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CHAPTER 8 8.1 Budgeting

CHAPTER 8 8.1 Budgeting. Do you have unlimited resources to buy all the things you want? To achieve financial success, you will have to plan and work for it. Two key elements of financial planning budgeting financial records. What is disposable income?

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CHAPTER 8 8.1 Budgeting

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  1. CHAPTER 88.1Budgeting

  2. Do you have unlimited resources to buy all the things you want? • To achieve financial success, you will have to plan and work for it. • Two key elements of financial planning • budgeting • financial records

  3. What is disposable income? The money you have left to spend or save after taxes have been paid. Think about it: ALL THE MONEY YOU RECEIVE IS SPENT, SAVED, OR INVESTED.

  4. What is a financial plan? A set of goals for spending, saving, and investing the money you earn.

  5. Financial Planning helps you to do what? -Evaluate options -Prioritize options -Avoid wasteful spending -Organize financial resources -Avoid money worries

  6. What is the first step toward achieving financial goals? Preparing a budget What is a budget? A spending a saving plan based on your expected income and expenses.

  7. In a budget, money coming in must equal what? Money going out(spending plus savings) Must a budget balance? Yes

  8. Steps to prepare a budget: 1 – Estimate your total expected income 2 – Decide how much of your income you want to save 3 – Estimate your expenses 4 – Balance your budget

  9. See monthly budget on page 177. Mike and Jennifer Harris estimated their expected income: adding their paychecks and anticipating future interest earned on savings and earnings on investments for a total expected income of $3500 a month or $42,000 a year.($3500 times ?)

  10. What is the difference between fixed and variable expenses? Fixed are costs you are expected to pay at specific times regardless of other events. You cannot change them without making a major revision in your lifestyle. (Most financial advisers suggest fixed expenses should make-up no more then 50 to 60 percent of take-home pay.

  11. Variable expenses are costs that vary in amount and type, depending on events and the choices you make. • Note: With fixed expenses, you tie up present as well as future income. • Is savings an example of Variable or Fixed expense? (house pymt, car loan, utilities?)

  12. What four types of personal records should you keep? -Income and expense records -A Net Worth Statement -A Personal Property Inventory -Tax Records

  13. Records of Income and Expenses • W-2 • Bank Statements • Receipts • (store these documents in a safe place)

  14. Net Worth Statement • What you Own (Assets) • What you Owe (Liabilities) • The difference between the two (Net worth) • Assets = Liabilities plus Net Worth 10 (Assets) = 6 (Liab)+ 4(net worth) or 10 (Assets)– 6(liab) = 4(net worth)

  15. Personal Property Inventory • A list of valuable items you own • Their purchase price • Their approximate current value When might this statement be especially useful? In case of a fire, theft, or property damage

  16. If someone was verifying your financial status for credit approval, what statement would be more beneficial, A Networth Statement or a Personal Property Statement?

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