Planning a Budget CHAPTER 28 Money Management • Money is a limited resource • Most people want more goods and services than they can afford • Money management—the process of planning how to get the most from your money • Budget—a plan for using your money in a way that best meets your wants and needs • Expected income • Planned expenses • Planned savings Five Steps to Planning a Budget • Set goals • What do I want to accomplish? • In one month? • Estimate Income • Income - actual amount of money you earn or receive during a given time period • Weekly allowance is income • Tips as a waiter/waitress • Interest on savings accounts Income, con’t. • Gross pay - total amount of money you earned for a specific time • Ex.—20 * 7.25 = 145.00 • Net pay - deductions are taken from gross pay for federal and state taxes, and social security taxes; AKA take-home pay • Health insurance • Retirement • Union dues • Other income could come from other family members who work and contribute • Do not count on gifts or unusual income Taxes • Withholding - subtracting taxes from a paycheck to be forwarded to the government • Federal • State • Local • Social security • Employers are responsible for forwarding the taxes withheld to the government units that assessed them • Self-employed persons pay their taxes directly to the government Estimate Expenses • Expenditures include rent, food, transportation, and unexpected expenses like medical care • Fixed expenses - occur regularly and are paid regularly; usually remain consistent in amount • Rent • Insurance • Car payment • Variable expenses - the amount and frequency may fluctuate • • • • Food Phone charges Entertainment Gifts Plan for Savings • Saving money will make it possible for you to meet future wants • They will protect against expenses that are not in the budget • Car blows a tire • You break a bone and have to see a doctor • Savings will help with long-term goals • Buy a computer • Take a vacation • Balance and adjust the budget • Total estimated income should equal the total estimated expenses • Budget variance - the difference between how much you planned to spend and how much you actually spent A Sample Budget • Set Goals • List goals – short-term goals and long-term goals • Decide which goals are most important – what wants are the most important to you • Estimate Income – divide yearly net income by 12 (monthly budget) • Know how much money you have available each month • Your take-home pay (net income) • Income from investments or rental properties • Interest from savings accounts (if applicable) • Plan for Savings • Have a regular, systematic plan to save • Cut expenses if necessary • Balance and Adjust the Budget • Keep accurate and complete records • Organize expenses in categories • Total actual expenses for each item each month • Balance the budget • Compare actual totals with budgeted amounts • Adjust the budget • Make changes in the budget if necessary • Ex. Decrease amounts budgeted if actual amounts were less • Increase amounts budgeted if actual amounts were more • Find places to decrease Use a Computer for Budgeting • Software programs are available to help with setting up and maintaining a household budget • With a computerized budget, you can: • Save your data each month • Analyze expenses • Use “What If” situations • What if your income increases or decreases? • What if your expenses increase or decrease? Budget Annual Monthly Income – after expenses 31,200 2,600 Rent payments 7,800.00 650 Insurance payments 1,200 100 Loan and credit card 2,220 185 Food 4,800 400 Utilities (heat, electric) 1,920 160 Phone/Internet 1,500 125 Car repair/transportation 1,860 155 Contributions/gifts 720 60 Health and personal care 1,140 95 Travel 600 50 Entertainment 900 75 Clothing 1,500 125 Household 3,000 250 Savings 3,000 250 31200 2600 Fixed Expenses Variable Expenses Total Expenses