BUDGET
What is it?
How do you know if you need one?
Budget
• A guide to spending
and saving to help
people reach their
goals…..like a road
map for spending.
You need a budget when...
• You wonder where the
money goes??
You need a budget when...
• You fail to have cash
set aside for
emergencies
You need a budget when...
• You fail to have
money set aside to
reach your goals.
You need a budget when...
• You use credit as a
substitute for money
You need a budget when...
• You overdraw from
your checking account
You need a budget when…
• You tend to over
estimate income and
under estimate
expenses.
You need a budget when...
• You find it hard to pay
expenses, overdue
bills.
You need a budget when...
• You tend to let
tomorrow take care of
itself, no future
planning.
Budgeting
Budgeting successfully depends on how well you set your
financial goals.
Goals should be prioritized and ranked from most important to
least important.
The goals you set affect your family, future family, and
community.
The best way to create an effective budget is to establish a filing
system and keep accurate records.
You can use the following to prepare a budget worksheet: word
processor, spreadsheet or data base, or a computer generated
program.
Budgeting
A plan for dividing up your income among spending
and saving options.
Most budgets are based on short term and long term financial goals
First step: Determine your goals
Short Term Goals: Things you hope to achieve in less than 1 year
Long Term Goals: Things you hope to achieve in more than 1 year
Budgeting
Budgets are based on your NET income (pay after
deductions)
Gross Income: Total income before deductions
Income
-Deductions
=NET income-Take home pay after deductions
Budgeting:
Deductions Required By Federal Law
Federal Income Tax: Acts as a prepayment for
the required Federal Tax due every April 15.
Internal Revenue Service (IRS) is the government
agency responsible for collecting Federal Taxes
FICA-Federal Insurance Contributions Act
Social Security is a fund managed by the
government in which payroll deductions are
required to provide money for disabled workers,
dependents of the deceased and retired workers.
Other deductions may be an elective: health, life,
savings, union dues, pre-paid taxes
Budgeting
When devising your budget you want to
include all possible expenses
Fixed Expenses: Same each month or
committed to spend each month: mortgage,
rent, loan payments, car insurance,
cell/telephone, utilities, charge accounts
Flexible/Variable: Different each month.
More choice involved about spending. Food,
clothing, recreation, entertainment, dining out
Budgeting Vocabulary
Disposable Income: Money that can be
freely spent, not allocated towards any goals
Periodic Expenses: Expenses that come up
occasionally
Spendable Income: Amount remaining
after deduction taxes and FICA from
income
Budgeting
Financial Experts have developed
the following “Rule of Thumb”
Guidelines for the % of our
income we should allocate for
each category. To help devise
our own personal budgets. This
is known as %Goal on our
budgets.
Budgeting
Savings-10%
Clothing-purchase/repair 5%
Utilities-electric, water, phone 5%
Health/Personal-medical, grooming 10%
Food-groceries 20%
Housing-rent/mortgage, repairs 30%
Car Expenses-payment, operating costs, repairs 15%
Entertainment-movies, dining out 5%
The Latte Factor
• I understand that I could be putting the
money from a $4 latte into retirement but
I don’t get why it’s important. I would
rather have a latte than have $4 when I’m
old.
Latte Factor
• You walk into a coffee shop on your 25th
birthday and plunk down $4 on a latte, that
$4 goes away. If you just took that $4 and
stuck it under your mattress for 40 years,
you’d just have $4 when you’re 65.
• But if you took that $4 and put it in an
investment that earns 5% (like a treasury
note) for 40 years, you would have $28.16
Latte Factor
• Okay, let’s say that you drink just one latte
a week for just your 25th year on earth.
That’s 52 lattes, a total of $208. In that
same investment, you would have
$1,464.32 when you’re 65.
Latte Factor
• Let’s say again that you buy a latte a week
until your 65th birthday. That’s 2080 lattes,
which costs a total of $8,320 (and that
assumes the price will not go up for 40
years, which means it’ll be more than that in
reality). With that same investment, you’d
have $26,590.67 at age 65.
Latte Factor
• Let’s say that you drink three lattes a
week (not unreasonable for a latte
drinker). That’s 6,240 lattes, which costs
a total of $24,960 (again, with no price
increase). If you just buy that same 5%
investment, you would have $79,772.01
at retirement.
Latte Factor
• Now, let’s say instead of buying a treasury
note, you put that money in the Vanguard
500, which has earned 12.14% annually
since inception in 1976. If we can expect
that same return, you will have $558,690.42
at retirement.
Latte Factor
• Drink a latte daily? You’re losing
$931,150.69 at retirement. A morning latte
and an afternoon latte? $1,862,301.38.
• This is the power of the “latte factor.” It’s
not a single choice to buy a latte that’s
powerful, it’s a regular purchase of a latte
combined with the power of compound
interest that makes it powerful. Obviously, the
huge numbers quoted here are indeed in
future dollars, but even with 4% annual
inflation, you’re still tossing away $387,897
in today’s dollars just on your two lattes a
day. That’s the foundation of a good
retirement, tossed away on a frivolous part of
a daily routine.
What’s your Latte
•
•
•
•
•
•
Food
Movies
Senior lunch
Hobby supplies
Gasoline
Music
Latte
• http://www.finishrich.com/free_resources/lattecalculator.php
Latte Activity
Budget Project
MICROSOFT EXCEL
• Is a spread sheet with
vertical lettered
columns.
• Horizontal numbered
rows
• Cells are formed and
identified by the
corresponding letter &
number.
Cells
• Can hold alphabetic
characters, like words.
• Can hold numeric
information, or
numbers
• Can hold a formula
that calculates
numbers and displays
the answer.
Rows
Rows (as it relates to a spreadsheet)
horizontal division
-numbered range of cells
words or numbers can be put in.
Columns
(As it relates to a spreadsheet)
Vertical division
-Alphabetic reference to an array of
cells
-Can hold alphabetic characters like
words, numeric information for
example, numbers.
Formulas
• An equation that performs operations and
can refer to different cells.
• Must begin with an = sign within the excel
program
• Total sum function=Σ
Landscape Print: Page Set up-Landscape
Page Set Up-Margins Left and Right margin 0
Gridlines: Page set up-Sheet
Special Notes
Columns
Width
Dollar Signs
Landscape Print
Gridlines
Right and Left Margins
Recommended Percents