Unit 2 - Budgeting: Making the Most of Your Money

NEFE High School Financial Planning ProgramUnit Two – Budgeting: Making the Most of Your Money

Unit 2 - Budgeting: Makingthe Most of Your Money


What is a budget or spending plan?

A budget /spending plan is a plan for managing your money during a given period of time.

A budget/spending plan allows you to prioritize your spending and saving, and make the most of your money.


Reasons for a Spending Plan …Helps you determine where you are

spending your money currently.…Helps you decide where to spend your

money in the future. …You have an organized way to save for

things that cost more. …Puts you in control of your financial future,

beginning NOW.

2-B-1 321


When will your budget change?

Your budget will change as your income grows and your priorities change.


Smart SpendingA spending Plan (budget) allows you to

prioritize your spending and saving, and make the most of your money.


Consequences of not having a spending plan1. Being in the dark when making financial

decisions2. Spending your money haphazardly on

items you don’t really need.3. Run out of money and have no money

left for items that are important to you.4. Overspend and end up in debt.


What will your values affect/influence when creating a spending plan

By knowing your values (beliefs that are important to you), you can design a personal spending plan that will fit your values and your financial goals.

Therefore, it effects: Needs and goals How money is spent.


EXAMPLE:Example: If you believe it is important to donate 10% of your monthly income to your church/temple, then in your budget you will set aside 10% of your income each month to donate your church/temple/or other religious organization.


Cash Flow & Income Cash flow—the money coming in and the money

going out

Income—The amount of money you receivea) Money you earn from a jobb) Your allowancec) Birthday & holiday checks or cashd) Money you receive for selling your possessionse) Interest you earn on a bank account


Part II of the Cash Flow Equation

Expenses—The amount of money spent on needs and wants


2-A-1


?



2-A-2


3 Types of Expenses

1.Fixed ExpensesExpenses that cost the same amount every time they are paid

Home mortgage, car loan , P.Y.F


3 Types of Expenses..Continued

2. Periodic or Occasional ExpensesExpenses that are not paid every month and can either be fixed or variable

Car Insurance


3 Types of Expenses..Continued3. Variable ExpensesExpenses that fluctuate in amount so that you will have more control over how much they will be.

Entertainment, Clothing, Gas


2-C

FIXED, VARIABLE, OR PERIODIC?

Expense Fixed Variable Periodic

Loan Payment X

Electric Bill X

Twice-yearly Insurance Payment

X

???

???

For an interactive version of this slide, open the Excel File for this unit and go to the Excel Worksheet with this same number


Payroll Deductions Payroll deductions—money for items your

employer subtracts from your pay before computing your take-home pay

Taxes—the biggest deductions that are required by law (at the local, state, and federal levels) to be applied to income, property, or goods.


Most Common Payroll Deductions Federal Income Tax—A fee collected by the federal

government to support its programs; withheld by employers and sent to the Internal Revenue Service (IRS).

State Income Tax—A fee that pays for state services; withheld by employers and sent to the state revenue department.

Continued on next slide


FICA Tax (Federal Insurance Contributions Act) is composed of:

a) Social Security Tax —provides a small income and other services to the elderly, disabled Americans and their children, and orphans.

1) By dollars, Social Security is the largest government program in the world and the single greatest expenditure in the federal budget.


Social Security - Eligibility Requirements: (Must meet one of the following)

• Age 62 or older• Widow/widower age 60 or

older• Widow/widower with

dependent children under age 18

• Permanently disabled• A dependent child age 18 or

younger of a permanently disabled or deceased adult


FICA Also Composed of… Medicare Tax —provides medical insurance to the elderly and

disabled Americans. (Health insurance program administered by the U.S. Government.

1) Eligibility Requirements: (Must meet one of the following)• Age 65 or older• Permanently disabled• Congenital disability (a medical condition existing since

birth

• Social Security & Medicare taxes are withheld from each employee’s paycheck, and the employer used to match but currently pays more, and must send this money to the IRS (employee’s deductions & employer’s taxes for each employee)


Direct Deposit???Is when an Employer deposits your paycheck

directly into your bank account.What are the advantages?


Gross Income vs. Net Income Gross Income —The total amount of income from

your wages before payroll deductions total hours worked * hourly rate = gross income

Net Income or called take-home payGross income – payroll deductions = net income


What determines how much money is deducted from your paycheck for federal income taxes?

