Housing Education Workshop Basic Budgeting BASIC BUDGETING Basic

Housing Education Workshop Basic Budgeting

BASIC BUDGETING

Basic Budgeting Course – Learn how to: Create a household budget based on financial goals. Evaluate your financial situation, including income and expenses, and future goals to achieve shortterm and long-term financial stability. Find strategies to increase income and reduce expenses and debt to achieve stated financial goals.

Stella – Creating a Budget This is Stella. Follow Stella as she starts to create a budget to better manage her personal finances. She begins by identifying her short and long-term goals

Short and Long-Term Goals Stella wants to find a way to save to buy a house for herself and her two children. They’re living with her uncle and his family, but the apartment is too small for all of them. She needs to pay off the debt from her cleaning business and save for a down payment on a house. “I’d really like to have all my debt paid off in about six months and buy a place in a year or so. I’m making good money with the cleaning business, and I should be able to save, but it’s hard with all the bills I have to pay. ”

Short and Long-Term Housing Goals Pay off debt in 6 months Save for a down payment to buy a house in about a year For Stella to achieve these goals, she needs to track her finances. In doing so, Stella sees where she can increase income and decrease expenses. • While making a budget most people will adjust goals or timelines to create goals that are realistic and attainable. •

TIPS for Making a Budget Think of your budget as a spending plan, not a restriction on your lifestyle. Remind yourself that the adjustments you make will help you achieve your goals! Making a budget is less about math and more about planning. There are simple ways to improve your skills and manage your money. Like any skill, practice makes perfect. The more consistently you review the budget, the faster the process will become, and the easier it will be to make adjustments!

Tracking Income v Things to Include: • Regular Salary Stella gathers her paperwork: Paychecks and Bank Statements from the past 2 or 3 months. v Do NOT Include: • Temporary Jobs • Credit Score • Unemployment Compensation • Pre-tax Payroll Deductions (Retirement contributions, Flexible Spending Account Contributions, etc. ) • Public Assistance Note: If the amount varies, average it out over 12 months.

Tracking Expenses v. Documents to use: Stella gathers her paperwork: Bills, Bank Statements, Credit Cards, for the past few months. • Utility Bills, Insurance Payments, Other Bills • Bank Statements • Credit Card Statements • Records of Car Registration • Estimated Amount of Expected Expenses

Creating a Budget Worksheet Stella begins her budget worksheet by listing all of her income sources, and then all of her expenses: EXPENSES INCOME • Paycheck • Dividends • Side Job • Child Support • • • Housing Transportation Groceries Credit Card Payments Gas Bill Electric Bill Water Bill Internet Phone Bill Personal Expenses Loans Miscellaneous

Creating a Budget Worksheet After listing her income sources, Stella puts them in a spreadsheet that looks like this:

Creating a Budget Worksheet Next, Stella lists all of her expenses, and organizes them into categories, so it will be easier to keep track of them.

Creating a Budget Worksheet Stella also separates her expenses into “wants” and “needs” so she knows what expenses can be cut from her budget if need be.

Strategies to Increase Income Next, Stella looks for ways to increase her income: Find second job Work overtime Negotiate higher salary/wage Sell assets (e. g. , car) Hold a yard/garage sale Teach a skill/craft/activity Sell a craft (e. g. , jewelry or carpentry) Charge rent (if adult dependents in home) Evaluate tax withholdings* Note: *If a tax refund is expected, decreasing withholdings can increase income received throughout the year. To learn more, visit: IRS Withholding Calculator.

Decrease Expenses and Debt Next, Stella looks for ways to reduce expenses Prioritize “needs” over “wants” Reduce or eliminate Move to more affordable “wants” (e. g. clothes, gym) housing Cancel or downgrade services (e. g. cable, telephone) Stick to a shopping list Reduce debt (pay off a loan or credit card) Change insurance coverage for lower premiums (but do not cancel)

Decrease Expenses and Debt After looking at her budget spreadsheet, Stella started to evaluate her spending habits. I realized that I spend a lot on food. I eat out a lot, especially when I am working. And I think I go to the mall too often! She also began to think of ways to make more money, and spend less. I suppose that I could work some more, or maybe cut some expenses, maybe eat out less.

Adjusting Goals and Budget Stella realizes her budget and goals need to be adjusted further. She has decided to make the following income adjustments: • Stella plans to raise the rates for her cleaning business, increasing income by $150/ month. • She also plans to sell homemade jewelry. Though she might earn more, she knows she will earn at least $35 each month, so she includes the minimum income in her budget.

Adjusting Goals and Budget She has decided to make the following expense adjustments: • Stella will focus on decreasing spending on food by sticking to a shopping list. She plans to make brown bag lunches instead of dining out. • She will also lower expenses by buying fewer new clothes, sticking only to what she needs. • Stella estimates that she will need to spend about $10 each month on materials and supplies to make jewelry.

Adjusting Goals and Budget Stella adds income increases and spending reductions to her savings The combined effort allows Stella to increase her monthly savings from $25 to $325, which will help her achieve her goals of reducing her debt and buying a home for herself and her two children.

Creating an Action Plan It’s time for Stella to develop her Action Plan, which will tie together adjusted goals, budget, and timeline. This document will keep her on track moving forward and serve as a reminder if she thinks about making impulse purchases.

Action Plan According to her goals, she wants to save for a down payment of 5% on a $100, 000 home, or $5, 000. If she follows her plan and sticks to her budget, which includes $50 a month in debt repayment, she will have $3, 900 in her savings account after saving $325 each month for one year. Based on previous years, she anticipates a tax refund next year of about $1, 200, so she should have more than the $5, 000 she needs after only 12 months!

Resources and More Information HUD. GOV CAN-DC. ORG https: //www. hudhousingcounselors. com/training-studyguide https: //www. irs. gov/individuals/tax-withholdingestimator