Everyone makes their own decisions as to how they want to manage their money. Some people have detailed plans that cover all of their spending, some have minimal plans that cover the major purchases and expenses, and some people may choose not to have a formal plan but track their spending in other ways. Regardless, a budget is a very helpful tool for managing your money for current spending, as well as planning for the future. This part of the workshop will provide you with knowledge, practice, and worksheets that will help you answer the most common questions regarding money management: You will learn how to determine your needs vs. your wants. You will learn What a budget is and how it can help you achieve your financial goals. You will get practice and learn How to create a budget. We will be using a simple example that you can apply to your own situation at home. You will learn how to pay yourself first
Every person has needs and wants. Our needs are those basic things that we must have in order to live and grow. We need food, water, clothes, health, and shelter. We want movies, safety, a good education, a nice car. Many people confuse their needs and their wants. Money must be used to meet both of these – so which is most important? Yes, meeting your needs must be done first!! If you fulfill your wants first, you won’t have enough to meet your needs. It’s important that you think about the different BEFORE you spend any money. We always have more wants than needs. Sometimes we get confused and have to think about a purchase for awhile. Let’s make a list of wants and needs. Food may be a need. Eating lunch out in a restaurant is a want.
A budget is simply a plan for spending and saving your money – a smart tool you can use to manage your money for today and the future. It allows you to make a plan for the financial aspects of your life. The advantages of managing your money are that it can help you plan for purchases and expenses, and it is a way to track your spending so you meet your financial goals.
Budgeting does not mean... Creating a strict, inflexible plan, or following rules. Denying yourself fun things. But, it does mean... Making conscious, smart decisions about how you handle your money. Establishing a plan that works for you. That way, you have these advantages: Help to manage spending/expenses. Help reduce or eliminate debt. A way to increase your future assets. We are going to learn about budgeting by talking about a sample budget process.
Consider a budget. A budget is a plan for how you’re going to spend your money. If you’re used to spending money without thinking, a budget is probably a new approach. It may also mean changing your definition of what a budget is. With a budget, you list the categories that you spend money on…food, clothing, etc. Then, you set aside a certain amount of money to each category of expense . For example, if your rent is $650 a month, you allocate that amount to housing. You then track your spending to make sure you don’t spend more than the amount you budget. Over the course of the month, you write down everything you spend in each category. Then you’ll know if you’re going over the amount you allocated and can cut back, or maybe you need to adjust your budget. Find opportunities to eliminate expenses. Include irregular expenses (such as insurance). Keep your budget flexible. It is going to change, just as your income, expenses, goals, and needs change. Let’s make our own budget.
So how do you create a budget? Base it on your history of spending. You start with how much you’ve spent on that category in the past, or with the fixed costs you know you have, like your rent. Use past receipts, credit card bills, and your checkbook register. You can analyze your past receipts and credit card bills to see how much you usually spend. Start tracking your spending now for a month or two. Or, if you haven’t kept records you can start now, by saving your receipts for the next few months. Also, include any expenses you may have on a quarterly or yearly basis as well. Be sure to include all incidental expenses, like newspapers, coffee, donations, etc . ASK: What are some irregular expenses you can think of? One of the things that influences how you budget your money for each category is whether the expense is fixed, non-fixed, essential, or desirable. Let’s take a look at what I mean by these terms.
Money that comes to you through a job, social security, tips, or other benefits are considered income. Income can include salary, tips, other cash earned, bonuses, benefits/payments received, child support, alimony, etc. Your total earning is called GROSS income . On most income, you will have to pay taxes. The amount left after taxes is called NET income . Use your net income when figuring your budget. Remember, that all income is not regular. If you work a part time job, your hours could increase or decrease. Or your employer may decide to reduce the number of employees and you could lose your job. Or you could get sick and not work. Income must be tracked and adjusted in your budget just like expenses. If you are divorced or receive support from another person, recognize that these payments could stop or be delayed. Emergencies will always come up so it’s important to have money in savings to help you through tough times. One expense item in your budget should be emergency savings. (figure out Marie’s income or figure out your own using blank sheet in student guide)
When you spend money, you have an expense . Expenses fall in to categories such as food, entertainment, transportation, clothing, etc. It important to list all areas in which you spend money – everything from big credit card purchases to cash spent on smaller items like morning coffee or a newspaper. Some expenses occur every month and may not change. These are called fixed expenses . Rent or a car payment are fixed expenses. Other expenses are flexible – they change each month. Grocery purchases, school supplies, utilities may vary from month to month. Other expenses occur only a few times a year. Insurance payments or school tuition may come up every 3 or 4 months. We still must plan for them to be sure we have enough money to pay these bills.
