Budget Basics

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leWhat is a Budget?

A plan for

spending and

saving money

“A budget takes the

fun out of money”

Mason Cooley

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leBudgeting: A Perspective“Budgeting has a bad rap. Too many people

who give budget advice are detail people and/or

control freaks. They make you think that if you

don’t record every taco and pair of pantyhose,

you’re on the road to financial ruin. You don’t

have to track every penny to have an effective

financial plan. The secret is setting priorities.

Pay yourself first, then pay your bills, then you

can blow what’s left with a clear conscience”

Ann Coleman

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leWhy Do Budgets Get a Bad Rap?

Does the mere mention of the word “budget” conjure up images of drudgery and deprivation? You’re not alone. Most people think budgets are

Rigid and inflexible Painful – who wants to eat Top Ramen

every night? No fun!

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leWhy Budgets Really Do Make SenseA good budget should help you set priorities

and achieve what’s important to you. Not

what’s important to your banker, your best

friend, or your relatives. A good budget

should be Flexible: It should change as your needs change. Ongoing: It’s not a one-time event. A budget

should be part of your everyday life. Clear and easy to use: 12 page spreadsheets are

out!

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leBudgets: Where to Start

Be clear on

what you make

and how much

you spend. Anticipate all of

your potential

expenses.

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leBudget Categories Income

GrossNet

SavingsEmergenciesLong-TermRetirementShort-Term

ExpensesFixedVariableDiscretionary

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leIncome: The Amount of Money Earned Gross income: An

individual’s income

before taxes. Net income:

Income after taxes

are paid. Fasten your seat

belts: Taxes can

range from 15% to

31%. Yikes!

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leThe Amazing Disappearing Paycheck Your first real job pays $30,000/year. You’re

rolling in the bucks, right? Not necessarily. Your salary is your gross income. Take off at

least 25% for taxes and other deductions.

That’s what’s left for you to spend. Example:

Gross salary = $30,000

Minus 25% taxes and deductions - 7,500

Net income $22,500

Quite a hit, huh?

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leSavings: Pay Yourself First Savings is unspent income. Types

Emergencies: Plan to set aside three months’

living expensesLong-term: Large ticket items (house, car,

college)Retirement: It’s never to early to startShort-term: Vacation, clothes, new skis

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leThe Power of Saving Early Save early and regularly. Then watch your

money grow!

If you start at age 21 with $1,000 and add

$50/month until you’re 55, you’ll end up

with $120,373!

You contributed only $21,400. The

remaining $98,793 is interest. You didn’t

have to lift a finger for it. Sweet deal!

Imagine if you saved even more monthly!

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leExpenses Expense: A cost

to meet a need

or pay a debt Types of

expensesFixedVariableDiscretionary

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leFixed ExpensesA cost that occurs

regularly and

doesn’t vary in

amountRentMortgageCar paymentInsurance

premiumSchool loansOthers?

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leVariable ExpensesA cost that occurs

regularly but may

vary in amountElectricityWater and

GarbageTelephoneGasolineGroceriesOthers?

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leDiscretionary ExpensesA cost determined

by personal wants

that may be

controlled Movies, videos, CDs Sports Eating out Grooming and clothes Concerts and plays Vacations Others?

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leSafe PercentagesThe percentages shown below represent guidelines for safe amounts for major budget items. These are guidelines. You may choose to adjust these, but remember, if you spend 80% of your income on housing, you’ll be eating lots of Top Ramen during the month!

28% Housing

16% Food

7% Credit Payments10% Saving

6% Clothing

20% Transportation

5% Health

8% Misc.

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leBudget Basics Summary Set your

priorities. What

do you want to

accomplish with

your money?

Establish a budget with the following:IncomeSavingsExpenses

• Fixed• Variable• Discretionary

End up with a budget surplus and you’re a success!