Budgeting and Spending Plans W!SE UNIT 2 W!se Unit 2
First Car and My Parents are Spenders
Everyone must make financial decisions. Identifying your financial goals and planning how to get the most from your money are part of personal financial planning. If you plan well and carry out those plans, you can reach your financial goals Failing to plan is planning to fail!
Set SMART Goals
Example of SMART Goals SMART - It s helpful to define your goals in a smart way: Specific I want to graduate from SUNY Brockport. Not I want to graduate from college. Measurable I need $2,500 a semester for tuition. Not I need some money for college. Action-oriented or Attainable I ll save $450 a month to pay for tuition from my part-time job. Not I ll save money for college costs. Realistic I will work at the golf course all summer to make money for college tuition. Not I ll get a job this summer. Time-bound I plan to graduate from SUNY Brockport within four years of my high school graduation. Not I ll plan to graduate from college. Think of your goals as what you want to be, do or have in other words where you want to GO.
Goal Time Frames
Vocabulary personal financial planning - Spending, saving, and investing money to assure a certain kind of lifestyle as well as financial security goals - Things to be accomplished (SMART goals) opportunity cost - What you give up when you make one choice instead of another, sometimes called a tradeoff
Steps in Financial Planning Determine your financial situation Develop your financial goals Identify possible courses of action Evaluate your Alternatives Implement a financial plan of action Review and revise your plan
Money Management money management - A method of planning to get the most from one s money Budget or spending plan - A plan specifying how money will be issued or spent during a particular period Purpose of a budget: 1. Establishes a plan to use limited income to meet wants and needs 2. Helps set priorities for spending and saving 3. Tracks money coming in and going out
More budget terms Expense - Amount of money used to buy or do something fixed expenses - Expenses that occur regularly and are regularly paid variable expenses - Expenses that change and can be controlled more easily than fixed expenses budget variance - difference between the budgeted amount and the actual amount that is spent surplus - extra money that can be spent or saved deficit - Situation that occurs when more money is spent than is earned or received
Preparing a Budget 1. Set your financial goals 2. Estimate your income 3. Budget for unexpected expenses and savings 4. Budget for fixed expenses 5. Budget for variable expenses 6. Record what you spend 7. Review spending and saving patterns
Budget for Unexpected Expenses and Savings Emergency fund - An account that is used to set aside funds to be used in an emergency, such as the loss of a job, an illness or a major expense. This should be 3-6 months of income in a savings account. As responsibilities grow, savings should increase to a 1-year fund. An emergency fund is an important goal for a full time employee. You should have an emergency fund BEFORE you start to invest. Savings: 1. PYF - Pay Yourself First 2. Retirement Savings
Income income The actual amount of money earned or received during a given period gross pay The total amount of money a worker earns for a specific time deductions Amounts that are taken from pay before a worker receives a paycheck net pay Gross pay minus deductions
Budget Example
Track Expenses and Compare to Budget
Balancing Your Budget EVALUATING THE BUDGET Strategies to reduce a budget, have discretionary income (luxuries), and spend less than is earned PURCHASING STRATEGIES Comparison shopping Negotiation Coupons Catalogs Internet shopping
Balancing a Budget Reduce spending leaks Examples: coffee, soda, impulse purchases Determine surplus (discretionary income) or deficit and what to do Use the Three Rs of Money Reality: Recognizing that unless you strike it rich somehow, you ll have limited amounts of time and money to use. Responsibility: If you handle your money wisely, you can do a lot of good for yourself and others. Restraint: Is when you have selfcontrol to save your money for future goals instead of spending it now.
Budget Factors Limited resources Infrequent expenses Charitable giving Variables acts of God, inflation, unemployment, illness Note that financial planning is an ongoing thinking process. The plan itself might be in writing, but it can and should change over time as your circumstances in life change.