Understanding the basics of making a budget, how to adjust expenses and save. Part of Financial Literacy series for students and young adults starting out. 10 minute course. - Alan Baren See version with slide transitions and background audio here: https://www.youtube.com/watch?v=tqSZjnSRWqc

1. Budgeting and Savings 101
Financial Literacy series
Alan Baren, MBA Finance, University of Chicago Booth finlit101@yahoo.com

2. Budgeting and Savings 101
• Know why budgeting is important
• Create a basic budget
• Understand fixed versus variable expenses
• Plan for savings!
• Other ways to save

3. Why Budgeting is Important
• You want to budget so you can plan for the
expenses you need to pay:
- Housing
- Utilities
- Food
- Clothing
- Healthcare
• And ideally have some left over for:
- Things you would like to buy… “nice to haves”
- And savings!

4. Creating a Basic Budget
• Go through the exercise of creating a monthly budget.
• Use it to determine how much you can spend and save.
• Step 1: Identify your take home pay
Wages
- Taxes
------------------------
Take Home Pay
- Fixed Expenses
- Variable Expenses
-------------------------
Balance for savings
Take Home Pay is what is
in your pay check AFTER
all income and payroll
taxes, and other benefit
deductions.

5. Creating a Basic Budget
• Step 2: Identify your expenses.
• Break your expenses them into fixed and variable.
• A fixed expense is a committed cost you have every
month. For example, your rent or home mortgage,
car payments, minimum credit card balance, work
commuting costs, your utilities, your basic food costs.
• A variable expense is more discretionary. For
example, how much you spend on clothes, eating
out, going to the movies or buying “nice to have”
items.
You must put aside money for your fixed
expenses first!

6. Creating a Basic Budget
• Step 3: Subtract all your fixed and variable expenses from
your Take Home Pay. That’s a basic budget.
Wages
- Taxes
------------------------
Take Home Pay
- Fixed Expenses
- Variable Expenses
-------------------------
Balance for savings
Fixed Expenses
Home mortgage or rent
Electric and gas utilities
Healthcare expenses
Cable bill if on a contract
Cell phone if on a contract
Variable Expenses
Food expenses
Clothing
Credit card payments
Entertainment
Restaurants, movies, going out
Other discretionary spending

7. Why it’s IMPORTANT to Save
• Savings are important to have money to:
- Go on vacations
- Make larger purchases like furniture or a car
- Survive if you lose your job for a period of time
- Account for unforeseen expenses like medical
emergencies for you or your family
- Be able to retire one day
• Plan for savings by having money left every month after
paying all your expenses.
• Build a fixed amount for savings into your budget.
• Target saving 10-15% of your take home pay.
• You can save more than reducing your expenses.

8. Adjust your Variable Expenses
• Variable expenses represent “nice to haves” versus
“need to have” expenses… and are more adjustable.
• Adjusting what you plan to spend on your variable
expenses will allow you to save more.
- How often do you go out to a restaurant? You can easily increase or decrease
that. Do you order a main course and soda, or appetizers, drinks, main course
and desserts?
- How often do you go out to the movies or other entertainment with friends? Do
I go at night or a lower-cost early bird movie on the weekend?
- When you grocery shop, do you look at price differences between
similar items and/or look for deals?
- You may need a TV, but do you need premier channels.
- Do you need an iPhone or can I survive with pre-paid phone?
These kind of choices can make a huge difference.
And allow you to build savings into your budget!

9. Adjust your Fixed Expenses
• Fixed expenses can also be adjusted, but require much
harder choices and more planning.
• Be aware a “nice to have” expense can become a fixed
expense if you buy it with a contractual commitment.
Job does not pay enough
Own your home
Live in city near job
Drive to work
Cell phone plan (2 yr commit)
Cable plan (2 yr commit)
Monthly credit card payments
Fixed Expense Variable Expense
Find a new job or 2nd job
Rent
Live further away and affordably
Commute on public transportation
Pe-paid monthly phone
Netflix or Hulu subscription
Pay off credit cards

10. Adjust your Total Expenses so You Can Save!
• Ensure your expenditures are within your means.
• Look at your take home pay after taxes.
• Subtract all your monthly expenses; fixed and variable.
• Adjust your expenses to ensure you can pay all your bills
and ideally leave 10-15% for savings.
Wages
- Taxes
============
Take Home Pay
Take Home Pay
- Fixed Expenses
- Variable Expenses
===============
Planned Savings

11. Where to Put Your Savings
• Use high yield savings and money market accounts to
earn some interest on your savings. They are a safe way
to at least earn some interest.
 Interest on balances compounds over time and adds up!
• Be aware Money Markets can limit the number of times
you can withdraw funds each month.
 Use only Money Markets for savings you don’t need for your monthly payments.
• Avoid paying bank fees.
 For basic checking and savings, there are many different types
of accounts.
 Find an account type that lets you avoid monthly fees by maintaining
a minimum balance, setting up direct deposit or other requirements.
• Shop your choice of bank!

12. Take Advantage of Employer Benefits
• Maximize 401K Matching
- If your employer matches 401K savings up to a certain
percentage, be sure to put away at least that percentage.
- For example, if your employer matches up to 3%, put in at
least 3%.
• Use Commuter Savings Programs
- If your employer offers commuter saving programs like
Wage Works, use it to pay for commuting costs with
pre-tax money through payroll deductions.
- You can save 25-35% of you commuter costs this way.

13. Manage Your Credit
• Buy with credit cards only up to the amount you can pay
off in FULL at the end of the month.
• Use credit cards to buy in advance of your pay check - but
not to buy more than you can afford.
• Credit card interest rates and fees are one of the
largest sources of income loss!
• Think of alternatives to using credit cards…
like saving up for those larger expenses.
(More on using credit cards, selecting a card, and managing your credit score in our
Credit Management 101 course.)
 Credit card late fees can be anywhere from $15-$35 (ouch!) and interest
rates anywhere from 15-25% (ouch!). Interest rates, if your balance isn’t paid
in full, will ALSO apply to all new purchases the following month. (3xouch!)

14. Summary
• Create a monthly budget.
• Identify fixed versus variable expenses.
• Adjust your expenses so you can plan to save!
• Build savings into your budget.
• It’s all about choices!
Alan Baren, MBA Finance, University of Chicago Booth finlit101@yahoo.com
Be sure to view other courses in the Financial Literacy Series.