Before you spend any money, pay yourself first. This means you are putting money into savings to reach your goals. Identify an amount that you can deposit regularly. Then stick with the plan. Pay yourself first on a regular basis. Do this every week or every month == whenever you get paid. You can have your paycheck deposited directly to a bank account. Your bank can then automatically transfer a specific amount to savings. You won’t miss the money if you don’t see it. View savings as a regular expense that you MUST pay just as you would your rent or utilities. After you have paid yourself, then determine the amount of income you have left to cover your expenses.
Don’t forget your emergency fund. You will still need to pay your expenses if you lose your job, or get sick and can’t work. You might need to rely on savings for short-term emergencies. Start building an emergency fund so it eventually has from 3 to 6 months’ worth of your expenses. That might seem like a lot of money, but you don’t have to create it all at once. You can start building it now and make regular contributions over time. Your emergency fund should be a savings priority.
It’s important to keep you expenses lower than your income. Getting into debt turns into a big problem over time. Here are a few things you can do to cut your expenses. First, focus on what you and your family really need. Food, shelter, clothing, transportation to work, education are a few basic needs. Your needs must be met first. Talk with your family and discuss what is really needed. For example, you need food to eat. But you don’t have to eat lunch in a restaurant. By making a sandwich at home, you could save money. Cut back on your wants. Wants will ALWAYS exceed the amount of money we have to spend. When you find you want something, ask yourself WHY? How will this help me reach my goals? If you want to buy a new phone, ask yourself why? Is it because your friend just bought something new? Are you trying to impress someone? Do you really need a new phone? What can you save if you don’t buy it? Wait before you buy. Time gives us the opportunity to really think about our goals. If we buy on impulse, we usually make poor choices. Sometimes, by waiting, the price may go down or a different or better option comes up. Shop around and find the best price. By comparison shopping, you may find a better value or a different price. You may also decide that there is a better option that is less expensive. Look for alternatives. Do you really need a new car? Could you buy a used car? Or take the bus or car pool? Could you buy at garage sales, flea markets, or thrift shops? You can change the way you save and the way you spend by taking simple steps. Change your habits. If, for example, you smoke, try to cut back at least 2 packs of cigarettes a week. This will save you about $10-$15. If you drive to work, think about walking to work or care pooling one or two days a week instead. If you’ve cut your expenses back as far as possible and still don’t have enough income to cover them, you will have to increase your income. Some employers may allow you to work over time or extend your hours. Another option is to get a part time job in the evenings or on weekends. Some part time jobs can be done at home such as child or elder care. Look for ways you can barter or swap with others. For example, your friend may watch your children after school while you work if you cut her hair and do her nails. No money is involved, but you each eliminate an expenses. Your neighbor may mow your lawn each week if you help paint their house. Another way to increase your income is to develop and use new skills. For example, if you learn to use a computer, you may be able to get a part time job doing data entry or preparing the church newsletter. If you are an artist, you could make holiday cards and sell them. If you learn to do household repairs, you could earn money fixing things for other people. Remember – to balance your budget, you must reduce expenses and increase income. Extra money should go into savings.
Use your creativity to find ways to save money. Pay attention to coins and change laying around the house or in the laundry. Put it in a jar and use it to purchase simple treats such as a movie rental. Use coupons for items that you buy regularly. Watch for sales and ask sales clerks when prices will be reduced. Buy used items rather than new. Shop at consignment stores, garage sales, and thrift shops. Or swap items with friends and family. Invest time rather than money. For example, bake a birthday cake rather than buying one. Paint old furniture rather than buying something new. Do your own nails or mow your own lawn. Walk instead of driving or taking the bus. Tap all the opportunities your employer may offer. Direct deposit, credit unions, savings plans, retirement plans, and 401K programs are only a few. Some employers also offer discounts at movie theatres and museums or sponsor reduced rate child care of activities for children and families.
