budget: what is it? [organization of money] - powerpoint:

A Budget:What is it?

A Budget: What is it?

•A budget is a financial document used to project future income and expenses. The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses.

•A Budget is a tool to help you understand where your money goes

•A Budget allows you to decide how much and when you spend your income.

•A Budget allows you to make and reach your financial goals

•A Budget is the cornerstone of a solid financial future.

A Budget: What is it?“Budgets are all about financial freedom. Without a plan for saving and spending, you’ll never make the most of your income – no matter how much money you earn.”

“Budgets are very empowering.”

“Budgets create financial security.”

“Budgeting doesn’t lead you away from something it leads you towards a financial goal.”

“A budget can help you reach a financial goal because it controls how much you spend and how much you save.”

“Budgets can help eliminate many money surprises because you’ve planned ahead and know what to expect.”

“A good budget can help keep your spending on track and even uncover some hidden cash flow problems that might free up even more money to put toward your other financial goals.”


What do I need to prepare a budget?• Income details

• List of expenses, including debt payments

What are the types of Expenses?

Fixed expenses:•Remain the same each month

Variable expenses:• Vary from month to month

Periodic expenses:•Occur only once or twice a year.


Creating a Budget

• Identify your monthly income• Identify your monthly expenses

Rule of Thumb:If your monthly income is greater than your monthly expenses then you are able to save $$$$$$

MI > ME = $avings

If your monthly expenses are greater than your monthly income then you are going into debt.

ME > MI = Debt


Setting Financial Goals

“People don’t plan to fail; they fail to plan”Think first:•Budget each pay packet.•What needs to be paid first?

Remember:• When it is gone; it is gone!

• Don’t be tempted by credit/debit cards!Rethink:•Is this expense absolutely necessary?•Is it a ‘need’ or a ‘want’?


Setting Financial Goals

“Goal setting is a terrific motivator!”

Short Term Goals:•12 months or less

Mid Term Goals:•Within 1-3 years

Long Term Goals:•Within 3-5 years

Examples:•Build an ‘Emergency Fund’•Get your debt under control•Save for a deposit on a car or home•Save more for retirement•Save for a holiday.•Save for anything you want


Keep in mind

“ S M A R T ”

S = SPECIFIC = what is it you want to achieve and why

M = MEASURABLE = amount to be saved each month/interval

A = ATTAINABLE = when is the due date for the goal

R = REALISTIC = have you given enough time to save

T = TRACKABLE = specific time frame


Simple Interest*

“Interest Rate”: the stated rate of interest paid each year

Principal amount to be saved: $1,000Interest Rate @ 6% per annum/year: 6% of $1,000 i.e. 6/100 [.06] x 1,000 = $60 per annum

•Value after two years: $120 interest + Principal [$1,000] = $1,120•Value after five years: $300 interest + Principal [$1,000] = $1,300•Value after ten years: $600 interest + Principal [$1,000] = $1,600•Value after 12 years: $720 interest + Principal [$1,000] = $1,720

Note*: Simple Interest does not take into consideration bank fees, changes in interest rate or any other matter that may influence the interest gained. “Simple Interest” calculation is to give you a general idea where the ‘value’ of your initial “Principal amount” will be in a set time frame.

A Budget: What is it?‘Rule of 72’is a simplified way to determine how long an investment will take to double, given

a fixed annual rate of interest.

Formula: How many years to double is:72/’fixed annual rate of interest’=‘Years to double your money’

It works like this: Take 72 divided by the interest rate you will earn on your money.

The answer equals the number of years it will take your funds to double in value.

Example @4%pa: 72/4(%) = 18 (years to double your money)Example @10%pa: 72/10(%) = 7.2 (years to double your money)

Choice of Rule:The value 72 is a convenient choice of numerator, since it has many small divisors: 1, 2, 3, 4, 6, 8, 9, and 12. It provides a good approximation for annual compounding, and for compounding at typical rates (from 6% to 10%). The approximations are less accurate at higher interest rates.For continuous compounding, 69 gives accurate results for any rate. This is because In(2) is about 69.3%. Since daily compounding is close enough to continuous compounding, for most purposes 69, 69.3 or 70 are better than 72 for daily compounding. For lower annual rates than those above, 69.3 would also be more accurate than 72.


‘Compound Interest’Compound interest is paid on the original principal

and on the accumulated past interest.

Formula to find interest for fixed term deposit: A = P(1 + r)t

A = is the amount of money accumulated after t years, including interest.P = is the principal (the initial amount you borrow or deposit)r = is the annual rate of interest (percentage)t = is the number of years the amount is deposited.

You have $1000 at a rate of 5%pa for one yearA=1,000(1+5%)1

A=1,000 x (1+0.05)1

A=$1,050

You have $1000 at a rate of 5%pa for 3 yearsA=1,000(1+5%)3

A=1,000 x (1+0.05)3

A=$1,157.63


‘A Savings Plan’

SAVE, SAVE, SAVE…•Start now! No matter how small your savings!•Pay yourself first, use automatic deductions.•Put your savings into a separate account that does not have ATM access.•Put any pay raises, bonuses or tax refunds into savings after you complete your emergency fund.

Budget each pay packet.Determine which categories you will pay in cash.Pay with cash and keep receipts.Don’t be tempted by debit cards.

Don’t pay the minimums on credit cards.Don’t live without emergency savings.Don’t spend more than you earn.Set financial goals.


Assembled by: A. Ballas

budget: what is it? [organization of money] - powerpoint:

Economy & Finance