Budgets and budgeting

Smart InvestingEmmetO’Neal LibraryMountain Brook, AL
Budgets and Budgeting

Disclaimer
Andreas Rauterkus is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Andreas Rauterkus does not purport to tell or suggest which investment securities attendants should buy or sell for themselves. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision.

Objectives
What is a financial goal?
Learn how to track daily spending habits
Prepare personal spending plan
Estimate monthly income and expenses
Find ways to decrease spending and increase income
Discover budgeting tools to help you manage your money

Financial Goals
Be realistic
Be specific
Have a time frame
Include a dollar amount
State the action to betaken
Set milestones

Time Horizons
Short Term
Financial activities that occur within the next year
Medium Term
Can be anywhere from one to five years or even ten years
Generally, the “not-so distant” future
Long Term
Far out in the future
E.g. retiring comfortably

Constraints
Obstacles in the way of the pursuit of the financial goal
Personal
Economic
Governmental
“Expect the unexpected”

Develop a budget
Calculate your monthly income
Track you daily spending
Determine spending on monthly bills
Find ways to decrease spending and increase income
Create a monthly budget

Calculate Monthly Income
Gross versus Net Income
Gross income – deductions = Net income
Federal Income Tax Withholdings
Must complete Form W-4 to specify tax withholdings
If you do not fill out a form W-4 you will most likely overpay on your taxes

Social Security and Medicare Taxes
Employers have to withhold social security and Medicare taxes from your wages
Your wages up to a limit are subject to social security taxes ($106,800 in 2011)
The rate is 4.2%
Max. contribution: $4,485.60
All of your wages are subject to Medicare tax
The rate is 1.45%

Sample Pay Stub

Tracking Daily Spending Habits
Track your expenses to avoid overspending
Try to keep spending within certain ranges for specific categories
Housing expenses 30%
Household expenses 30%
Other bills 30%
Long-term savings 5%
Emergency savings 5%

Create Spending Diary
Find out where your money goes

Determine Monthly Expenses
Expenses are items you spend money on each month
Fixed expenses
Do not change from month to month
E.g. car payments, car insurance, rent
Variable expenses
Might change from month to month
E.g. utilities, miscellaneous expenses

Prepare a Budget
List your monthly income and expenses
Net income needs to exceed expenses
If not, go back and revise budget until you achieve a positive net income

If you can’t pay your bills
Pay your rent and mortgage first
Pay your necessary expenses next
If you have trouble paying off your loans:
Pay off loans with the highest interest rates
Talk to your creditors

Personal Financial Statement
Create a financial statement to track your financial condition
A personal balance sheet is called a statement of net worth
List all of your assets and liabilities
The difference between assets and liabilities is your net worth
A negative net worth is not a sustainable financial condition

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Budgets and budgeting

by emmetoneallibrary on Oct 07, 2011

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