Managing Your Money <ul><li>Determine wants and needs. </li></ul><ul><li>Set your goals. </li></ul><ul><li>Understand what a budget is. </li></ul><ul><li>Create your own budget. </li></ul><ul><li>Pay yourself first. </li></ul>
Managing Your Money is Knowing <ul><li>Who you are – habits. </li></ul><ul><li>What ’s most important. </li></ul><ul><li>Where you want to go – goals. </li></ul><ul><li>How you want to get there – plan. </li></ul>
Net Worth <ul><li>Assets minus Liabilities. </li></ul><ul><li>Assets can be your bank accounts, stocks and bonds. </li></ul><ul><li>Personal Assets can be retirement accounts, your car, your house and any collectibles. </li></ul><ul><li>Liabilities are your remaining mortgage, car loans, bank loans, student loans, credit card balances, and any other personal debts. </li></ul>
First Things First: Needs vs. Wants <ul><li>NEEDS = must have </li></ul><ul><ul><li>Impossible to do without. </li></ul></ul><ul><ul><li>Food, rent, utilities. </li></ul></ul><ul><li>WANTS = can live without or can postpone </li></ul><ul><ul><li>Possible to do without, or to cut back spending. </li></ul></ul><ul><ul><li>Entertainment, travel, clothing, fast food </li></ul></ul>Fill your NEEDS BEFORE your WANTS
What is a budget? <ul><li>A plan for spending and saving. </li></ul><ul><li>A tool for managing money for today and the future. </li></ul><ul><li>Can be a detailed plan for everything financial in your life. </li></ul><ul><li>A plan for major expenses and purchases. </li></ul><ul><li>A way to track your spending, expenses and savings. </li></ul>
What does budgeting mean? <ul><li>It does not mean... </li></ul><ul><ul><ul><li>Creating a strict, inflexible plan, or following rules. </li></ul></ul></ul><ul><ul><ul><li>Denying yourself fun things. </li></ul></ul></ul><ul><li>But, it does mean... </li></ul><ul><ul><ul><li>Making conscious, smart decisions. </li></ul></ul></ul><ul><ul><ul><li>Establishing a plan that works for you. </li></ul></ul></ul><ul><li>That way, you have these advantages: </li></ul><ul><ul><ul><li>Help to manage spending and expenses. </li></ul></ul></ul><ul><ul><ul><li>Help reduce or eliminate debt. </li></ul></ul></ul><ul><ul><ul><li>A way to increase your future assets. </li></ul></ul></ul>
What can you do with a budget? <ul><li>Use it as a plan for how you’re going to spend and save money. </li></ul><ul><li>Allocate, or “decide on,” a certain amount of money for each category of expense. </li></ul><ul><li>Track your spending. </li></ul><ul><li>Find opportunities to eliminate or choose a different brand. </li></ul><ul><li>Include irregular expenses (such as insurance). </li></ul><ul><li>Keep it flexible. </li></ul>
How do you create a budget? <ul><li>Base it on your history of spending. </li></ul><ul><li>Use past receipts, credit card bills, and your check book register. </li></ul><ul><li>Start tracking your spending now for two months. </li></ul><ul><li>Write down everything you spend, including: </li></ul><ul><ul><li>Regular expenses you have each day, each week, every month, etc. </li></ul></ul><ul><ul><li>Irregular expenses, such as property insurance, school registration or tuition payments, prescriptions, and insurance premiums. </li></ul></ul><ul><ul><li>Remember to include all incidental expenses like newspapers, magazines, gum, coffee, soft drinks, etc. </li></ul></ul>
Figure Out Your Income <ul><li>Know gross vs. net. </li></ul><ul><li>Recognize monthly irregularities. </li></ul><ul><li>Tap your talents. </li></ul><ul><li>Trade service for donations. </li></ul>
Figure Out Expenses <ul><li>List expenses. </li></ul><ul><li>Fixed or flexible? </li></ul><ul><li>Make savings an expense . </li></ul><ul><li>Review continually and make changes when needed. </li></ul>
Pay Yourself First <ul><li>Setting aside money now is the best way to reach goals for your future. </li></ul><ul><li>Put a set amount into savings. </li></ul><ul><li>Do regularly. </li></ul><ul><li>View this as an expense. </li></ul>
Build an Emergency Fund <ul><li>Save money to pay for emergency expenses. </li></ul><ul><li>You will need to pay your expenses if you are temporarily unemployed, or become ill. </li></ul><ul><li>Building an emergency fund It should eventually cover 3 months worth of expenses . </li></ul><ul><li>You don’t have to create it all at once, but it should be a savings priority. </li></ul>
<ul><li>Cut Expenses </li></ul><ul><li>Increase Income </li></ul><ul><li>Focus on needs </li></ul><ul><li>Cut back on wants </li></ul><ul><li>Wait - used </li></ul><ul><li>Shop around </li></ul><ul><li>Look for alternatives </li></ul><ul><li>Change habits </li></ul><ul><li>Work overtime </li></ul><ul><li>Get part time job </li></ul><ul><li>Barter or swap </li></ul><ul><li>Develop and use skills </li></ul>
Simple Ways To Save <ul><li>Pay attention to coins & change. </li></ul><ul><li>Use coupons and sales. </li></ul><ul><li>Buy used . </li></ul><ul><li>Invest time rather than money. </li></ul><ul><li>Tap employee plans. </li></ul>
In closing <ul><li>Questions ? </li></ul><ul><li>Other classes on Banking and Credit and ID Theft are offered too. </li></ul><ul><li>Thank you for your time and attention. </li></ul>