NEFE High School Financial Planning Program Unit Two

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

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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Reasons for a Spending Plan Ø …Helps you determine where you are spending your money currently. Ø …Helps you decide where to spend your money in the future. Ø …You have an organized way to save for things that cost more. Ø …Puts you in control of your financial future, beginning NOW. 2 -B-1 1 2 3

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money When will your budget change? �Your budget will change as your income grows and your priorities change.

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Smart Spending �A spending Plan (budget) allows you to prioritize your spending and saving, and make the most of your money.

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Consequences of not having a spending plan 1. Being in the dark when making financial decisions 2. Spending your money haphazardly on items you don’t really need. 3. Run out of money and have no money left for items that are important to you. 4. Overspend and end up in debt.

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

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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Cash Flow & Income � Cash flow—the money coming in and the money going out � Income—The amount of money you receive a) b) c) d) e) 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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Part II of the Cash Flow Equation Expenses— The amount of money spent on needs and wants

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

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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 3 Types of Expenses 1. Fixed Expenses that cost the same amount every time they are paid � Home mortgage, car loan , P. Y. F

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 3 Types of Expenses. . Continued 2. Periodic or Occasional Expenses that are not paid every month and can either be fixed or variable � Car Insurance

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 3 Types of Expenses. . Continued 3. Variable Expenses that fluctuate in amount so that you will have more control over how much they will be. � Entertainment, Clothing, Gas

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money FIXED, VARIABLE, OR PERIODIC? Expense Fixed Variable Periodic Loan Payment X Electric Bill X Twice-yearly Insurance Payment ? ? ? 2 -C X For an interactive version of this slide, open the Excel File for this unit and go to the Excel Worksheet with

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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Most Common Payroll Deductions � � Federal Income Tax—A fee 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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money FICA Tax (Federal Insurance Contributions Act) is composed of: a) Social Security Tax —provides a small income and other services to the elderly, disabled Americans and their children, and orphans. 1) By dollars, Social Security is the largest government program in the world and the single greatest expenditure in the federal budget.

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money FICA Also Composed of… � Medicare Tax —provides medical insurance to the elderly and disabled Americans. (Health insurance program administered by the U. S. Government. 1) 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)

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Direct Deposit? ? ? �Is when an Employer deposits your paycheck directly into your bank account. �What are the advantages?

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money People Without a Budget… Ø …Are less likely to know what they have. Ø …Have no plan, often coming up short before their next paycheck or allowance. Ø …Are almost certain to have no plan to save for more expensive spending goals. 2 -B-2 1 2 3

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Questions Ø Does it makes sense to create and live within a budget when you don’t have a lot of money? Ø What if you find that you are consistently spending more in one area than you had planned to? Ø What if you find that you can’t live within your budget? 2 -B-3 1 2 3

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money PAY YOUR$ELF FIRST! S etting aside money for “big ticket items” A voids borrowing, which costs you a lot! It’s a Very wise thing to do, because E very time you pay yourself first, you are developing a saving habit that 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)

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

NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money How to Build a Budget 1. 2. 3. 4. 5. 2 -F 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. 1 2 3 4 5

Build a Budget Answer Key NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 2 -G