Creating a budget is Part 2 of the 6-part Money Matters class, created by the Athens-Clarke County Library. Money Matters is part of Smart investing @ your library®, and is brought to you by a joint grant from the American Library Association and FINRA, the Financial Regulatory Authority Foundation.

1. Money Matters
class 2

2. What is a Budget?
A budget is an
estimate of expected income and
expenses for a given period in the
future

3. Why Prepare a Budget?
 A budget is a tool to help you understand
where your money goes.
 A budget allows you to decide how much
and when you spend your income.
 A budget allows you to make and reach
your financial goals.
 A budget is the cornerstone of a solid
financial future.

4. “Budgets are all about financial freedom.
Without a plan for saving and spending,
you’ll never make the most of your income
– no matter how much money you earn.
“Budgets are very empowering”
“Budgets create financial security”
“They don’t lead you away from something,
they lead you toward your financial goals”

5. Tools for Making a Budget
Option 1 - Pencil, Paper and calculator
Option 2 - Spreadsheet Software
 Microsoft Excel, i Work Numbers
Option 3 - Money Management Software

Quicken
Option 4 - Spending Management Software Online
 YNAB – You Need A Budget
 Mint.com

6. BUDGET
What do I need to prepare a budget?

List of income
 List of expenses, including debt payments

7. Types of Expenses
 Fixed Expenses:
remain the same each month
 Variable Expenses:
vary from month to month
 Periodic Expense:
Occur only once or twice a year

8. Fixed Expenses
(amount Actual
Notes
stays the same each Expense
month)
Rent/Mortgage
Homeowner's /
Renter's Insurance
Car Payment
Car Insurance
Loan #1
Child Support
Day Care
Cable TV
Internet
Total Fixed Expenses

9. Variable Expenses Budgeted Expense Actual Expense
Credit Card
Electric
Gas
Telephone
Cell Phone
Water / Sewer
Groceries (Food Only)
Eating out
Household / Misc
Tobacco / Alcohol
Gasoline
Bus / Parking
Laundromat / Dry Cleaning
Barber/Beauty Shop
Newspapers / Magazines
Allowance/Spending Money
Recreation
Pet Expenses
Church/Charity
Postage
Total Variable Expenses

10. Monthly Expenses
 Include those items that are paid
periodically
 Annual Car Tag
- $144 / 12 = $12 per month

Quarterly Pest Control
- $90 / 3 = $30 per month

11. Budgeted Expense Actual Expense
Periodic Expense
Car Repair/Maintenance
Car Tag/Inspection
Doctor/Dentist
Medications/Prescriptions
Clothing/Shoes
Home Repair/Maintenance
Gifts
Total Periodic Expenses
Total Monthly Income
(+)
Total Monthly Expense
(-)
Total Extra/ Shortfall
(=)

12. Creating a Budget
1. Identify your net monthly income
2. Identify your monthly expenses
3. Monthly Income – Monthly Expenses =
 Income greater than expenses – savings $

Expenses greater than income – debt
3. Balance your Budget!

13. Things to Keep in Mind
1. Your budget should be tailored to YOUR
needs and goals
2. Be realistic
3. Save for the unexpected. It can and will
happen
4. Involve the entire family
5. Keep it simple
6. Don’t panic if your expenses exceed your
income

14. Evaluate and Reduce Spending
1. Is this expense absolutely necessary?
2. If not, can we do without it?
• Is it a want or a need?
1. If not, can you substantially reduce your
spending?
MONEY WORRIES...
Make a Budget and Stick to IT!

15. Budget Bombs
 Cut out all the fun stuff
 Be hit or miss with savings
 Overuse debit card
 Pay only the minimums on cards
 Live without emergency savings
 Spend more than you earn

16. Envelope System
1. Budget each paycheck
2. Determine which categories you will pay in
cash
3. Fill’er Up
4. Pay with cash and keep receipts
5. When it’s gone, it’s gone
6. Don’t be tempted by debit cards
7. Give it time
8. Have some FUN!

