The need for Effective Money Management

Basic Economic Problem

Limited Financial resources and unlimited wants/needs

Applies to consumers, businesses and government

Importance of Budgeting

A plan for saving and spending Helps achieve financial goalsWill help avoid credit card

problemsGood financial records must be

maintained.

Must be evaluated from time to time.

Fixed Expense

Occur Regularly Same amount each time

Variable Expenses

Differ each timeMay be a one time

bill/payment

The Budgeting Process

Set Financial Goals

1. Short-term and long-term 2. A balance sheet-or statement

of net worth Balancesheetexample.xlsCash flow statement (or income

statement) help in establishing goals.

3. The choice of lifestyle will affect the goals.

Plan the Budget CategoriesThe cash flow statement can help establish

categories and allowances for each category. Fixed expenses- occur regularly at the same amount

ExampleVariable expenses- costs differ each time

Examples

• Savings are an essential category•Necessary for long-term goals. •Helpful for unexpected expenses such as medical

Maintain Financial Records

A checking account will help in maintaining financial records

Evaluate the Budget

Compare actual expenditures with budget allowances

Adjust the budget when necessary *Reasons: Change in family situationsChange in lifestyle choicesInflation, inaccurate budgeting estimates

Characteristics of an Effective Budget

Realistic

1. Should reflect current income.

2. Expenses should be reasonable according to income

Flexible 1. The budget should allow for

unexpected expenses2. Savings are essential for

flexibility

EVALUATE REGULARLY

Planned & Communicated to all affected by the budget

- Budget should be written

- Written budget should be accessible

SIMPLE FORMAT