Balancing the Budget:Balancing the Budget:Fitting It All In!Fitting It All In!

““What does it mean to be What does it mean to be financially responsible?”financially responsible?”

What was the last big purchase you made?

What decisions and research went into the purchase?

Are you still happy with the purchase?

What is Budgeting?What is Budgeting?

“A budget is a written record ofthe money that flows in and out

ofyour household every month.”

Then --

You have to decide …

Do You Need It or Do You Want It?

Needs are the very basic things wemust have to survive.Wants are the things that makelife more interesting and fun, but you could live withoutthem if you had to.

What are spending plans?What are spending plans?Spending Plan

◦A financial statement used to assist in money management comprised of income and expenses

Income - money earned or receivedExpenses - money spent

◦Fixed Expenses - stay the same every month, due on a certain date

◦Flexible Expenses - vary month to month, can be decreased or eliminated

Creating a Personal BudgetCreating a Personal Budget

Track your expensesFigure out the

amount of money you’re spending

What do you have to spend?

What are you spending that is not a necessity?

Two Types of ExpensesTwo Types of Expenses

1. Essential or Fixed expenses – HAVE to have in order to live: mortgage or rent, insurance for auto & home, car payments, taxesEssential or Variable expenses:car maintenance, gas, food, electricity, phone

2. Non-essential expenses–DON’T HAVE to have in order to live: Video games, books, movies

Monthly Budget ExampleMonthly Budget Example

Major expenditure Major expenditure PercentagesPercentages

Identify the average percent of net income spent in a specific category

Use as a guide when making spending decisions◦ Percentages should be

adjusted to meet individual values, needs and wants

Other includes items such as:◦ Clothing◦ Personal care◦ Entertainment◦ Donations

Disposable vs. Discretionary

Knowing the difference is important to budgeting

Disposable Income

Gross Income minus Taxes

This money leftover goes to the Essential Expenses.

Let’s list some…remember the two categories under Essential Expenses?

Discretionary Income

Discretionary Income = Gross Income - Taxes - Necessities

Or Discretionary Income = Disposable Income - Essential Expenses

How will you spend yours?

Connection to Your Budget

Keep in mind the difference between Disposable Income and Discretionary Income when doing your budget.

Review for the class:1. What is discretionary income?2. What is disposable income?

Federal Taxes

First tax bracket: $9,075 X 10% =

$907.50

Second tax bracket: ($19,000 – $9,075) X 15%  =

$1,488.75

Total income tax: $2,396.25

Here’s how tax brackets work, an exampleSay you’re single with no dependents, and your taxable income is $9,000.

What if your taxable income is $19,000?

•As a Single filer, you’re now in the 15% tax bracket. That doesn’t mean you pay 15% on all your income, however.You pay 10% on the first $9,075, plus 15% of the amount over $9,075.Here’s the math:

Social Security & Medicare

Payroll Tax Responsibilities

Employer Pays & Employee Pays

Social Security withholding = 6.2%Medicare withholding = 1.45%

State Tax – progressive taxesState Tax – progressive taxes

InsuranceInsurance

Heath Disability Life

What is it?

Provides financial protection for injury and illness

Replaces a portion of income if unable to work because of injury or illness

Provides a specific sum of money to beneficiaries if an individual dies

When is it

needed?

Always!Almost always

If others depend upon an individual for financial support (families with children)My be provided by the employerMy be provided by the employer

Balancing ActBalancing Act

At the end of the month, break everything down into categories.

Is your income greater than your expenses?

YES! – Great, then you can save.NO! – There’s a problem!

Expenses Greater Than Expenses Greater Than Income?Income?What can you cut

out?

What To Do with Your What To Do with Your SurplusSurplusPlan ahead and save

when you can!Have financial goals:

college, new car, vacation, paying off credit cards, saving for a home, etc.

Your Detailed Planned Your Detailed Planned Budget Budget