17. Setting Financial Goals
People don’t plan to fail, they fail to plan
People with a financial plan tend to:
$ save more money
$ feel better about their progress
$ make better financial decisions,
regardless of their income level.

18. Goal setting should be a family affair
Short-term Goals (2 years or less)
Mid-term Goals (within 2-5 years)
Long-term Goals (5 years or more)
Goal setting is a terrific motivator!

19. Examples
 Build an Emergency Fund
 Get your debt under control
 Save for a down payment on a car or
home
 Save for retirement
 Save for something important to you or
your family

20. Establishing an Emergency Fund
 1st goal of every family should be to establish
an emergency fund
 3-6 months expenses
 The basics are rent (mortgage), heat, lights,
phone, food and transportation to work
 Save each month until you reach your goal
 Keep the money in a safe easily available
account
 Leave your emergency fund alone

21. SMART
 Specific – what you want to achieve and why
 Measurable – how much money will you need to
save each month
 Attainable – when you want to achieve the goal
 Realistic – it can be achieved with the time and
money available
 Trackable – specific time frame

22. AMOUNT EACH
GOAL TYPE TIME AMOUNT
Month
Emergency
Fund Mid-term 2 years $2500.00 $104.00
Christmas
Gifts Short-term 12 months $600.00 $50.00
Down
Payment on
a house Long-term 5 years $12,000.00 $200.00

23. Money Habits of Millionaires
1. Millionaires buy used cars.
2. Millionaires make their kids take out loans
3. Millionaires do not see themselves as rich
4. Millionaires do not all own vacation homes
5. Millionaires tend to love what they do
6. Millionaires believe in delayed gratification
7. Millionaires track their money
8. Millionaires don’t need to flaunt their wealth
9. Millionaires shop with a list

24. Budget Example
Monthly Income $
Monthly Expenses
Rent $
Savings $
Car Payment $
Utilities $
Phone $
Food $
Fun $
Clothes $
Miscellaneous $
Total Expenses $

25. Savings Plan
SAVE, SAVE, SAVE
 Start now no matter how small your savings
 Pay yourself first, use automatic deductions
 Put your savings into a separate account that
does not have ATM access
 Put any pay raises, bonuses or tax refunds into
savings after you complete your emergency
fund.

26. Simple Interest
Interest Rate - the stated rate of interest paid each year
$1,000 x 6% (.06) = $60 per year
Value after 12 years = 1,720
$1,000 principal
$ 720 interest earned ($60 x 12 years)
$1,720

27. Compound Interest
APY YEAR
1
$1,000.00
$1,060.00
x
x
6%
6%
=
=
$ 60.00
$ 63.60
(Annual percentage yield) 2 $1,123.60 x 6% = $ 67.42
3 $1,191.02 x 6% = $ 71.46
4 $1,262.48 x 6% = $ 75.75
takes into account 5 $1,338.23 x 6% = $ 80.29
the compounding 6 $1,418.52 x 6% = $ 85.11
7 $1,503.63 x 6% = $ 90.22
effect of interest 8 $1,593.85 x 6% = $ 95.63
9 $1,689.48 x 6% = $ 101.37
10 $1,790.85 x 6% = $ 107.45
11 $1,898.30 x 6% = $ 113.90
12 $2,012.20

28. The Rule of 72 – calculate how many years
it will take for compounding to double your
money at a specified interest rate.
72 / interest rate = years to
double your money

29. For example, let’s say you have $1,000 and
you want to know how long it will take to
double your money @ 6% interest per
year.
72 / 6 = 12 years $2,000
If you deposited an additional $100 per year
into your account you would reach $2,000
in just 6 years!

30. The magic of compounding interest is that
you earn interest not only on the principal,
but also on the interest you accumulate
each year.

31. The Value of Time
Many people struggle to get from one paycheck to
the next, but not saving now will hurt you later.
$50 per month in a retirement account at 5%
interest will be worth
 $21,000 in 20 years
 $42,000 in 30 years
 $76,000 in 40 years