“Some Money Facts”►$ The average person spends money three times a day.► $ A movie with popcorn and a soft drink can easily cost $20► $ Just one soft drink a day for .99c adds up to $361.35 in a year► $ What’s the biggest expense item for teenagers? FOOD!
Money Matters:► How many times a day do you spend money?► The average person spends money 6 times a day.► Money brings happiness – Money problems bring unhappiness► Money problems stay with you for the rest of your life.► Top reason for divorce is financial. Finances affects everything else in your life.
Ways to improve your finances► Make more money► Cut your expenses► “Wait and win the lottery” system► Have a budget
What is a budget?►A tool to manage your money► For a specific period of time – usually monthly► Budget due to our limited resources► Helps us meet our responsibilities and our financial goals
Reasons for a Budget Track spending Money toward expenses/bills Avoid careless spending Eliminates stress Live within your means/income Meet financial goals Save Invest …Puts you in control of your financial future, beginning NOW.
Without a Budget… Have no plan Paycheck-to-paycheck Come up short Plan for emergencies No savings/investing plans Less likely to know what $ you have
How to Build a Budget1. Decide on a time frame for tracking expenses (monthly)2. List all money you have coming in (income) A. Disposable income B. Discretionary income3. PYF (Pay yourself first) = Savings4. Make categories for all expenses5. Subtract total expenses from income6. Study budget and make changes
PAY YOUR$ELF FIRST!Every time you PYF, you are developing a saving habit that leaves you with more money to spend later on for things that are really important to you!Save 10% of your disposable income each time you get paid
Budgeting Terms ► Expenses:► Budget – tool for Fixed expenses – money management monthly contractual► Disposable income – Variable expenses – after taxes not contractual, vary► Discretionary income – each month after all expenses paid Periodic fixed expenses
Spending plan activity► Decide if each item is income, a fixed expense, variable expense or periodic expense
Spending plan activity Rent Fixed expense Wages Income
Spending plan activity Groceries Variable expense Internet bill Fixed expense
Spending plan activity Tips Income Utilities Variable expense
Spending plan activity Gift from family Income Savings Fixed expense - PYF
What is included in a budget for a family in a given month?The typical family spends their money on:►Housing - 30%►Transportation - 20%►Food -15%►Utilities, Home Improvements - 14%►Saving - 10%►Insurance - 7%►Other - 4%
What does it look like? Budget TemplateIncome AmountWages $Total Income $Expenses AmountFixed ExpensesPYF (10%) $Variable Expenses $Periodic Expenses $Total Expenses $Net Gain or Net Loss $
Allocate money to each category► Net gain - $ remaining to either save, spend or invest► Net loss - spending more money than earning and has to use credit (borrowed money) to meet their financial obligations ► A spending plan should have income and expense matching one another (reach zero)
Implement and Control► There is not one correct control system. Depends upon the individual/family Envelope systems – individuals place the actual budget amount of cash from a paycheck into a specific envelope system for the expense Check register system – helps consumers to track all expenditures in a checkbook register which has been divided into spending plan categories Electronic spending plan systems – multiple types of software are available for consumers to use to help keep track of their financial records like www.mint.com
Net worth statement► A net worth statement describes an individual or family’s overall financial condition on a specified date► The components include: Assets – Everything a person owns with monetary value Liabilities – Debts or what is owed to others Net worth - The amount of money left when liabilities are subtracted from assets (indicates wealth)
Who is Wealthier? John – earns $35,000 Alex – earns $100,000 per year per yearAssets AssetsHome $60,000 Home $75,000Retirement $24,000 Retirement $35,000 Automobile $8,000Automobile $8,000 Total Assets $118,000 Total Assets $92,000 LiabilitiesLiabilities College loan $10,000College loan $6,000 Automobile loan $4,000Mortgage $35,000 Credit card debt $20,000 Total $41,000 Mortgage $65,000 Liabilities Total Liabilities $99,000 Net Worth $51,000 Net Worth $19,000