Budget Unit. Dollars and Sense

Transcription

1 Unit Dollars and Sense

2 A budget is a financial plan. From bougette, an old French word for purse

3 Governments, businesses, churches, schools and families all make budgets. A budget lists the money they expect to get, and how they expect to use it, for a given period of time (usually a month).

4 Why do we budget? Scarcity Choices and Priorities

5 Key Terms Income- Amount of money that an individual or business earns in a given period. Expense- Something spent or required to be spent.

6 Key Terms Savings- Income not used; money set aside. Can accumulate when income is higher than expenses for an individual. Debt- Money that is owed. Can accumulate when expenses are higher than income for a business or individual.

7 So, a family budget predicts income and expenses for a typical month. If our expenses are less than our income, we can save or invest. If our expenses are more than our income, we go into debt.

8 For the Project everyone got a job and income assigned to them. You got a yearly figure, and a monthly figure (yearly divided by 12) for that job. We will create a budget with the monthly income figure.

9 Next, we need to have a list of the expenses that we predict. Let s brainstorm a list of the things that your family will need to include in your budget.

10 Housing Utilities (power, gas, and water) Food/Grocery Car Car Insurance Entertainment Income Tax Charity Cable/Internet Phone Clothing Other Savings

11 Everyone who works pays taxes, which are payments to government. We have amounts deducted for federal income taxes, state income taxes, Social Security taxes, and Medicare taxes. We are going to use the IRS Tax Tables for figuring taxes.

12 Taxes

13 Housing Next, we need to budget for a place to live. There is a common guideline that we will use for our project. The MAXIMUM that we will spend on housing is 3x our yearly income. Example $50,000 yearly income X 3 = $150,000 max for housing If you make $50,000/year, you should not spend less than $100,000 on your house.

14 Housing The two main choices for housing are to rent a place (a house, apartment, or condo, usually), or to buy your own house. Renting is easy and gives you flexibility, but the expense of renting never goes away. Buying a home can be a complicated process, but eventually you can pay for it completely, and the monthly payments will stop. For the sake of the project, we will buy a home.

15 Housing Almost everyone who buys a house gets a mortgage. A mortgage is a loan, which you repay with monthly payments over a long period of time (usually 15 to 30 years). The mortgage payments will include interest. Interest is the price of borrowing money. Getting the interest is the reason the lender wanted to give you the loan.

16 Housing Most people also pay their insurance and their property taxes with their mortgage payment every month. Insurance pays if something like a fire or tornado damages your house. Property taxes pay for schools, roads, police and fire protection, and other services that we need.

17 Housing Let s find a place to live. Use zillow.com or trulia.com to pick out a place that fits your budget. The estimates provided on the next slide to help pick the house price you want and can afford, but remember it should be between 2x and 3x your yearly pay.

18 Mortgage Estimates House price Monthly Cost (includes taxes and insurance) $50,000 $236 $75,000 $355 $100,000 $473 $150,000 $709 $200,000 $946 $250,000 $1,182 $300,000 $1,418 $400,000 $1,891 $500,000 $2,364 $1,000,000 $4,728

19 Next, we need to choose a car. Your car should cost much less than your housing. We are going to assume that you have borrowed money to buy a car, and have to make a monthly payment on that car loan.

20 Find a car on cars.com or another site that is about 6 months salary. Use the Google Car Calculator for the exact amount.

21 Classwork/Homework: Complete the rest of the categories with the money that you have left in your monthly income. Try to get a parent or other adult to help estimate what the other amounts can be.