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Budgets and budgeting


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Presentation used by Dr. Andreas Rauterkus at the Emmet O'Neal Library on October 6, 2011.

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Budgets and budgeting

  1. 1. Smart InvestingEmmetO’Neal LibraryMountain Brook, AL<br />Budgets and Budgeting<br />
  2. 2. Disclaimer<br />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. <br />
  3. 3. Objectives<br />What is a financial goal?<br />Learn how to track daily spending habits<br />Prepare personal spending plan<br />Estimate monthly income and expenses<br />Find ways to decrease spending and increase income<br />Discover budgeting tools to help you manage your money<br />
  4. 4. Financial Goals<br />Be realistic<br />Be specific<br />Have a time frame<br />Include a dollar amount<br />State the action to betaken<br />Set milestones<br />
  5. 5. Time Horizons<br />Short Term<br />Financial activities that occur within the next year<br />Medium Term<br />Can be anywhere from one to five years or even ten years<br />Generally, the “not-so distant” future<br />Long Term<br />Far out in the future<br />E.g. retiring comfortably<br />
  6. 6. Constraints<br />Obstacles in the way of the pursuit of the financial goal<br />Personal<br />Economic<br />Governmental<br />“Expect the unexpected”<br />
  7. 7. Develop a budget<br />Calculate your monthly income<br />Track you daily spending<br />Determine spending on monthly bills<br />Find ways to decrease spending and increase income<br />Create a monthly budget<br />
  8. 8. Calculate Monthly Income<br />Gross versus Net Income<br />Gross income – deductions = Net income<br />Federal Income Tax Withholdings<br />Must complete Form W-4 to specify tax withholdings<br />If you do not fill out a form W-4 you will most likely overpay on your taxes<br />
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  10. 10. Social Security and Medicare Taxes<br />Employers have to withhold social security and Medicare taxes from your wages<br />Your wages up to a limit are subject to social security taxes ($106,800 in 2011)<br />The rate is 4.2% <br />Max. contribution: $4,485.60<br />All of your wages are subject to Medicare tax<br />The rate is 1.45%<br />
  11. 11. Sample Pay Stub<br />
  12. 12. Tracking Daily Spending Habits<br />Track your expenses to avoid overspending<br />Try to keep spending within certain ranges for specific categories<br />Housing expenses 30%<br />Household expenses 30%<br />Other bills 30%<br />Long-term savings 5%<br />Emergency savings 5%<br />
  13. 13. Create Spending Diary<br />Find out where your money goes<br />
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  16. 16. Determine Monthly Expenses<br />Expenses are items you spend money on each month<br />Fixed expenses <br />Do not change from month to month<br />E.g. car payments, car insurance, rent<br />Variable expenses<br />Might change from month to month<br />E.g. utilities, miscellaneous expenses<br />
  17. 17. Prepare a Budget<br />List your monthly income and expenses<br />Net income needs to exceed expenses<br />If not, go back and revise budget until you achieve a positive net income<br />
  18. 18. If you can’t pay your bills<br />Pay your rent and mortgage first<br />Pay your necessary expenses next<br />If you have trouble paying off your loans:<br />Pay off loans with the highest interest rates<br />Talk to your creditors<br />
  19. 19. Personal Financial Statement<br />Create a financial statement to track your financial condition<br />A personal balance sheet is called a statement of net worth<br />List all of your assets and liabilities<br />The difference between assets and liabilities is your net worth<br />A negative net worth is not a sustainable financial condition<br />