Unit 2 Budgeting Financial Literacy Standard 4Budgeting Mrs. Morrey Riverton High School OBJECTIVE: Identify and explain the process of budgeting based on calculated income. Develop a budget Identify and prioritize fixed, variable, and periodic categories Compare tools for tracking a budget and expenditures. If you fail to plan, you are planning to fail. Benjamin Franklin 1.Flat-screen TV 2.Laptop (hardware) 3.Fender Bender 4.Flat Tire 5.Washer/Dryer Whoops! What does the repair or replacement cost? 6.Fractured/Broken bone 7.Lost Cell Phone 8.Lost iPod 9.Car Towing 10.Hot Water Heater Monthly ExpensesMichaelSelena Cellphone$45$0 Car Insurance$70$0 Food$120$60 Gas$40$0 Clothes$30$60 Entertainment$100$40 Personal Care$5$10 Donations$0$8 Total Expenses$410$178 Estimated Income$544$160 Difference$134$(18) How can Michael and Selena adjust their expenses (or income) to ensure they cover their monthly obligations and also have money to set aside for their goals Can Michael and Selena Cover Expenses? What is a BUDGET? A budget is a money plan. It is a blueprint of how much money you earn and how and where you will spend it. Why should I BUDGET? You will be less likely to blow your money during random daily spending. You will be better able to reach your financial goals because it controls how much you spend and how much you save. Budgets help eliminate many money surprises because you have planned ahead and know what to expect each month. You will know exactly where your money goes. How do I make a BUDGET? STEP ONE Predict your INCOME Weekly/Monthly Wages Money earned from regular employment Allowances Interest Money earned from an interest bearing account (savings, money market, investment accounts) Gift Money Sales When predicting INCOME.. BE CONSERVATIVE... When estimating income, always aim lower rather than higher; this will eliminate the possibility of spending more than you have. Dont count on windfalls--if you receive money for earning good grades, birthdays or holidays, do NOT count those circumstances as regular income. How Michael and Selena Receive Income How do I make a BUDGET? STEP TWO Estimate and classify your EXPENSES Goods and services that must be paid for both regularly and periodically. Some expenses are a fixed cost, while others are variable. FIXED Expenses FIXED Expenses: Known regular payments--payments that do not change in cost from month to month. Examples of FIXED expenses: Car Payment Cell Phone Bill House Payment/Rent Payment Sewer Payment Insurance premiums VARIABLE Expenses VARIALBLE Expenses: Known but irregular payments--payments that vary in cost from month to month. Examples of VARIABLE Expenses: Groceries Gas Bill Power Bill Heat Bill Water bill PERIODIC Expenses PERIODIC Expenses: Costs which occur on an irregular basis, rather than monthly. Periodic Expenses are the number one budget breakers. Examples of PERIODIC Expenses: Insurance Premiums School Tuition Automobile Maintenance Gifts Given Tips to Estimate Expenses: Use averages for variable expenses (Equal Pay) Split periodic expenses into chunks Example: Plan to set aside $100 a month to pay the annual $1,200 car insurance premium. Other Examples of Expenses... How to Save Money on Expenses DETERMINE WHAT IS IMPORTANT AND NECESSARY Like to Have Category Look at variable expenses and determine which are necessary and which are like to haves. Unlimited cell phone minutes Cable channels New jeans Going out to lunch instead of school lunch Nails Movies every weekend Eliminate variable expenses that are not necessary. Average Costs for Salt Lake City Transportation Monthly UTA Buss/Trax Pass $78.00 Volkswagen Golf (no extras) $21, $424 a month for 60 months (4% interest rate) Average Costs for Salt Lake City Personal Care Toilet Paper (4 rolls) $2.71 Toothpaste $1.74 Mens Haircut $15.00 Deodorant $3.32 Doctors Visit $90.00 Average Costs for Salt Lake City Entertainment Movie Ticket $9.00 Theater Tickets $45.00 Dinner for Two $40.00 Gym Membership $27.00 Gourmet Coffee $4.94 Average Costs for Salt Lake City Housing and Utilities Rent for One Bedroom Apartment $1028 Utilities for One Bedroom Apartment $141 40 Flat Screen TV $410 Microwave $112 Laundry Detergent (one month) $12.00 Internet Access (8MB) $42.00 Average Costs for Salt Lake City Food Combo Meal/Fast Food $7.00 Gallon of Milk $2.99 Dozen Eggs $3.26 Loaf of Bread $1.79 Pound of Cheese $6.00 Pound of Chicken $4.12 Salt Lake City Facts Salt Lake City is 36 th cheapest city to live in out of 46 other similar sized cities in the United States. Salt Lake City is the most expensive city to buy wine and liquor. Salt Lake City is the cheapest city to buy potatoes. Other things to consider when making a BUDGET... SAVINGS PLAN... Pay Yourself First (PYF)--Before paying any bill or expense, set aside money in an account that is not easily accessed. S et aside money for big ticket items. A void borrowing, which costs you more money. V ery wise to save a little now for later. E very time you PYF you have more money to spend later on things that are important to you! Other things to consider when making a BUDGET... EMERGENCY FUND... Set aside money for unplanned expenses. Medical Expenses Automobile Expenses Fees/Dues Home Repair/Maintenance Other things to consider when making a BUDGET... INSURANCE PLAN... Life Insurance In exchange for monthly premium payments, an insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death. Term Life Insurance is designed to provide financial protection for a specific period of time, such as 10 or 20 years. Helps the beneficiaries cover costs such as the funeral, a mortgage payment, college tuition payments. Whole Life Insurance is a type of permanent life insurance designed to provide lifetime coverage. Helps distribute wealth to beneficiariesestate planning tool. Other things to consider when making a BUDGET... INSURANCE PLAN... Health Insurance Through monthly premium payments, health insurance is a way to pay for health care. It protects you from paying the full costs of medical services when you're injured or sick. Other things to consider when making a BUDGET... INSURANCE PLAN... Home Owners/Renters Insurance Insurance policies that covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused by household pets. Other things to consider when making a BUDGET... INSURANCE PLAN... Auto Insurance Auto Insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy. Other things to consider when making a BUDGET... CHARITABLE CONTRIBUTIONS... A gift made by an individual or an organization to a nonprofit organization, charity or private foundation. Charitable donations are commonly in the form of cash, but can also take the form of real estate, motor vehicles, appreciated securities, clothing and other assets or services. Animal International Environmental Health Education Religions Different methods to track your BUDGET Envelope Method You compile your budget, have an envelope for each category, and put the cash allotted to each category into its corresponding envelope. You spend cash through the month, and when your envelope(s) run out, you stop spending for that category. Groceries Gas Entertainment Clothing Different methods to track your BUDGET Paper Tracking Method You compile your budget and have a paper for each category indicating how much you have budgeted to spend. Anytime you spend money in a category you deduct that money from that categories total. Much like a checkbook, you can see a running total for each budget category so you are aware of how much you have spent and how much you have left to spend. Different methods to track your BUDGET Online/Software Tracking Method Method of setting up a budget and tracking spending online or with a software program. Software links with your checking/savings accounts and records expenditures each time they are made. Budget categories and amounts are set upalerts are sent when you spend more than budgeted. Quicken Ace Money Money Dance Online Banking Budgeting Software