bills Credit Cards Electricit y Pet Food Movie Rentals Gym Membership Entertainme nt
Balancing Income & Expenses At the end of the month, break everything down into categories. Is your income greater than your expenses? YES! – Great, then you can save. NO! – There’s a problem!
Expenses > Income? • What can you cut out? – Going out to eat too often? – Buying things you don’t need?
How to save. . . • Pay yourself first! (savings) • Cut back on non-essential expenses • Take advantage of discounts or use coupons
And don’t forget. . . • • • A quick and easy way to save a little money is to toss your spare change into a jar or piggy bank! You should review and go over your budget on a regular basis. Your budget will change as your get older and your lifestyle changes. • Your budget will change if you move, decide to have kids, get a new job, etc.
Why do budgets fail? • Negative Attitude • Lack of motivation • Unrealistic expectations
Financial Goals Identify and write down your financial goals.
Financial goals may be: • • • Vacation College New car Down payment for a house Paying off credit card debts
Setting financial goals • Short term – less than 1 year • Mid term – 1 to 3 years • Long term – 3 years or more
Goals should be: • Specific – what is the goal? – How much should I save? – How long will it take me? • Realistic
Short term goal In most cases, you can take the amount you want to save and divide by the number of months. Goal: Buy the latest sneakers/shoes for $300 When: 3 months How much? $100 per month Is that realistic?
Mid term goal Goal: $3, 000 vacation When: in 18 months How much? $167 per month Is that realistic?
Long term goal Goal: $1, 800 for a down payment on car When: in 3 years (36 months) How much? $50 per month Is that realistic?
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