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