The number of allowances that you claim on your W-4 Form, a form completed when you begin working for an employer, determines how

much tax will be withheld each pay period. You can change your allowances on your W-4

any time you wish


What factors determine the number of allowances claimed on the W-4 Form

Marital status How many dependent children you have How many jobs you currently have

Unless you have dependents, a single person normally claims 0 or 1 allowances

The higher the number of allowances claimed on the W-4 Form, the less money for federal taxes are taken out each pay period

The lower the number of allowances claimed on the W-4 Form, the more/higher amount of money for federal taxes are taken out each pay period


More…..Taxes

The more federal taxes taken out of your paychecks each year, the less chance of you owing money to the federal government at the end of the year when filing a tax return.

A tax return payment occurs when the tax obligation exceeds the tax withholdings you paid (that were deducted from your paychecks throughout the year)

A tax refund occurs when the tax withholdings you paid exceed the tax obligation you owed to the government


People Without a Budget…

…Are less likely to know what they have.…Have no plan, often coming up short before

their next paycheck or allowance.…Are almost certain to have no plan to save

for more expensive spending goals.

2-B-2 321


QuestionsDoes it makes sense to create and live

within a budget when you don’t have a lot of money?

What if you find that you are consistently spending more in one area than you had planned to?

What if you find that you can’t live within your budget?

2-B-3 321


The Most Important Expense?Savings is your most important expense

Each pay period you must pay yourself first (PYF)

Place a certain amount of money in savings to help meet your various goals: Short-term, Intermediate or Long term goals

10 % is a logical percentage to save each pay period


PAY YOUR$ELF FIRST!SAVE

etting aside money for “big ticket items”

voids borrowing, which costs you a lot! It’s a

ery wise thing to do, because

very time you pay yourself first, you are developing a saving habit that leaves you with more money to spend later on for things that are really important to you!

2-D-1. (2-D-2 and 2-D-3 on Excel file Unit 2 Visuals.xls)


2-E


Personal Plan for One Week

$20.00Balance

$120.00Savings and Spending

$140.00Income

$120.00Total Savings & Spending

15.00Miscellaneous

33.00Transportation

16.50Gifts and Contributions

10.00Entertainment

14.50Clothing

11.00Food

$20.00Savings (PYF)

Savings and Spending

$140.00Total Income

15.00Allowance

$125.00Part-Time Job

Income (after taxes)

One Week

Personal Spending/Savings Plan

$20.00Balance

$120.00Savings and Spending

$140.00Income

$120.00Total Savings & Spending

15.00Miscellaneous

33.00Transportation

16.50Gifts and Contributions

10.00Entertainment

14.50Clothing

11.00Food

$20.00Savings (PYF)

Savings and Spending

$140.00Total Income

15.00Allowance

$125.00Part-Time Job

Income (after taxes)

One Week

Personal Spending/Savings Plan


How to Build a Budget

1. Decide on a time frame for tracking expenses (week, two weeks, month).

2. List all money you have coming in (income).3. Make categories for all expenses.4. Subtract total expenses from income.5. Study your budget and your financial plan

to make sure it fits with your plans and goals.

2-F 54321


Bu

ild a

Bu

dg

et

An

swer

Key

2-G$575Total Estimated Expenses:

$575Total Estimated Expenses:25Recreation

30Recreation25Food

40Food20Electronics

40Music/Electronics20Video Game/Music

40Clothing50Clothing

40Gas45Gas

35Cell Phone40Cell Phone

Estimated Variable Expenses:Estimated Variable Expenses:

50Insurance*50Insurance

200Car Payment*200Car Payment

100Savings (P.Y.F.)100Savings (P.Y.F.)

Fixed Expenses:Fixed Expenses:

$575Total Estimated Income:$575Total Estimated Income:

15Interest Earned*15Interest Earned

$560Paycheck (after taxes)*$560Paycheck (after taxes)

Estimated Income:Estimated Income:

Jessica's Monthly BudgetJessica's Monthly Budget

$575Total Estimated Expenses:


30Recreation25Food

40Food20Electronics



40Gas45Gas














30Recreation25Food

40Food20Electronics



40Gas45Gas














30Recreation25Food

40Food20Electronics



40Gas45Gas












Documents

Unit 2 - Budgeting: Making the Most of Your Money